Question 38 from UPSC CSE 2017 - Economics

Question

What is/are the most likely advantages of implementing 'Goods and Services Tax (GST)'?
1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
2. It will drastically reduce the 'Current Account Deficit' of India and will enable it to increase its foreign exchange reserves.
3. It will enormously increase the growth and size of the economy of India and will enable it to overtake China in the near future.
Select the correct answer using the code given below:

Accepted Answer

Correct Option: A. 1 only

Strategy: - Evaluate the plausibility and scope of each statement.
- Identify statements that are factually correct and align with GST's core objective of unifying the tax regime.
- Eliminate statements that are unrealistic, speculative, or make exaggerated claims about unrelated economic factors.
- Conclude by selecting the only statement that is justified and factually sound.

Key Info: Goods and Services Tax (GST) is a unified indirect tax regime implemented in India from 1 July 2017 through the 101st Constitutional Amendment Act, 2016. GST subsumed multiple central and state taxes like VAT, service tax, excise duty, central sales tax, octroi, and entry taxes, replacing them with a single tax structure and thus helping create a common national market.

GST is levied at the point of consumption, promotes seamless input tax credit, and aims to reduce 'tax on tax' (cascading effect).

**Administration and Structure**
- It is administered through a dual model: the Central GST (CGST), State GST (SGST), and Integrated GST (IGST) for inter-state transactions.
- The GST Council, headed by the Union Finance Minister, decides on tax rates and structure.

**Intended Advantages and Limitations**
- The main intended advantages are simplification of the indirect tax system, promotion of ease of doing business, and fostering a unified market across India.
- While GST may support economic growth by improving efficiency and compliance, it is neither designed to directly affect the Current Account Deficit nor to guarantee that India will overtake a specific economy like China—the latter depends on several macroeconomic and structural factors not limited to taxation policy.

Answer

Option B: 2 and 3 only

Answer

Option C: 1 and 3 only

Answer

Option D: 1, 2, and 3