Since its launch last year, India’s Goods and Services Tax (GST) regime has evolved significantly.
While its positive impacts are starting to be felt, the need for rationalising its multiple tax slabs remains.
What has the GST regime been administered?
The initial teething troubles for the implementation of GST was tremendous, but the administrative machinery has handled the same really well.
GST council, which is chaired by the Union Finance Minister and has representation from all states, has also proved accommodative and flexible.
Flexibility - Significantly, deadlines for filing returns were extended to help the masses get a hang of the format, procedures and the GST Network.
Matching of invoices for granting tax credits, has also been kept on hold for fear of adding to taxpayer’s transition pains.
Business Concerns - Government had also been careful to address industry anxieties about the multiple tax rates, which was making compliance hard.
In this context, the number of goods under the 28% bracket has been brought down to 50 from around 200 at the start.
The government has also made its intention clear that it envisions a fewer tax slabs (5 to 3 slabs) in the future as revenue starts to goes up.
How has it impacted revenues?
Despite its glitches and snarls, the new tax has taken firm root and is altering the economic landscape positively.
Over 4.5 million entities have entered the tax net, many of which would have so far been part of the cash-driven, informal economy.
Thus, GST has significantly expanded the indirect tax net, which might also positively impact the direct tax base.
Significantly, clear buoyancy in revenue after a wobbly initial trend is already perceptible, and monthly revenue targets are exceeding estimated sums.
Government was eyeing about Rs. 90,000 crores a month to make up for the revenues earned under the earlier regime (& for compensating some states).
But interestingly, Finance Ministry has recently expressed confidence that collections would touch as much as Rs. 110,000 crore per month in this year.
What is the way forward?
Surge in revenues must allay the fiscal concerns of the Centre and the States, and nudge policy-makers towards further rationalising the GST structure.
It is also imperative that rates aren’t tinkered with too often and pricing disputes aren’t a default option under anti-profiteering norms for industry.
GST Council must now pursue a time-bound approach to execute plans already announced - such as an e-wallet for exporters and a simpler return form.
Besides, there must be a road map to bring excluded products like - petroleum, real estate, electricity, alcohol — into the GST net.
This reform still has miles to go, and the government must stare down the temptation to take populist steps ahead of general elections.
