Five years of GST: Indirect tax reformed, but there's still some way to go

July 1 will mark five years of goods and services tax (GST) in India. Starting today, we track the journey through a series of reports

Goods and services tax (GST) was introduced five years ago to do away with a plethora of Central and state taxes in the hope of taking India to a transparent “one nation one tax” system and ushering in greater cooperative federalism.

It was expected to be a regime that would have revenue buoyancy, improve ease of doing business, and end hidden taxes. The GST story, however, has been mixed.

Revenues have started being buoyant, exemplified by the fact that collection remained above Rs 1.4 trillion for the third month on the trot in May. The numbers derived from the Union Budget (given in the chart) show a dismal picture this fiscal year because of conservative projections. The first two months in FY23 averaged Rs 1.54 trillion each, much higher than the monthly Rs 1.2 trillion derived from the Budget Estimates for the fiscal year.

At least big companies are witnessing better ease of doing business and cost saving because they no longer need to have their supply chains aligned to low-tax areas. Consumers too have got relief from many concealed impositions that were built into complex taxes earlier.

Pratik Jain, leader of indirect tax, PwC India, said: “GST has brought in a lot of structural simplicity as multiple laws and compliances have been replaced with common uniform laws. For large corporations, doing business has become easier and in general, tax incidence has gone down, helping the consumers.”

However, small firms complain that their cash flow is disrupted as bigger ones charge them GST even when the former are sellers. Chandrakant Anant Salunkhe, president SME Chamber of India said this is one of the main problems, besides high fee charged by chartered accountants for filing their returns.

In broader sense too, the GST system is likely to face some severe challenges now. For instance, the GST Council has so far shown coherence in arriving at decisions barring a few occasions such as tax rates for lottery and the initial tussle on borrowing to tide over the shortfall in the compensation cess owing to Covid-induced lockdowns.

This harmonious arrangement seems to be giving way now or at least there is uncertainty over the consensus approach because states demand extending compensation beyond this month and due to a recent Supreme Court verdict.

Chhattisgarh Commercial Tax (GST) Minister T S Singh Deo told Business Standard the states were guaranteed 14 per cent growth in GST every year on the base year of 2015-16.

“With the economy not picking up as anticipated, there is no option for the states but to demand an extension of compensation for at least five more years,” he said, adding the demand will be raised in the forthcoming meeting of the Council.

Though the Supreme Court had only reiterated what the GST law says -- that the Council is a recommendatory body -- the judgment has come at a time when the states are asking for various things from the Centre. For instance, Tamil Nadu had set up an advisory council in April on the fiscal powers of the state and the Centre with special reference to GST.

Abhishek Rastogi, partner at Khaitan & Co who argued the matter before the Supreme Court, however, said: “This (the Supreme Court verdict) does not lead to the conclusion that there will be a rift within the Council as this body has been performing with a lot of maturity and pragmatism.”

GST encountered shortcomings in other areas too. For instance, the IT system managed by GSTNetwork has faced glitches time and again, leading to the suspension of some returns in the initial phase and then e-way Bills. In fact, these snags led to an extension of the deadline for filing returns for April 2022, when GST was into the last quarter of its fifth year.

Petitions against the constitutional validity of the national anti-profiteering authority in various courts; conflicting rulings by authorities for advance rulings; the narrow ambit of GST as petroleum, segments of real estate, and electricity remain out of it; and the unfinished agenda of reducing slabs and simplified returns have remained challenges for the indirect tax system. Not providing bills to consumers and giving bogus invoices by some segments are still some of the irritants.

Jain said: “There are many areas where GST could have done better. A reform of such a magnitude would always have challenges but we have moved a long way in the past five years and now we should look forward to the next five years with more hope.”