UPSC Mains -The Goods and Services Tax (GST) was hailed as one of the most significant indirect tax reforms implemented in India since independence. Explain the performance of India’s Goods and Services Tax (GST) during the last six years.

Introduction:

GST, introduced on July 1, 2017, is a destination-based, value-added tax in India aimed at simplifying the tax structure and establishing a unified market. The reform replaced 17 taxes, including sales tax, VAT, and service tax, streamlining the system for efficiency and economic transformation.

Body:

Successes of the GST implementation since 2017 in India:

1. Consolidation of Indirect Taxes: Economic Survey 2022-23 notes a unified goods and services tax structure. Active GST registrations surged by 90%, rising from 38 lakh (July 2017) to 1.7 crore (March 2023).
2. Tax Base and Income Expansion: Phenomenal growth in GST collections, from Rs. 7.19 lakh crore in FY 2017-18 (from July 2017) to Rs. 18.10 lakh crore in FY 2022-23, showcasing a 22% increase from FY 2021-22.
3. Digitization in Compliance: The government’s efficient automation of tax compliances, notably through the GST Network (GSTN), is a major success. The introduction of a centralized ‘one-stop-shop’ portal under GST has significantly enhanced efficiency compared to the previous system.
4. Tech Tools for Compliance: GSTN’s phased approach focused on building core functionalities, followed by leveraging technology and data. The creation of the Business Intelligence and Fraud Analytics (BIFA) unit and the BIFA tool, utilizing AI and ML, stands out as a triumph in the last five years.
5. Cooperative Federalism in GST Council: The GST Council showcases fiscal federalism, emphasizing collaborative decision-making between central and state governments. Working together on critical legal issues, they reinforce the unified nature of the GST regime.
6. Wider Tax Base and Global Competitiveness: GST’s impact includes reducing the overall indirect tax burden, making Indian products globally competitive. Notable enlargement of the tax base has led to increased revenue collection.
7. Cascading Tax Elimination by GST: GST’s design as a comprehensive indirect tax eliminates the cascading tax effect (‘Tax on Tax’). This streamlined approach simplifies the taxation structure, promoting economic efficiency.

Issues of GST implementation since 2017 in India:

1. Low Tax-to-GDP Ratio: India’s tax-to-GDP ratio stands at around 11%, lower than the global average of approximately 15%, signaling a substantial informal sector and poor compliance, hindering revenue generation.
2. Skewed GST Payers Base: The distribution of GST payers among states and sectors is uneven, with certain states contributing disproportionately to GDP and some sectors facing over-representation or under-representation in the GST system.
3. Complexity for Small Enterprises: Compliance and administrative processes pose significant challenges for small enterprises, exacerbated by frequent changes in GST rates and procedures, causing confusion and compliance issues.
4. Issues with GSTN Interface: Submission of returns is delayed due to faults and challenges with the Goods and Services Tax Network (GSTN) interface, impacting the efficiency of the tax filing process.
5. Lack of Clarity in Legislation: Lack of clarity in GST legislation and processes has resulted in conflicts and litigation, creating uncertainty in the interpretation and application of GST laws.
6. Tax Burden on Industries: Industries and goods face an increased tax burden due to high GST rates, as highlighted by the Federation of Indian Chambers of Commerce and Industry (FICCI).
7. Slow Implementation of Anti-profiteering Provisions: The anti-profiteering provisions of the Goods and Services Tax have been slow to implement, impacting the regulation of pricing practices in the market.

Steps that have been taken for GST reform:

1. GST Return Simplification: Streamlining GST return filing was achieved with the introduction of new forms in 2020, aiming for enhanced simplicity in the process.
2. Unified GST Slabs and Compliance Cost Reduction: GST slabs were rationalized into unified 5% and 12%, reducing compliance costs for small taxpayers. Electronic invoicing from 2019 aids tax compliance and minimizes evasion.
3. E-way Bill System Implementation: To streamline inter-state product transportation, the E-way bill system was implemented, ensuring efficient movement of goods.
4. GST Assistance Desks and Facilitation Centres: In 2017, GST assistance desks and facilitation centers were established to assist taxpayers, offering guidance and support.
5. Anti-evasion Measures with Technology: Measures against tax evasion, such as the e-invoice system and technology-driven analytics, were implemented to enhance enforcement and deter evasion.
6. Composition Scheme Introduction: Small businesses gained relief from extensive tax compliance with the introduction of the Composition scheme, providing an alternative for simplified taxation.

Conclusion:

To fulfill the promise of the Goods and Services Tax (GST) and the establishment of a “Viksit Bharat” by 2047, the government must overcome the implementation-related obstacles and concerns. 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.

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