One year may be too short a period to make an emphatic assessment on India’s Goods and Services Tax (GST) which was rolled out on July 1 last year. But despite headwinds, it is obvious that there are some positives from what was viewed by many as a disruptive tax reform. First is the revenue buoyancy. With GST collections rising to Rs 95,610 crore in June, the government now expects monthly average collections from this destination-based consumption tax to top Rs 1.10 lakh crore and revenues of over Rs 13 lakh crore from the GST this fiscal.
The introduction of this tax has also led to a number of businesses now becoming part of the tax net, and the creation of an audit trail, which is reflected in increased compliance with 64.69 lakh assessees having filed their summary sales returns in June compared to 62.47 lakh returns a month ago. That is to be expected given the nature of this indirect tax wherein tax credits would accrue only after paying tax. There is also enough evidence on the ground to show that the turnaround time for transportation of goods has come down with the dismantling of barriers and check posts on state borders. On both these points, there has been considerable progress and gradually it should lead to the emergence of a truly national market.
Still, there is a long road ahead. Unlike many other economies which have implemented this tax, India has multiple tax rates which the Union finance minister, Piyush Goyal, has defended. Both Prime Minister Narendra Modi and the FM have indicated that a single rate structure may not be feasible for now. It is not just the rate structure which needs to be reviewed but also the issue of delays in input tax credits which is wearing down many businesses, especially the small and medium firms. With the upswing in revenue collections, the government should do away with the tax slab of 28 per cent and then rationalise the tax regime by collapsing or merging the 18 per cent and 12 per cent rates into perhaps one rate of 14 per cent and gradually bring exempted sectors such as real estate, electricity and alcohol into the net.
It is equally important to address the concerns of exporters who have been hit because of considerable delays in obtaining refunds, which consequently impacts their capital making it imperative to zero rate exports. From the point of view of economic efficiency, tax administration and investor confidence, the key is to have fewer rates and a simple, stable regime.That’s what the government and the GST Council should be aiming for next.