One Nation, One Tax: Assessing The GST Journey In India

Before the introduction of GST, India had a complex and multilayered tax structure that varied from state to state

By CA Ruchika Bhagat

The Goods and Services Tax (GST) has been one of the most significant economic reforms in India's history, revolutionising the country's indirect tax system. Introduced on July 1, 2017, the GST aimed to unify the fragmented tax structure across states and streamline the process of indirect taxation. This ambitious reform, often referred to as 'One Nation, One Tax', promised to simplify compliance, reduce tax evasion, and create a common national market. However, the journey of GST in India has been both transformative and challenging, marked by a series of adaptations and ongoing debates about its effectiveness.

The Pre-GST Era: A Complex Tax Structure

Before the introduction of GST, India had a complex and multilayered tax structure that varied from state to state. Taxes like VAT (Value Added Tax), excise duty, service tax, and central sales tax were levied at different stages of production and distribution, leading to a cascading effect where the final consumer paid tax on tax. This not only increased the cost of goods and services but also created a labyrinth of compliance requirements for businesses. Moreover, the lack of uniformity in tax rates across states resulted in market fragmentation, hindering the ease of doing business and stifling economic growth.

The Birth of GST: A Unified Tax System

GST was introduced with the objective of creating a single, unified market by subsuming various indirect taxes under one umbrella. The idea was to replace the cascading effect of multiple taxes with a single tax on the value addition at each stage of the supply chain. The GST Council, a federal body comprising representatives from both the central and state governments, was established to oversee the implementation and administration of GST, ensuring a cooperative federalism approach.

The structure of GST was designed to accommodate the federal nature of India. It introduced a dual system with Central GST (CGST) and State GST (SGST) for intra-state transactions, and Integrated GST (IGST) for inter-state transactions. This ensured that both the central and state governments retained their share of revenue while maintaining a uniform tax structure across the country.

Initial Challenges and Implementation Hurdles

The rollout of GST was not without its challenges. The initial implementation phase witnessed significant teething problems, including technical glitches in the GST Network (GSTN), the online platform for filing returns and managing compliance. Small businesses, in particular, struggled to adapt to the new system due to the lack of digital literacy and the complexity of filing multiple returns. The frequent changes in rules, tax rates, and compliance requirements further added to the confusion.

The introduction of multiple tax slabs under GST — ranging from 0 per cent to 28 per cent — was another area of concern. While the intent was to maintain revenue neutrality and address the varying nature of goods and services, the multiple rates complicated the tax structure, making it less straightforward than initially envisioned. Critics argued that this undermined the core objective of GST, which was to simplify the tax system.

Mid-Course Corrections and Adaptations

Recognizing the challenges faced by businesses, the GST Council undertook several measures to streamline the system. Over time, the frequency of tax rate changes reduced, and the compliance burden was eased with the introduction of quarterly returns for small taxpayers. The composition scheme was also introduced, allowing small businesses to pay tax at a lower rate with simplified compliance procedures.

The government also addressed the technical issues with the GSTN, leading to a more stable and user-friendly platform. The introduction of e-invoicing and the phased implementation of the e-way bill system further enhanced transparency and reduced tax evasion by ensuring better tracking of goods movement.

The Impact of GST: A Mixed Bag

The impact of GST on India's economy has been mixed. On one hand, GST has succeeded in creating a common national market, with the seamless movement of goods across state borders. The elimination of check posts and the reduction in logistics costs have improved supply chain efficiency. GST has also widened the tax base, with a significant increase in the number of registered taxpayers.

On the other hand, the expected revenue buoyancy from GST has not materialised as anticipated. The economic slowdown, compounded by the Covid-19 pandemic, has led to lower-than-expected GST collections, putting pressure on government finances. Additionally, the multiple tax slabs and frequent changes have led to criticism that GST has not fully lived up to its promise of simplicity.

Looking Ahead: The Road to a Mature GST

As India moves forward, the focus must be on further simplifying the GST structure, rationalising tax rates, and enhancing the stability of the tax system. The GST Council should continue to engage with stakeholders to address their concerns and ensure that the tax system evolves in a manner that supports economic growth while ensuring fiscal sustainability.

In conclusion, the journey of GST in India has been one of learning and adaptation. While it has successfully unified the tax system and created a common market, challenges remain in terms of revenue generation and simplification. As the system matures, the focus should be on realising the full potential of GST as a transformative tax reform that can drive India’s economic growth in the years to come.

The author is the MD at Neeraj Bhagat & Co.

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