A year after its roll-out, the goods and services tax (GST) regime is still a work in progress. The actual scorecard of the new indirect tax regime lies hidden between the two starkly different pictures presented by the government and the opposition. While the former has labelled the GST as a “good and simple tax” which has brought down the indirect tax burden, made it easier to do business, expanded the tax base and moved towards a transparent taxation regime, the Congress has called it a “grossly scary tax” and has pointed to the inconveniences that taxpayers have had to deal with.
It is undeniable that the GST has been the most complex reform to achieve for two reasons. One, it merged 17 taxes and 23 types of cess, requiring a complete reset of one of the world’s largest economic systems. And two, it called for the Constitution’s division of the tax base between the Centre and the states to be amended, calling for a virtual political consensus across the federal divide and the political spectrum. The GST Council deserves full credit for achieving, albeit partially, this seemingly impossible task. A key concern for the states was the possible loss of revenue but the monthly GST collections are now expected to average at around Rs 1 trillion in the current financial year. This will stabilise the GST regime as both the Centre and states will meet their revenue targets. Another big improvement due to the GST has been the expansion of the tax net. According to the government, 4.5 million new entities have come under the tax net, which is a creditable achievement for any system in its first year. Minister Arun Jaitley is also right in arguing that the implementation of the GST has helped in expanding the direct taxpayer base, reflected in 44 per cent growth in personal advance income-tax collections this year.
However, it is equally true that the GST was implemented without adequate preparation and this reflected in various ways — ranging from technical glitches to lack of clarity about the rates to the general confusion about filing of returns and approval of refunds. Though some of this have later been rectified, there is still a long to-do list before the GST can live up to the “good and simple” moniker. The GST, as originally envisaged, was meant to compress multiple indirect taxes into a couple of tax slabs to bring about simplicity in a messy system. That problem remains to be dealt with. Crucial tax-generating items such as petroleum (which includes diesel and petrol), real estate, potable alcohol and electricity are still outside the GST’s ambit. Moreover, several GST initiatives such as the e-way bill or e-wallet for hassle-free tax refunds to exporters suffer from implementation woes. Lastly, the GST Council is showing signs of being susceptible to electoral posturing as witnessed by the demand for a sugar cess. That, if accepted, will signal a breakdown of the basic tenet of the GST. India needs a simplified and easy-to-comply-with tax regime that does not impose huge deadweight compliance costs, which cripple the productive capacity of small enterprises. That remains a challenge before the GST Council as it enters its second year.