Mains Daily Question
March 25, 2023
The Goods and Services Tax (GST) was heralded as one of the most significant indirect tax reforms since independence in India. Examine the performance of the Goods and Services Tax (GST) in India over the past 6 years.
Introduction: Show the notion that the GST was intended as a significant change in the indirect tax regime in India since independence.
- Mention the accomplishments and difficulties of the GST so far.
- Also, some of the government initiatives taken to amend GST.
Conclusion: Provide a suggestive conclusion and relate it to the need to create a Vikasit Bharat by 2047.
The Goods and Services Tax (GST) is a destination-based, value-added tax that was introduced in India on July 1, 2017, as a substantial indirect tax reform intended to streamline the tax structure and create one nation, one tax, and one market in India. It was envisioned as a major change that would revolutionize the Indian economy by replacing the previous complex and inefficient tax regime with 17 different taxes and surcharges, such as sales tax, VAT, service tax, etc.
Successes of the GST implementation since 2017 in India:
- According to the Economic Survey for 2020-21, the consolidation of indirect taxes has resulted in a single tax structure for goods and services. The number of active GST registrations increased by almost 90% from 38 lakh in July 2017 to 1.23 crore in March 2020.
- As stated in the World Bank's Ease of Doing Business Report 2022, simplification of tax structure and decrease of regulatory burden for firms.
- Increase in both the tax base and tax income by such simplification as have been highlighted by successive budgets through tax mobilization statistics. The total GST revenue grew from ~INR 7.4 lakh crore in FY 18 to ~INR 12.2 lakh crore in FY 20.
- Enhanced tax compliance and decreased tax evasion via technologically driven procedures.
- Boost interstate trade and commerce by facilitating the free flow of products due to the Optimization of supply networks and reduction of logistical expenses for enterprises.
- Promotion of digital transactions and economic formalization.
Difficulties of GST implementation since 2017 in India:
- Low tax-to-GDP ratio: India's tax-to-GDP ratio remains low at around 11%, compared to the global average of around 15%. This indicates a large informal sector and low compliance levels that hamper revenue mobilisation.
- Skewed GST payers base: The distribution of GST payers across states and sectors is uneven, with some states contributing more than their share of GDP and some sectors under-represented or over-represented in the GST regime.
- Compliance and administrative processes are particularly complicated for small enterprises. Frequent changes to GST rates and processes cause confusion and compliance issues.
- Due to faults and challenges with the GSTN interface, the submission of returns is delayed.
- The lack of clarity in the legislation and processes governing GST has led to conflicts and litigation.
- The Federation of Indian Chambers of Commerce and Industry also underlined the increased tax burden on some industries and goods resulting from high GST rates.
- Slow implementation of the anti-profiteering provisions of the Goods and Services Tax.
Steps that have been taken for GST reform:
- Simplifying the filing of GST returns with the introduction of new forms in 2020.
- The rationalization of GST slabs into unified slabs of 5% and 12%and the reduction of compliance costs for small taxpayers. Electronic invoicing will be used in 2019 to enhance tax compliance and reduce tax evasion.
- Implementation of an E-way bill system to simplify the transportation of products across states.
- Establishment of GST assistance desks and facilitation centres in 2017 to aid taxpayers.
- Implementation of anti-evasion measures, including the e-invoice system and use of technology-driven analytics.
- Introduction of a Composition scheme as an alternative for small businesses to save them from the hassle of lengthy tax compliances.
To fulfil the promise of the Goods and Services Tax (GST) and the establishment of a "Vikasit Bharat" by 2047, the government must overcome the implementation-related obstacles and concerns. This involves streamlining the tax structure and compliance processes, decreasing the GST rates on essential goods, and establishing effective anti-evasion measures. Improving the GST dispute resolution process and increasing taxpayer education and awareness may also help the long-term effectiveness of the GST as a reform.