The introduction of the goods and services tax (GST) deserves to go down as the most important tax reform done till date. Everyone who has worked on bringing it about deserves a share of the credit. What remains is to ensure its smooth introduction, and to look back on what might have been — if all the compromises made to bring it about had not been required.
The 13th Finance Commission, chaired by Vijay Kelkar, put out that the GST could have a single rate of 12 per cent, to make it revenue-neutral. The logic was that a single-rate tax would eliminate classification disputes, simplify tax administration and make life easier for the taxpayer. In its conception, the GST would incorporate central and state excise and sales taxes, and also local taxes like octroi and stamp duties, thereby making it possible to get rid of inter-state barriers to trade, the halting of trucks at state borders, and other inefficiencies in the system. The GST would also make tax evasion more difficult, plug holes in the tax collection system, and therefore yield the same revenue at a lower level of tax —thereby helping also to tackle black money. On the basis of these assumptions or propositions, two specific promises were held out: That the efficiency gains flowing from the system as described would boost the gross domestic product (GDP) by 2–2.5 per cent, and exports by 10–14 per cent. The other claim was that a GST, by eliminating tax on tax (ie cascading taxes through the production chain) would reduce costs, and therefore prices throughout the economy.