Introduction to Goods and Services Tax Short Answer Type Questions

Question 1.
What are the objectives of GST?
Answer:
The main objectives of GST are:

There will be uniformity in the country as GST follows the concept of One Country – One Tax.
To helps in providing a consumption based tax instead of Manufacturing.
Uniform GST Registration, payment and Input tax Credit becomes very easy.
To eliminate the cascading effect of Indirect taxes on single transaction.
Subsume all indirect taxes at Centre and State Level under.
To reduce tax evasion and fraud.
Increase productivity in the country to a great extent.
It main aim is to Increase Tax to GDP Ratio and revenue surplus.
Helps in increasing Compliance.
It helps in reducing economic distortions in the country thereby maintaining economic stability.

Question 2.
What are the features of GST?
Answer:
The main features of GST are as follows:
(a) Subsuming of Central Taxes:
It is provided that GST shall subsume various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services.

(b) Subsuming of State and Other Taxes:
It is provided that GST shall also subsume Taxes such as State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State Cesses and surcharges in so far as they relate to supply of goods and services.

(c) Dispensing with the concept of ‘declared goods of special importance’:
Clause 286(3) of the Bill has been omitted in the Bill in order to dispense with such concept. Earlier, this clause empowered the Parliament to restrict and provide such condition with respect to any state laws which sought to levy tax on sale and purchase of such goods declared as of special importance and/or a tax on sale or purchase concerning transactions of works contract, hire-purchase, and transfer of right to use any goods as specified in Article 366(29A) (b), (c), (d).

(d) Integrated Goods and Services Tax (IGST):
Clause 269A of the Bill provides for levy of Goods and Services Tax on supplies in the course of inter-State trade or commerce. Such Tax shall be levied and collected by Government of India and thereafter shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. Import of goods or services would be treated as inter-state supplies and thus it would be subject to IGST in addition to applicable custom duties. Exports would be zero rated.

(e) Distribution of GST:
Clause 270(1A) of the Bill provides that the goods and services tax levied and collected by the Government of India, except the tax apportioned with the States under clause 269A (1) shall also be distributed between the Union and the States in the manner provided in clause 269A(2).

(f) No Surcharge levy on GST:
Clause 271 of the Bill which empowers the Parliament to increase any duties or taxes by surcharge for the purpose of Union has been amended in the bill by providing an exception to Goods and Services tax under Clause 246A.

Question 3.
What is the main purpose of GST?
Answer:
The two important purposes of GST are:
(a) Single Umbrella Tax Rate: GST shall replace a number of indirect taxes being levied by Union and State Governments.

(b) Removing Cascading Effect: GST is intended to remove “Tax on Tax Effect” and provide for common national market for Goods and Services.

Question 4.
Explain the action plan of GST?
Answer:
The action plan which was introduced by GST is as under:

List number of Taxes, cesses, and surcharges to be subsumed under GST.
Preparation of list of goods and services subject to, or exempt from GST.
Determination of threshold limit of turnover for application of GST.
Fixation of rates.
Preparation of model GST Laws, principles of levy, apportionment of tax benefits.
Firming up Place of supply Rules.
Recommend on Compensation to states losing on revenue post implementation of GST, subject to maximum time limit of 5 years.
Passage of SGST laws by all State legislatures.
Recommendation of Model GST Rules by GST Council.
Notification of GST Rules.
Recommendation of GST Tax rates by GST Council,
Establishment and upgradation of IT framework.
Meeting implementation challenges.
Effective coordination between Centre & State tax administrations.
Reorganization of field formations.
Training of Officials.
Outreach programs for all stakeholders including Trade & Industry.

Question 5.
Explain in detail the benefits of GST.
Answer:
CBEC has released few advantages which would accrue to Citizens, Trade/ Industry and the Central/State Government with the introduction of GST. The advantages to the Citizens are listed as:

Simpler tax system.
Reduction in prices of goods and services due to elimination of cascading.
Uniform prices throughout the country.
Transparency in taxation system.
Increase in employment opportunities.

The advantages accruing to the industry are:

Reduction in multiplicity of taxes.
Mitigation of cascading/double taxation.
More efficient neutralization of taxes especially for exports.
Development of common national market.
Simpler tax regime-fewer rates and exemptions.

The advantages accruing to the Central/State Government are:

A unified common national market to boost Foreign Investment and “Make in India” campaign.
Boost to export/manufacturing activity, generation of more employment,leading to reduced poverty and increased GDP growth.
Improving the overall investment climate in the country which will benefit the development of states.
Uniform SGST and IGST rates to reduce the incentive for tax evasion.
Reduction in compliance costs as no requirement of multiple record keeping.

Question 6.
Which of the existing taxes are proposed to be subsumed under GST?
Answer:
The GST would replace the following taxes:
(i) Taxes currently levied and collected by the Centre:

Central Excise duty
Duties of Excise (Medicinal and Toilet Preparations)
Additional Duties of Excise (Goods of Special Importance)
Additional Duties of Excise (Textiles and Textile Products)
Additional Duties of Customs (commonly known as CVD)
Special Additional Duty of Customs (SAD)
Service.Tax h. Central Surcharges and Cesses So far as they relate to supply of goods and services

(ii) State taxes that would be subsumed under the GST are:

State VAT
Central Sales Tax
Luxury Tax
Entry Tax (all forms)
Entertainment and Amusement Tax (except when levied by the local bodies)
Taxes on advertisements
Purchase Tax
Taxes on lotteries, betting and gambling
State Surcharges and Cesses so far as they relate to supply of goods and services

The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.

