What Is GST, And Why Was It Introduced?

What is GST?

GST is a unified tax levied on goods and services at every stage of production and distribution, ensuring that taxes are only paid on value addition, benefiting both businesses and consumers alike.

Why was GST Introduced?

GST was introduced in India on July 1, 2017, with the primary objectives of:

1. Unifying the Tax Structure:

GST replaced a plethora of indirect taxes that existed under the previous tax regime, such as VAT (Value Added Tax), Service Tax, Central Excise Duty, and various state taxes. 

This unification helps streamline the tax system and reduce the complexity associated with multiple tax structures.

2. Eliminating Cascading Effect:

Under the previous tax regime, taxes were levied on the value that included taxes paid at the previous stage, leading to a tax-on-tax scenario known as the cascading effect. 

GST eliminates this cascading effect by providing a comprehensive input tax credit mechanism.

3. Enhancing Ease of Doing Business:

GST simplifies the tax compliance process by standardizing tax rates, rules, and procedures across the country. 

This uniformity reduces compliance costs and complexities for businesses, making it easier to operate across different states.

4. Increasing Tax Revenue:

By broadening the tax base and improving compliance, GST aims to increase the overall tax revenue for the government. 

The comprehensive coverage and robust IT infrastructure help in better tracking and reducing tax evasion.

5. Boosting Economic Growth:

The reduction in tax burden and elimination of inefficiencies in the tax system are expected to enhance productivity and efficiency, thereby boosting economic growth. 

GST encourages a common national market, which can lead to economies of scale and more efficient supply chains.

6. Formalizing the Economy:

GST encourages businesses to become part of the formal economy due to the input tax credit benefits. 

This formalization helps in better tracking of economic activities and reduces the parallel economy.

7. Encouraging Exports:

GST provides relief on the taxes paid on exports, making Indian goods and services more competitive in the global market. 

The refund mechanism ensures that exports are zero-rated, further boosting the export sector.