The previous indirect tax regime created various complexities, which forced the Government to overhaul the earlier indirect tax system and introduce a new tax system throughout India with an aim to curb the cascading effect of other indirect taxes.

There were various shortcomings under the previous regime, for instance, cascading effect, multiple statutes, multiplicity of taxes, improper set of system, difficulty in administration due to multiple department etc.

GST is in consonance with the fiscal federalism in India and one of the biggest tax reforms in the country and has been implemented with an aim to simplify and rationalize indirect tax structure in India.

The rationale behind enacting the new taxation regime i.e., GST can be summarized as under:-

1.         To realize the ‘One Nation, One Tax’ concept – The benefit of having a single tax is that each state applies the same rate to a specific product or service. The central government sets the rates and rules, making tax administration easier. Overall, it’s a single indirect tax compliance system. In a nutshell, GST has simplified the tax structure relating to goods and services and the tax compliance procedure.

2.         Subsume the majority of India’s indirect taxes – GST  was implemented with a view to merge all of the major indirect taxes (Service tax, Value Added Tax, Central Excise, and other indirect taxes) into the GST as it considerably lowered the cost of compliance on taxpayers while also making tax administration easier for the government.

3.         To eliminate the taxation’s cascading impact – Under GST, only the net value contributed at each level of the supply chain is taxed. This has aided in the elimination of the tax cascade effect and the smooth flow of input tax credits across both products and services. Now, full tax credit on inputs is permissible, subject to exceptions carved out in the form of block credit.

4.         To put a stop to tax dodging – India’s GST regulations are considerably stricter than any of the country’s previous indirect tax legislation. Input Tax Credit is allowed subject to fulfillment of presecribed conditions. The emergence of e-invoicing has also strengthened this goal.

5.         To broaden the base of taxpayers – GST has boosted the number of tax-registered enterprises since it is a consolidated tax that applies to both goods and services. Furthermore, stronger regulations governing input tax credits have aided in the taxation of certain unorganized industries.

6.         Online procedures for ease of doing business – Previously, taxpayers had to interact with a variety of tax authorities to comply with each tax legislation. Furthermore, while submitting returns was done online, the majority of the evaluation and refund procedures were done offline. GST processes are now nearly fully completed online. From registration to return filing to refunds to e-way bill production, everything is done with the touch of a mouse. It has greatly aided the general ease of doing business in India and greatly eased taxpayer compliance.

7.         A better logistics and distribution system – Multiple paperwork for the provision of products is reduced by a single indirect tax system. GST cuts transportation cycle times, increases supply chain and turnaround times, and encourages warehouse consolidation, among other things. The elimination of interstate checkpoints under the GST e-way bill system is most advantageous to the industry in terms of boosting transit and destination efficiency. Finally, it aids in the reduction of high logistics and warehousing expenses.

8.         To boost consumption by promoting competitive pricing– Under the former regime, the price of products in India was greater than in worldwide markets due to the cascading impact of taxes. Even between states, lower VAT rates in some states resulted in a disparity in purchases in those states. The uniformity of GST rates has aided overall price competitiveness in India. As a result, consumption has grown and revenues have climbed, achieving yet another essential goal.