Q11. Explain the salient features of the Constitution (One Hundred and First Amendment) Act, 2016. Do you think it is efficacious enough ‘to remove cascading effect of taxes and provide for the common national market for goods and services’?

Model Answer:

Introduction

The Constitution (One Hundred and First Amendment) Act, 2016, primarily introduced the Goods and Services Tax (GST) in India, a landmark reform in the country's taxation system. 

Body

The Key Features include:

  1. Introduction of GST: The Act facilitated the implementation of a comprehensive indirect tax regime, merging multiple taxes like excise duty, service tax, and VAT into a single tax structure. This aims to simplify the taxation process and enhance compliance.
  2. Dual GST Structure: The Act established a dual GST framework, consisting of Central GST (CGST) and State GST (SGST), allowing both the central and state governments to levy tax on the same taxable event. This mechanism is designed to eliminate the cascading effect of taxes.
  3. Compensation to States: To ensure that states do not suffer revenue loss during the transition to GST, the Act provides for compensation for five years, based on the revenue collected before GST implementation. This aims to create a stable financial environment for states.
  4. Formation of GST Council: The Act established a GST Council, comprising the Union Finance Minister and State Finance Ministers, to make recommendations regarding GST rates, exemptions, and other related matters. This promotes cooperative federalism.
  5. Threshold Limits: The Act specifies threshold limits for GST registration, exempting small businesses with annual turnover below a certain amount from GST. This helps in easing the compliance burden on small enterprises.

Efficacy in Removing Cascading Effect of Taxes

The implementation of GST has shown promising results in reducing the cascading effect of taxes. Before GST, taxes were levied on various stages of production and distribution, leading to a tax-on-tax scenario. GST, by allowing input tax credit across the supply chain, ensures that taxes are only levied on the value addition at each stage.

For example, in the pre-GST regime, a manufacturer paid excise duty on production and dealers paid VAT on sales, resulting in a higher tax burden. Post-GST, a manufacturer can claim the input tax credit for the excise duty paid, thus lowering the overall tax liability.

Conclusion

In conclusion, the Constitution (One Hundred and First Amendment) Act, 2016, significantly contributes to creating a common national market for goods and services. While challenges remain in the form of compliance and enforcement, the overall framework of GST marks a substantial shift towards a more streamlined and efficient tax system in India. With ongoing efforts for refinements and simplifications, GST has the potential to enhance economic growth and contribute to a unified market.

‍

Instant Mains Evaluation with SuperKalam

✅ Now that you have gone through the model answer, try practicing and writing it in your own words and evaluate it instantly with SuperKalam here - Evaluate Mains Answer instantly

Read more blogs