Goods and Services Tax (GST):A Paradigm Shift in Indian Tax System

The political and economic case for GST is straight and simple: Income is taxed irrespective of source and use and therefore, consumption should also be taxed on the same principle. India has witnessed many reforms in indirect taxes over the past two decades with the replacement of state sales taxes by Value Added Tax (VAT) in 2005. Prior to VAT implementation, the tax structure was complicated due to the "cascading effect of taxes" whereby an item is taxed more than once from the production to the final retail sales stage. VAT was introduced to avoid this irrational tax system and taxes are paid on the "value added portion" by each producer and the hurdles of the cascading effect are done away with. Due to shortcomings in VAT, government realized the real need for harmonization of Goods and Services Tax (GST). This paper attempts to provide descriptive analysis of GST with reference to India.