An Incomplete Reform: On Six Years of the Goods and Services Tax

Context:

India’s most transformative tax reforms since Independence in the form of Goods and Services Tax (GST) completes six years in July this year.

About Goods and Services Tax (GST):

• Consumption Tax: GST is essentially a consumption tax and is levied at the final consumption point. 
• Destination Principle: The principle used in GST taxation is the Destination Principle. 
• Levy On: It is levied on the value addition and provides set offs. 
  • Avoid Cascading Effect: As a result, it avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.
• Collected On: It is collected on goods and services at each point of sale in the supply line. 

Aim: 

• Unity & Benefits for All: With its motto, “One nation, One market, One tax,” GST aimed to bring unity and benefits for all stakeholders, governments, taxpayers, and administrators alike.

Significant Role Played by GST:

• Single System: GST’s introduction marked a significant milestone in the history of taxation in India. 
  • Its introduction was particularly remarkable in a diverse and federal country like India where multiple tax laws were consolidated into a single system.
• Unified Market and Simplified Tax Structure:
  • Elimination of Inter-State Check Posts: It helps in tackling transportation delays reduced for businesses. 
  • Unified Tax Regime Across India: Different Indirect taxes replaced by a single GST is now a simplified one.
  • Standardized Tax Rates and Procedures: Compliances made simpler, easier and adaptable one tax rates and procedures for businesses. 
  • Better Transparency and Accountability: It helps in building trust and a hub for businesses and startups.
• Improved Revenues and Compliance: 
  • Tightened Compliance Measures & Post Pandemic Economic Rebound: Such steps helped in boosting GST revenues.
  • Enhanced Revenues: It is a great outcome, which helps in maintaining fiscal stability for states and reduced dependence on compensation.
  • Fraud Detection and Prevention: Actions against fake invoicing, tax evasions and deterring non-compliant businesses to promote fair competition. 

Challenges with GST:

• Dispute Resolution Mechanism: 
  • There is always delay in setting up GST Appellate Tribunals which hinders timely resolution of disputes.
• Quarterly GST Council Meetings: 
  • Lack of frequent meetings resulting in accelerating pending issues and lacking reforms.
  • Lack of timely decision-making retarding implementation of necessary changes.
  • Negligible or no consultations with stakeholders is another huge concern for periodic reforms. 

Way Forward:

• Need for Simplification and Rationalization of Tax Rates: 
  • Multiple Tax Rates: It complicates the GST system and creates compliance challenges for businesses.
  • Rationalizing Tax Rates: It can be achieved by streamlining the tax structure and minimizing confusion.
  • Focus on Broader Categories: Reduction in the number of tax slabs to fewer and broader categories.
• Need for Inclusion of Excluded Items in GST:
  • Petroleum Industry: Bringing petroleum under the GST ambit can enhance efficiency and ensure uniformity.
  • Real Estate Sector: Its inclusion in GST can eliminate multiple taxes like stamp duty and registration fees.
  • Electricity Sector: Its inclusion in GST will provide concessions to the industries in the form of input tax credit and will eliminate multiple taxation of various components.
• Need for Frequent GST Council Meetings with Timely Decision Making: 
  • Frequent Meetings: It helps in addressing pending issues and reforms.
  • Timely Decision-making: It would accelerate the implementation of necessary changes. 
  • Consultations with Stakeholders: The consultation would help in reviewing periodic reforms and decisions made. 
• Need for Timely Dispute Resolution Mechanism: 
  • Effective Dispute Resolution Mechanisms would instill confidence among taxpayers and businesses for fair competition.
  • Dedicated GST Tribunals would address disputes promptly and efficiently. 

News Source: The Hindu