News & Analysis

Five Years of GST – What’s Worked, What Hasn’t 

This day, five years ago, India implemented it’s biggest-ever tax reports. When the Goods and Services Tax (GST) became a reality on July 1, 2017, it wasn’t as much the policy notes as the politics behind it that grabbed the headlines. However, in spite several hits and a few misses, the new regime has brought in a Rs.One Lakh Crore monthly revenue regularly. 

Notwithstanding the many slabs that were originally laid out and the fact that fuel and alcohol still find themselves out of its purview, the GST regime, which subsumed 17 local taxes including excise, sales tax and value-added tax, 

Originally piloted by the Congress-led UPA government, GST faced tough opposition from the then opposition BJP over state’s share of the revenues. However, when Narendra Modi took over the reins in 2014, the parties swapped positions as the Congress opposed its implementation. 


What it actually meant?

At the stroke of midnight, when GST became a reality after several decades of doubts and indecision, it had a four-pronged rate structure of taxes from 5% on essentials to 28% on cars. The two other slabs of 12% and 18% were levied on a variety of goods and services. In the pre-GST era, the cascading effect of all central and state taxes stood at 31% on average.

Government also set up a 3% rate on gold, jewels and precious stones, and a 1.5% rate on cut and polished diamonds. A cess was also levied on the 28% slab for luxury and demerit goods which went to a separate corpus used to make up for revenue losses suffered by states due to the rollout of the GST regime. 

To preserve the federal structure of tax collection, the GST regime brought the Center and the States on to a single platform (GST Council) where modalities for smooth operations were regularly discussed. Thus far, this Council has had 47 meetings and collective measures have resulted in an inflow of Rs.One Lakh Crore every month almost regularly. 


Has the tax revenue increased? 

As a matter of fact, GST collections remained robust even during the peak post-Covid period though it did dip during the total lockdown phase. Experts believe that when government puts out GST collection numbers for June later this month, it should be in tune with the numbers achieved over the past four months – of around Rs.1.4 Lakh Crore. 

Collections had touched a record high of Rs.1.68 Lakh Crore in April this year, after having crossed the Rs.One Lakh Crore way back in April of 2018. 

In a tweet to celebrate five years, the Central Board of Indirect Taxes and Customs (CBIC) tweeted this: “GST subsumed multiple levies and cesses, reduced compliance burden, removed regional imbalances and inter-state barriers, and significantly increased the transparency and overall Revenue collection”.


It’s an Ongoing Process

Though there were several glitches early on, both from the ambiguity point of view of certain rates and its impact as well as the online filing systems and requirements, the Centre has been regular in sharing updates and clarifications on GST. At its latest meeting, the GST Council also eased compliance norms for small taxpayers. 

Having created the infrastructure, the GST Network is now helping officers through AI-ML solutions to generate additional data and plug possible revenue leakages. Additionally, the filing process is also getting simplified and soon it may be as easy as writing an email or filling up any form online. 


What’s next on the radar? 

Tax experts say that the GST Council now need to focus on addressing concerns over issuance of show cause notices for reconciliations, grant of registration etc. A single assessment process could easily achieve these objectives and provide considerable help to easing the overall process of doing business in India. 

Some argue that while the GST regime itself has matured over the past five years from one that focused on compliance based on technology to a point where taxpayers would be incentivised to self-regulate their annual filings. However, there is near unanimity that litigation instances need to be drastically reduced by simplifying the laws further to reduce ambiguity. 

Then there is also the important issue of how states would deal with financial matters when the compensation regime for revenue losses end from today. Most states have already sought an extension to this mechanism though a final decision on this is not likely before the GST Council’s next meeting scheduled at Madurai in August. 

However, there is still lots to be done and the government should focus on reducing litigation to further streamlining tax rates so that GST can finally become the Good and Simple Tax that it promised to the citizens of India. 


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