What is/are the most likely advantages of implementing 'Goods and Services Tax (GST)'?It will replac

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UPSC Prelims is a competitive examination conducted in India. This question is from the 2017 UPSC Prelims Economy paper.

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Question

What is/are the most likely advantages of implementing 'Goods and Services Tax (GST)'?It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.It will drastically reduce the 'Current Account Deficit' of India and will enable it to increase its foreign exchange reserves.It will enormously increase the growth and size of 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 Answer: A — 1 onlySolution:Statement 1 — GST replaces multiple taxes and creates a single market: This is correct. GST (implemented from 1 July 2017) is one indirect tax for the entire nation. It subsumed numerous central taxes (Central Excise, Service Tax, CST, etc.) and state taxes (VAT, Entry Tax, Octroi, etc.), creating a unified national market. This eliminates the 'cascading effect' of tax-on-tax, reduces compliance burden, and simplifies the tax structure. ✓Statement 2 — GST will drastically reduce Current Account Deficit: This is incorrect. GST primarily affects domestic trade and indirect taxation. The Current Account Deficit (CAD) is influenced by factors like the trade balance, remittances, and invisibles (services, investment income). There is no direct or dramatic link between GST implementation and CAD reduction. ✗Statement 3 — GST will enable India to overtake China: This is incorrect. While GST can improve GDP by making trade more efficient, claiming it will 'enormously increase growth' and help India overtake China is an exaggerated assertion not supported by economic evidence. GST is one among many structural reforms, and GDP catch-up with China involves many more complex factors. ✗Why other options are incorrect:Options B, C, D: All include Statements 2 or 3 which are factually overstated or incorrect.Key Concept: GST in India has a dual structure (Central GST + State GST) with an Integrated GST for inter-state transactions. The GST Council (chaired by the Union Finance Minister with state finance ministers) decides rates and policies. GST has four main rate slabs: 5%, 12%, 18%, and 28%. Key benefits include: elimination of cascading taxes, improved ease of doing business, formalisation of the economy, and better tax compliance through the GSTN (GST Network) technology platform. This question tests analytical understanding — separating genuine advantages from exaggerated claims.

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More Questions from Taxation – Direct & Indirect Taxes, GST

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More Questions from Taxation – Direct & Indirect Taxes, GST

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