The 101st Amendment of the Constitution, National Goods and Services Tax is creating a radical change in the functioning of the Indian Economy. This is evident as Moody’s credit rating agency has upgraded India’s Government bond rating to Baa2 from Baa3. India has climbed 30 notches into the top 100 rankings on the World Bank’s Ease of Doing Business Index. Improvement in these ratings and indices can be attributed to multiple institutional and structural reforms. However, implementation of GST has played a predominant role.
Since historical times in India, taxes have been collected from people to reduce economic disparities in the population. Myriad ways of taxation and types of taxes are mentioned in the Manu Smriti and Arthashastra etc.With the passing of time variety of tax impositions were made on the people conforming to the then prevailing economic and social situations. Some of these include Ghari, Jaziya, Chauth etc.During colonial rule, the taxes levied were usurious and created a burden on the people. However, when India gained Independence, taxes were classified as direct and indirect taxes. Until July 1, 2017, there were multiple indirect taxes in the country, which have been harmonised and consolidated by the implementation of GST. GST is commonly referred to as “ONE nation ONE tax”.
The items under the GST are categorised into five major slabs—0%, 5%, 12%, 18% and 28%. The products and services are placed under each slab as per the rate of consumption by the common people. Quotidian goods such as foodgrains, bread, butter etc. are placed under the 0% bracket. While luxury items such as top brand cars, refrigerators etc. fall under the 28% category. Goods and services are placed under each category with utmost prudence and sagacity, as products under the 28% category include those containing tobacco. Additional cess too is levied on these products, thereby discouraging their consumption.
In contrast with other economies, India has the highest number of GST slabs. This measure avoids the unexpected and sudden fluctuation of prices, caused by the imposition of a single tax rate on all goods and services. This sudden rise in prices (inflation) was experienced in Singapore during its implementation of the GST regime. Nations such as Japan, New Zealand etc. have amended the GST rates multiple times due to fall in Governments’ revenue. However, in India, net direct tax receipts grew 14.4% to touch Rs. 4.8 lakh crore in the April-November 2017 period. This indicates that the government exchequer has improved its revenue and will use these receipts for ameliorating the country’s economy.
The GST is a destination-based tax, as the tax amount is levied at the point where goods and services are consumed. This feature of the GST makes it an idiosyncratic tax regime. A destination-based tax wards off the cascading effect of taxes, thereby making goods available at a lesser cost. The application of the destination principle also achieves neutrality in international trade. According to this principle, exports are not subject to tax, while imports are taxed by the rules and regulations in the jurisdiction of its consumption. This encourages exports which contribute to the GDP of the nation, thereby increasing the growth rate of the economy.
There are three types of GST namely: CGST (Central GST), SGST (State GST) and IGST (Integrated GST). The money collected as revenue is divided between the States and the Central Government. However, during interstate movement of goods and services, IGST is levied on the transaction and the tax is collected by the Centre which is later apportioned to the States based on the amount of consumption of goods. This mechanism of distribution of funds requires the States and the Central Government to work in tandem with each other in turn improving their liaison and promoting co-operative federalism. This close coordination would help in the better formulation of policies for the citizens. Enhancing coordination between the two levels of government aids in maintaining political stability within the country, which ensures better implementation of long-term schemes. Better execution of schemes helps in reducing financial inequality among people.
India being a non-rentier state, the bulk of the government revenue is generated through taxes. Tax revenue can be effectively augmented without burdening the people, by increasing the tax base (number of people who pay taxes) while reducing the tax rate. GST has swiftly achieved this agenda, as Economic Survey 2017-18 suggests that there is a 50% increase in the number of indirect taxpayers due to the implementation of GST. The main reason for this being provision of input tax credit under the GST. Moreover, this has assisted in formalising the Indian economy thereby reducing the amount of unaccounted money.
As every storm is accompanied by rain, GST too has caused short-term compliance troubles for taxpayers. However to mitigate these glitches, Government has introduced the GST Suvidha Provider (GSP) under the GST Network company. The GSPs are envisaged to provide innovative and convenient methods to taxpayers and other stakeholders in interacting with the GST Systems from registration of entity to uploading of invoice details to filing of returns. To ensure that the benefits of GST are transferred to the people, Anti-Profiteering Committee has been set up by the Centre. This makes GST a win-win situation, as it is a consumer and manufacturer friendly regime.
Certain steps can be taken to improve GST. They are incorporating more products and services including real estate, energy and petrol within its ambit. By increasing the area under its purview, GST will help in controlling the petrol costs in a scenario of rising oil prices around the world. Enhancing coordination and streamlining its IT structure would make GST a hassle-free service. Reducing the number of rate slabs in the long term is another suggestion to boost the positive effect of GST. A great man once said : “Work to meet long-term goals and not short-term satisfaction.” GST is one such measure, which will help the country meet long-term goals of sustainable development, formalisation of the economy and affordable prices of goods. Therefore, it is a whole new ball game in the indirect tax regime of the world’s largest democracy.