Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based indirect tax system in India. It replaced various pre-existing taxes like central excise, service tax, VAT, and more, making it a significant reform in the Indian taxation system.
GST was hailed as one of the most substantial indirect tax reforms in independent India due to its unique composition and expected impact on the economy.
Achievements of GST:
- Increase in Taxpayers: The introduction of GST led to a substantial increase in the number of taxpayers, with over 1.4 crore registered under GST by 2023.
- Increased Compliance: The reduction in tax rates under GST incentivized higher tax compliance, as it eliminated the disincentives associated with the high tax rates prevalent in the pre-GST era. More than 120 crore GST returns have been filed since its inception in 2017, indicating improved compliance.
- Ease of Doing Business: GST simplified the tax structure, creating a business-friendly environment by easing tax norms and providing tax concessions to corporations.
- One Nation, One Tax: The unified tax system replaced the complex and inefficient multiple tax structures that existed across different states in India, reducing compliance costs and inefficiencies.
- Fiscal Federalism: The establishment of the GST Council, comprising both Central and State governments, has facilitated cooperative decision-making to enhance the functioning of this major tax reform.
Problems in the Current GST Regime:
- Federal Issues: The Central government faced challenges in fulfilling its commitment to compensate states for revenue shortfalls, as evidenced during the COVID-19 pandemic.
- Inverted Tax Structure: Some industries, such as paper and leather, continue to face an inverted tax structure under GST, leading to input credit accumulation.
- Taxing Medical Equipment: Certain essential items like vaccines, drugs, PPE kits, masks, ventilators, and concentrators remain taxable, impacting healthcare affordability.
- GST Collections: The anticipated growth in tax revenue has not materialized, and there appears to be stagnation in revenue growth.
- Problematic Tax Slabs: Despite efforts, GST has not been streamlined into a limited number of tax slabs, and issues related to sin taxes and exclusions like alcohol and petroleum products persist.
- Gaps in GSTN: The Comptroller and Auditor General (CAG) has pointed out shortcomings in the backend management of the GST Network (GSTN) in its audit report.
Way Forward for GST Reforms:
- Revenue Guarantee: To address the declining income of states, especially exacerbated by COVID-19 expenses, the assurance of revenue guarantee until 2026 is a positive step.
- Reforms in GST Council: Reforms that grant more weightage to states and provide clarity on the council’s suggestions for borrowing are necessary to improve the decision-making process.
- FRBM Act 2003: Consider amending the Fiscal Responsibility and Budget Management (FRBM) Act of 2003 to accommodate larger fiscal deficits during contingencies like the COVID-19 pandemic.
In conclusion, the implementation of GST in India has yielded both positive and negative outcomes. It has significantly increased taxpayer participation and eased the business environment.
However, challenges such as federal issues, the inverted tax structure, and unresolved problems with tax slabs and GSTN management persist. Therefore, modifications and reforms are necessary for GST to fully realize the anticipated benefits originally envisioned at its inception.