In his 2006-07 budget speech, the then Minister of Finance, P Chidambaram, floated the idea of moving to the Goods and Services Tax or GST regime. And the following decade was devoted to drawing the definitive contours and finding the courage to inaugurate the reform of indirect taxation.
With much fanfare, the GST was finally rolled out on July 1, 2017 at midnight by Prime Minister Narendra Modi. The national reform encompassed 17 major taxes and 13 taxes. And after initial hiccups and lukewarm collection, GST revenues have accelerated over the past two years.
The average gross monthly GST collection for the first quarter of FY23 was ₹1.51 lakh crore compared to ₹1.1 lakh crore in the first quarter of the previous fiscal year, an increase of 37%. The economic recovery after the pandemic, high inflation, anti-evasion measures, especially against false invoices and the gradual improvement in compliance, have helped.
But like Trade standard‘s AK Bhattacharya pointed out, total GST collections in FY22 were around 6.26% of GDP compared to 6.22% in FY19 – which was both a pre- Covid and the first full year after the rollout of the new tax. Growth is far from what was expected.
Rajat Bose, Partner, Shardul Amarchand Mangaldas, says GST has achieved the fundamental goals it set for itself. Petroleum products should be subject to the GST. He says the GST Appeal Tribunal should be set up as soon as possible. The process followed by GST intelligence officers should be described.
A common complaint is also that the GST system has not yet stabilized even after five years due to the constant rate structure and adjustments. It still suffers from bottlenecks.
But, at the same time, the GST is considered one of the finest examples of cooperative federalism, because the Center and the States come together in the GST Council, and almost all decisions are made by consensus in the general interest of the country and its people. . But some states are unhappy as they consider stopping compensation for lost cess fund revenue due to GST implementation.
Pronab Sen, India’s former chief statistician, says the GST has worked reasonably well so far. There have been many problems, but they are not unusual. Political questions about the GST will continue as the government changes in the states.
Businesses say the government should do more to simplify the tax system to improve the ease of doing business. Taxpayers have struggled with GST compliance and filing requirements, although this burden has been gradually reduced.
Mahesh Jaising, Partner and Country Head of Indirect Tax, Deloitte India, says the industry has welcomed GST’s technology platform. The government has taken a consultative approach with GST, he says. Industry expects action on working capital release, EoDB and ITC restrictions.
The government has been proactive in addressing all the major issues, but there is still a long way to go before the GST can reach its full potential and become a truly “good and simple tax” as intended. Meanwhile, the government’s immediate priority will be streamlining tax rates, as the Center and the states need higher revenue and fewer slabs would mean a simplified tax system.