6 years of GST

6 years of GST

News: It has been six years since India woke up to an unprecedented transformation in its tax landscape as the GST took centre stage.

Background:
• Here we will understand some of the achievements of GST and address some issues that need to be sorted. What is GST?
• Goods and Services Tax (GST) is a form of indirect tax which was introduced through 101st Amendment to the Indian Constitution.
• It is imposed on both manufacturers and sellers of goods, as well as suppliers of services.
• With its motto, 'One nation, One market, One tax,' GST aimed to bring unity and benefits for all stakeholders, governments, taxpayers, and administrators alike.

Key Achievements of GST:
• The taxpayer base has witnessed a remarkable increase, surging from 63.9 lakh in 2017 to approximately 1.40 crore currently.
• GST monthly Revenues - In its initial year, the monthly average stood at ₹89,885 crore, but it has now stabilised at a robust 'new normal' ₹1.50 lakh crore in the last financial year, reaching a peak of ₹1.87 lakh crore in April 2023.
• GST has reduced the multiplicity and complexity of tax rates by bringing most of the goods and services under four slabs - 5%, 12%, 18%, and 28%.
• The government has also reduced the GST rates on various products over the years, bringing down the number of items under the highest slab of 28% from 19% in July 2017 to only 1% in June 2023.

What are the challenges that need to be addressed?
• Thinktank Global Trade Research Initiative (GTRI)
said the most critical pending GST reform is upgradation of GST Network to prevent fake supplies and fraudulent claims of Input Tax Credit (ITC).
• Issues like rationalisation of tax rates and slabs, levying GST on petrol, diesel and ATF, are still hanging fire. Tax experts are of the opinion that the GST Council must pursue these reforms to make GST more inclusive.
• When the size of the GST taxpayer base is compared to that of income-tax, it is apparent that there is scope for many more business entities and companies to enrol for GST.
• In GST council, the centre-state often argue over GST rates, GST compensation payments. Lack of clarity on future of GST compensation regime to states is another point that needs due attention.
• Frequent changes in GST is harming the long-term Business planning.
• Majority of items (close to 50%) falls under the 18% tax bracket.
• Tax slabs in India (4) compared to Australia (1), Singapore (1)
• Regressive in nature as poor people proportionately pay more indirect taxes compared to rich people.

Way Forward
• Overall, the positives of GST have been huge. It has reformed indirect tax system, reduced operational costs, promoted EODB and catalyzed Make in India campaign.
• With technological upgrades, use of Data analytics and AI it is certain that tax evasion will come down and database collected over the years will help in future policy planning.