GST has been a gamechanger for India’s economy

Six years is not a very long time to evaluate the impact of any major transformational reform. Still, it’s good enough for stocktaking. The unique design of India’s GST with Dual GST and Integrated GST has stabilized over time. The GST Council has emerged as a model of cooperative federalism in which the Center and the States are willing to pool their sovereign powers for the betterment of the country. Since its inception, the council has played a key role in decision-making on various aspects of GST including tax rates, exemptions and revenue-sharing between the central and state governments. It has held 49 meetings so far and all decisions except one have been taken unanimously. Despite initial hurdles and difficulties, the Goods and Services Tax Network (GSTN) has done a commendable job by providing a single interface for taxpayers and governments. The technology architecture of GSTN is common to the Central and State Governments. The system virtually eliminates the need for taxpayers to interact with tax officials as all processes including registration, return filing and tax payment can be completed online. The number of GST registrations has increased by about 14% from about 65 lakh to about 1.4 crore in six years. GST registrations have increased across states, making India’s economy more formal and resulting in higher revenue. GST revenue has increased 8.76 trillion in 2018-19 13.25 trillion in 2022-23 at a compound annual growth rate of about 11%.

Invoice matching, touted to be a unique feature of India’s GST, aims to ensure that entities do not claim Input Tax Credit (ITC) for taxes they have not actually paid. However, it was not taken forward as stakeholders considered it too compliance heavy. The same objective is now being attempted by providing the taxpayer with invoice-wise input supply details and auto-population of various data fields in the taxpayer’s GST return. Further, to curb GST leakages, the council has introduced the system of e-way bill and e-invoice. The e-way bill is required to be carried by the person in charge of the transport and it prevents tax evasion through any unauthorized movement of goods. More than 8 crore e-way bills are being generated every month. Further, a need was felt to standardize the electronic invoice format so that interoperability of data is maintained. Currently, some notified GST-registered businesses are required to generate e-invoices for business-to-business transactions. E-invoice helps in reducing fraudulent GST invoices and ensures that input tax credit is claimed on genuine GST invoices.

India’s GST mainly has four tax slabs of 5%, 12%, 18% and 28%, with some exceptions for gold and gold. real estate, In addition, certain items such as food, education and healthcare are exempted from GST. The number of slabs and slab rates have remained largely unchanged over the last six years. The high number of slabs gives rise to issues of inverted duty structure and complexity in GST administration, while high tax rates encourage avoidance of taxes, which is widely visible in the wholesale and retail markets. The number of slabs and the GST rates on the higher slabs are very high as compared to many other large countries. These countries have a standard rate of GST, generally in the range of 10-20%, and then a zero or reduced rate for some essential goods and services. At the time of launch, various goods and services were placed in a slab based on the then existing incidence of taxation. As the GST regime stabilizes with increased revenue collections, the next wave of reforms should see a reduction in the number of GST slabs as well as peak rates. When direct tax rates in India are comparable or even lower than global competitors, there is no reason not to be comparable indirect tax Rates. India has seen a strong growth in direct taxes despite reduction in rates. With the number of slabs reduced and the ceiling rates reduced, GST should also result in a tax boom.

GST has brought several benefits to the Indian economy, including increased revenue, uniformity in taxation, elimination of cascading taxes, reduced compliance burden, online system of taxation, elimination of check posts, and improved efficiency of logistics. But this is just the beginning and the best is yet to come.

Arun Goyal is a retired Indian Administrative Service officer currently serving as a member of the Central Electricity Regulatory Commission. He was the Additional Secretary in the GST Council at the time of launch of GST.

These are the personal views of the author.

Updated: June 30, 2023, 12:19 PM IST