The Goods and Services Tax (GST) implementation in 2017 aimed at streamlining India’s complex indirect tax structure through a unified market. Despite initial hiccups, GST collection has strengthened over the years indicating improved compliance and economic formalization. But aspects like inverted duty structure and inclusion of petroleum products warrant focus.
- Average monthly GST collections have grown steadily from around Rs. 89,000 crores in 2017-18 to around Rs 1.1 lakh crores during 2019-20 and further to Rs 1.2 lakh crores during April-December 2020, belying initial concerns over revenue stability.
- The tax base has widened significantly with the number of assesses rising from around 65 lakhs under pre-GST regimes to 1.28 crore currently. This indicates formalization of the economy.
- However, revenues have been impacted by COVID-19 induced slowdown. Shortfall in compensation cess impacted state revenues, needing Centre to step in through borrowing options.
- Inverted duty structure in sectors like textiles, where raw materials face higher rates than finished products, has impacted competitiveness and revenue collection.
- Petroleum products remaining outside GST has led to apprehensions of tax revenue erosion for states since proposed inclusion of natural gas under GST would restrict their VAT levies.
While GST has strengthened indirect tax administration, aspects needing focus are:
- Phasing out inverted duty by rationalizing rates and reviewing exemptions. Raising 5% slab to correct inversions must be considered.
- Including petroleum products like petrol-diesel under GST ambit albeit at a later stage after consensus building. Cess can balance revenue considerations.
- augmenting digitization efforts through offline-online integration to aid small businesses, and initiatives like E-invoicing and Aadhaar authentication to improve compliance.
Overall, GST implementation has been promising but remains a work in progress needing continuous recalibration to realize its full potential. Focus must be on simplification, rationalization, digitization and consensus building with states to bolster revenues in a balanced manner.
