Sambhav-2024

• Start the answer by introducing the GST regime.
• Discuss how GST marked a significant shift in the country's taxation structure.
• Explain the challenges faced in the implementation of India's GST regime.
• Conclude as per the requirement of keywords.

Introduction

The Goods and Services Tax (GST) was implemented on July 1, 2017, with the aim of creating a unified tax structure across the country, replacing a complex array of indirect taxes. While the GST regime has streamlined taxation to a large extent, it has faced challenges and glitches in its implementation.

Body

Achievements of the GST Regime in India:

• Increase in Tax Base:
  • The tax base more than doubled from 2017, with revenues witnessing substantial growth over the years.
  • The taxpayer base has witnessed a remarkable increase, surging from 63.9 lakh in 2017 to approximately 1.40 crore currently.
• Revenue Collection:
  • Despite the revision in threshold turnover limits, GST revenues have experienced substantial growth. In its initial year, the monthly average stood at ₹89,885 crore.
  • It has now stabilised at a robust 'new normal' ₹1.50 lakh crore in the last financial year, reaching a peak of ₹1.87 lakh crore in April 2023.
• Seamless Market Integration:
  • GST laid the foundation for a seamless national market, reshaping India's tax landscape and driving economic growth.
  • By digitising processes from registration to return filing, the GST portal ensured smoother compliance for businesses, fostering a tech-enabled environment.
  • India was also able to introduce other tech-enabled indirect tax reforms such as e-way bills and e-invoicing.
• Empowering the Manufacturing Sector:
  • GST's impact on the manufacturing sector was remarkable, as it eliminated the cascading effect of taxes and reduced manufacturing costs.
  • It subsumed various local levies, like excise duty, service tax, and VAT, and also cesses.
• Promoting Ease of Doing Business:
  • One of the greatest benefits of GST has been the digitisation of processes. Right from obtaining a registration to filing a return or getting a refund, every single process is entirely online.
  • The GST portal also has a dispute resolution system online, thereby eliminating the need for a business to visit a GST office.

Challenges Faced in Implementation of GST Structure:

• Multiple Tax Rates:
  • Unlike many other economies which have implemented this tax regime, India has multiple tax rates.
  • Most of the items fall in the high tax category of 18%. This acts as regressive, as it impacts the poorer section of the society.
• Inflation and Revenue Collections:
  • Some economists argue that the current rise in GST collections is due to high inflation. The growth rate of GST collections in real terms (adjusted for inflation) is much lower.
  • For Ex- the Year-on-Year growth rate in GST Collections in March 2022 was 14.7% in nominal terms, but only 3.7% in real terms (adjusted for inflation).
• Lack of Coverage:
  • With petrol, diesel, ATF outside GST, a large part of the economy is still not covered by the indirect tax regime.
• Compensation to States:
  • The GST (Compensation to States) Act guaranteed full compensation to States for the first 5 years of the GST if their revenues fall below 14% annual growth.
  • Moreover, the Union Government had delayed GST compensation to the States from 2019-20 when the economy started slowing down. It was paid in May 2022 after much delay.
• Conflicting Orders by AAR:
  • The state-level Authorities for Advance Rulings (AARs) have given conflicting rulings in various cases on the nature of goods, which determine the tax slab they fall under.
  • These relate to food items such as ‘papad’, fryums and other areas such as setting up a solar power plant, intermediary services, and so on.

Conclusion

While the implementation of GST in India has brought about a significant change in the tax structure, it has faced challenges and glitches. Addressing these issues, such as simplifying the tax structure, reducing compliance burden, and improving technology infrastructure, will be crucial for ensuring the success of the GST regime