As the Goods
and services tax (GST) completed two years on Monday, 1 July 2019, it has
barely become the good and simple tax that it was meant to be, but has
nevertheless proved to be a system significantly superior than what it
Reduced tax liability with credits for input taxes
place of a complex system that included multiple taxes at the Central, state
and local levels, there is now a comprehensive tax subsuming most of the
important indirect taxes. Also, the tax cascades have been reduced with a more
seamless system for businesses to reduce their tax liability by claiming
credits for input taxes.
Revenue collection: rate of growth higher than states’ own tax
revenue prior to GST
did reduce the tax rates and lead to an expansion of the tax base. To a lesser
degree, it improved the tax buoyancy as well (in the very first year of GST,
the revenue buoyancy was a progressive 1.2). Though revenue collections haven’t
kept pace with the ambitious targets, the rate of growth was higher than states’
own tax revenue witnessed prior to GST.
Facts that led to lower-than-anticipated growth in GST collections
lower-than-anticipated growth in GST collections is attributable to the massive
rate reductions over the last two years and the failure of the government to
put in place a robust system to check evasion via matching of invoices.
amounts claimed by businesses as transitional credit (for the taxes paid in the
pre-GST regime) over the last two years also have had a dampening effect on collections,
especially the Central GST.
GST’s teething troubles
teething troubles persisted for quite a while and this dealt a blow to small
businesses but the hiking of the entry threshold to Rs 40 lakh turnover and the
easy composition scheme has helped address such concerns to an extent.
Auto fuels and real estate to be brought under the tax for
economic efficiency gains
forward, GST needs to be more inclusive — auto fuels and real estate are the
two major segments that require to be brought under the tax for it to be more
comprehensive and yield the desired level of economic efficiency gains.
For states showing increase in revenues, compensation fund not
the revenue collections growing somewhat steadily, the need for compensating
states for any revenue shortfall from an assured 14% growth would likely
diminish. As former finance minister Arun Jaitley wrote in a blog on Monday, “Already
after the second year, twenty States are independently showing more than a 14%
increase in their revenues and the compensation fund in their case is not
For a country with people below poverty line, single rate GST,
is undoubtedly a need to further simplify the GST structure. The number of
rates must come down. While there is clamour for a single rate of GST from
several quarters, including the Congress party,
this is easier said than done. Jaitley added: “It would be inequitable to apply
a single rate in countries where there are a large number of people below the
poverty line… An indirect tax is a regressive tax. (However) as revenue
increases further, it will give an opportunity to policy makers to possibly
merge the 12% and 18% slab into one rate, thus effectively making the GST a
Govt not against honest tax payers; but it won’t tolerate
circulation of fake invoices
of state for finance, Anurag Singh Thakur, on Monday cautioned the industry
leaders against use of fake invoices and said that it was bringing bad name to
GST. Speaking at an event to mark two years since the roll-out of GST, Thakur
urged the leaders of industry to take corrective steps and added that while the
government had no enmity with honest taxpayers, it won’t spare those engaged in
circulation of fake invoices.