India’s growth momentum amid a world economy staring at recession is dependent on the government’s capital expenditure push. This must be funded through improved tax mobilisation and a GST that delivers is key to that effort. Incremental gains are welcome, but bigger reform is due.
The Goods and Services Tax (GST) Council has made administering the tax easier by decriminalising a section of offences and doubling the monetary threshold for prosecution. It has, however, fallen short on bigger structural adjustments like setting up an appellate tribunal and addressing inverted duty structures. Half the agenda on last week’s meeting had to be deferred for want of time to discuss the items, and also because ministerial groups looking at specific issues had not submitted reports, or the council did not have the opportunity to examine the suggestions. Movement is slow on account of pushback from some states, as in the case of taxing online gaming, as also from sections of industry, which is holding up rate rationalisation.
Consensual gains, though modest, should help GST to improve its tax revenue potential by streamlining the definition of sports utility vehicles (SUVs) and freeing up resources from litigation. A lower tax rate for alcohol used in doping fuel is expected to reduce dependence on energy imports. The GST Council‘s clarifications on rates applicable on a variety of items reinforce India‘s need to move on collapsing GST slabs so that the new tax system can deliver on its capacity to self-police. Compromises struck to get the GST going have made it less efficient in terms of tax revenue mobilisation, while increasing the complexity of administering it.
GST collections this year have been robust because inflation has pushed up nominal GDP growth, and also because of a spike in imported energy prices. As oil prices retreat towards pre-Ukraine-Russia conflict levels and monetary tightening weighs on inflation, GST revenue growth will involve simplifying the rate structure and clearing administrative pathways. India’s growth momentum amid a world economy staring at recession is dependent on the government’s capital expenditure push. This must be funded through improved tax mobilisation and a GST that delivers is key to that effort. Incremental gains are welcome, but bigger reform is due.