5 Years of Goods and Services Tax (GST)

In Context

• Five years after the Goods and Services Tax (GST) came into force, the much-debated indirect tax regime seems to be finally stabilising. 

Objectives and need of GST

• The reasons for adopting a single rate structure in most countries are to have a simple tax system, prevent misclassifications and litigations arising therefrom, and to avoid an inverted duty structure of taxes on inputs exceeding those on outputs requiring detailed scrutiny and refunds.

Overview of GST 

• It  is India’s biggest indirect tax reform and was introduced in India from 1 July 2017. 
•  It follows a multi-stage collection mechanism.
  • It is a single tax on the supply of goods and services, right from the manufacturer to the consumer. 
    • Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. 
    • The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
• It is meant to be a unified indirect tax across the country on products and services. 

Salient Features of GST

• It is applicable on ‘supply’ of goods or services as against the present concept on the manufacture of goods or on sale of goods or on provision of services.
• It is based on the principle of destination-based consumption taxation as against the present principal of origin-based taxation. 
• It is a dual GST with the Centre and the States simultaneously levying tax on a common base. 
  • The GST to be levied by the Centre would be called Central GST(CGST) and that to be levied by the States would be called State GST (SGST). 
  • An Integrated GST (IGST) would be levied an inter-state supply (including stock transfers) of goods or services. 
  • GST is being levied at four rates viz. 5%, 12%, 16% and 28%. 
• The GST would apply to all goods other than alcoholic liquor for human consumption and five petroleum products, viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel.
• The GST Council headed by the Union Finance Minister is the governing and key decision-making body for GST. 

Achievements  

• GST revenues have shown reasonably high buoyancy with collections of over Rs 1 lakh crore in the last 10 months and touching a record of Rs 1.68 lakh crore in April 2022. 

• The GSTN has been able to stabilise the technology platform.
•  Mandating the issue of e-invoicing for all businesses above Rs 100 crore has enabled better invoice matching and detection of fake invoices that were used to claim the input tax credit. 
  • This has helped to improve tax compliance and has also enabled better enforcement. 
• In India, it has been a remarkable achievement and a unique experiment in cooperative federalism. 
• In this, both the Union and the state governments gave up their tax autonomy in favour of harmonising domestic trade taxes. 
• It helped the country in transitioning to an automated indirect tax ecosystem.
  • From electronic compliances, generation of e-invoices to tracking movement of goods through e-waybill – everything is now online
• The E-invoicing system helped reduce fake invoicing. 
  • Use of technology with online bill generation has resulted in smoother consignment movement and much fewer disputes with officials. 
• After the introduction of GST, there has been a significant reduction in transaction costs. 
• GST has improved the competitiveness of domestic industries in the international market by removing hidden and embedded taxes. 
• A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. 

• This would reduce hidden costs of doing business.

• GST gave a major boost to the ‘Make in India’ initiative of the Government of India by making goods and services produced in India competitive in the National as well as International market. 

Shortcomings /Challenges 

• Refund delay issues: the Government has taken many steps to smoothen the process of export refunds, automatic processing of refunds has always been an area of major concern under GST. 
• Rate differentiation
  • This is an inefficient way of targeting benefits for the poor. 
• Lack of Dispute redressal mechanism
  • There is no statutory mechanism under the GST regime that could ensure uniformity in the rulings passed by the Authorities. 
• Constant amendments: Over the last few years, the GST law has seen many amendments. During this time, all these revisions often confused the taxpayer and as well the tax administrators which created misunderstandings and misconceptions. 
• Adaption & Technical Issues: Small and medium businesses are still grappling to adapt to the tech-enabled regime. The fundamental principles on which the GST law was built viz. seamless flow of input credits and ease of compliance has been impaired by IT glitches, 
• Complex Penalties: Many businesses are genuinely not able to monitor their vendor behaviour and feel that they should not be penalised for the tax compliance deficiencies of their vendors once they have paid the GST amounts to their vendors.
• Other Concerns: Further, the 15th Finance Commission, in its report, has also highlighted several areas of concern in the GST regime relating to:
  • multiplicity of tax rates, 
  • shortfall in GST collections vis-à-vis the forecast, 
  • high volatility in GST collections, 
  • inconsistency in filing of returns, 
  • dependence of States on the compensation from Centre

Conclusion & Way Forward

• Streamlining of anti-profiteering measures and simplification of compliance procedures also needs to be revisited to ensure that the cost efficiency and reduction in prices envisaged under GST law finally reach the common man.
• To overcome the issues of dispute related to GST and increase efficiency in tax administration, there is a need for a robust dispute redressal mechanism.

• GST requires administrative reforms which will establish a robust mechanism to redress such irregularities and will also remove gaps in the provisions of advance rulings under the GST law.
• Pandemic has had severe impacts on GST also and led to economic contraction.
  • Certain structural level changes to the law may help boost the business and economy.
• A group of ministers (GoM) reviewing goods and services tax (GST) rates has proposed removal of exemptions on a host of services, including for stay in relatively cheaper hotel rooms, hospital rooms above a tariff threshold and services provided by financial sector and food safety regulators.

Source:BS