Question 7.
Why was the Constitution of India amended recently in the context of GST?
Answer:
The fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale, of goods. In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy service tax.

Introduction of the GST required amendments in the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (one hundred and first amendment) Act, 2016 recently for this purpose. Article 246A of the Constitution empowers the Centre and the States to levy and collect the GST.

Question 8.
What principles were adopted for subsuming the taxes under GST?
Answer:
The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:

Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.
Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
The subsumation should result in free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
Revenue fairness for both the Union and the States individually would need to be attempted.

Question 9.
Explain the features of GST laid down by the Constitution Amendment Act.
Answer:
The main features laid down by the constitution Amendment Act are:

Concurrent jurisdiction for levy & collection of GST by the Centre (CGST) and the States (SGST)
Centre to levy and collect IGST on supplies in the course of interstate trade or commerce including imports
Compensation for loss of revenue to States for five years
GST on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas & aviation turbine fuel to be levied from a later date on recommendations of Council

Question 10.
Explain the basic challenges In the Implementation of GST.
Answer:
The main challenges in implementation of GST include:

Uniformity in operations.
Increase in compliance cost for business.
Avoidance of cascading effect cornerstone of GST- Seamless Credit- But I ‘See less credit”.
RCM pressure
legal restrictions
Discretionary disallowance
Exemption/ threshold may distort RNR & GST.
Effectiveness of GST Council and adherence to its recommendations.
Efficacy of GSTN.
Tax administration no mention in any policy docs.

Question 11.
What are the major challenges which INDIA faces when in adopts GST?
Answer:
GST will be the biggest reform in Indian taxation since 1947, but there are many challenges for its successful implementation. These are as under:
(a) Passing of Bill in Rajya Sabha: Since Central Government is not having sufficient majority in the Rajya Sabha. Thus, it will have to ensure safe passage as it will not be cake-walk for the Union government to pass the Bill in the Upper House of Parliament.

(b) Consent of States: For implementing it is critical that GST bill is passed by the respective state Governments in state assemblies so as to bring majority. This is a herculean task.

(c) Revenue Neutral Rate (RNR): It is one of Prominent Factor for its success. We know that in GST regime, the government revenue would not be the same as compared to the current system. Hence, through RNR Government is to ensure that its revenue remains the same despite of giving tax credits.

(d) Threshold Limit in GST: While achieving broad based tax structure under GST, Both empowered committee and Central Government must ensure that lowering of threshold limit should not be a “taxing” burden on small businessmen in the country.

(e) Robust IT Network: Government has already incorporated Goods and service tax network (GSTN). GSTN has to develop GST portal which ensure technology support for GST Registration, GST return filing, tax payments, IGST settlements etc. Thus there should be a robust IT backbone.

(f) Extensive Training to Tax Administration Staff: GST is absolutely different from existing system. It, therefore, requires that tax administration staff at both Centre and state to be trained properly in terms of concept, legislation and Procedure.

(g) Additional Levy on GST: The Purpose of additional Levy is to compensate states for loss of revenue while moving to GST. We acknowledge that fundamental purpose of GST is to make “INDIA” as one state where interstate movement of goods is common. In this situation, it would defeat the very purpose of GST in the country.

Question 12.
Explain in detail the framework of GST.
Answer:
The frame of GST can be divided into two:
1. Legislative Framework:
There is single legislation – CGST Act, 2017 – for levying CGST. Similarly, Union Territories without State legislatures [Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu and Chandigarh] will be governed by UTGST Act, 2017 for levying UTGST. States and Union territories with their own legislatures [Delhi and Puducherry] have to enact their own GST legislation for levying SGST.

Though there would be multiple SGST legislations, the basic features of law, such as chargeability, definition of taxable event and taxable person, classification and valuation of goods and services, procedure for collection and levy of tax and the like would be uniform in all the SGST legislations, as far as feasible. This would be necessary to preserve the essence of dual GST.

2. Regulatory Framework of GST:
A new set up by Government of India named as ‘GST Council’. GST Council constituted w.e.f. 12.09.2016.
The GST Council consists of –

the Union Finance Minister (as Chairman),
the Union Minister of State in charge of Revenue or Finance, and
the Minister in charge of Finance or Taxation or any other Minister, nominated by each state government.

All decisions of the GST Council will be made by three fourth majority of the votes cast; the centre shall have one-third of the votes cast, and the states together shall have two-third of the votes cast.

Threshold limit for exemption to be ₹ 20 lakh (₹ 10 lakh for special category States).
Compounding threshold limit to be ₹ 50 lakh – not available to interstate suppliers, service providers (except restaurant service) & specified category of manufacturers.
Government may convert existing area based exemption schemes into reimbursement based scheme.