5 years of GST

5 years of GST

Background of GST:
• GST was introduced through the 101st Constitution Amendment Act, 2016.
• It is the biggest indirect tax reform in the country.
• It was introduced on the pretext of ‘One Nation One Tax’.
• It has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax
• It is levied at the final consumption point and is essentially a consumption tax.
• It has led to a common national market as it helped mitigate the double taxation, cascading effect of taxes, multiplicity of taxes, classification issues etc.
• The GST paid by a merchant to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services.

What has GST achieved?
• Increased Tax Base – From 63.9 lakh taxpayers in July 2017 the number has increased over 1.38 crore taxpayers as of June 2022.
• Average monthly collection - The average monthly collections have increased from Rs 1.04 lakh crore in 2020-21 to Rs 1.24 lakh crore in 2021-22. In the first two months of this year, the average collections are Rs 1.55 lakh crore.
• Eliminated Tax Arbitrage - GST has eliminated the tax arbitrage that existed among the states under the CST/VAT regime.
• Decrease in Tax Rate – Before GST regime, on most of the items, the combined state and centre rates were more than 31%. Under GST, the rates have been revised on over 400 goods 80 services. The highest 28% rate is restricted to sin and luxury items.
• Rise in generation of E-Way Bill - Over 53 lakh taxpayers and 67,000 transporters are enrolled on the e- way portal, generating, on average, 7.81 crore e-way bills per month. Since the launch of the system, a total of 292 crore e-way bills have been generated of which 42 per cent are for the inter-state transport of goods.
• Focus on MSME’s – MSME’s are given fair attention with their tax and compliance burden being kept low.
• Professionally managed GSTN – Since its inception, the administration of GST continues to be IT based and fully automated. The creation of GSTN, a professionally managed technology company to run the platform was a step in the right direction. Constant review and upgrading of hardware and software capacities have helped in keeping the system nimble.
• Automated IGST - The system of automated IGST refunds by customs and refund of accumulated input tax credit (ITC) to exporters by the GST authorities has made the neutralization of input taxes on export goods and services seamless and hassle-free.

Issues with GST:
• The system of automated IGST refunds by customs and refund of accumulated input tax credit (ITC) to exporters by the GST authorities has made the neutralization of input taxes on export goods and services seamless and hassle-free.
• GST on bread is zero, but the vegetable sandwich is in the 5% tax slab, hitting the vegetable grower directly.
• Taxes on wine, rum and beer, which generate large-scale employment and are the backbone of grape and sugarcane farming and the cocoa industry.
• Imposing high GST (sin taxes) is against the very purpose of government’s policy of creating jobs under ‘Make in India’. For example, it is not wise to tax hotels heavily when the very same industry generates indirect employment in ancillary sectors when it buys bed linen, air conditioners, carpets, furniture, electrical fittings and food produce.
• In the automobile sector, the GST on electric cars, tractors, cycles, bikes, low end and luxury cars ranges anywhere from 5% to 50%. The Sale of automobiles is the barometer of an economy.
• There are items that are exempt from GST. Petrol, diesel, aviation turbine fuel are not under the purview of GST, but come under Central excise and State taxes. Central excise duties and varying State Taxes contribute over 50% of the retail price of petrol and diesel.
• Classification issues on certain product. For example, Fryums (18%) vs Papad (0%). Since Papad is a traditional food item and fryums are packaged food items, they cannot have the same tax rate.

Way Forward:
• GST is a positive step towards shifting the Indian economy from the informal to formal economy. It is important to utilize experiences from global economies that have implemented GST before us to overcom the impending challenges.