Government defends GST as the tax reform completes four years
PremiumPM Modi, who described GST as a ‘good and simple tax’ in 2017, called it a milestone in India’s economic landscape
The Central government on Wednesday defended the goods and services tax (GST) regime on the eve of the fourth anniversary of India’s biggest tax reform since Independence, flagging the ease it brought to businesses and the relief on tax burden to consumers.
The roll-out of GST to replace 17 central and state taxes and remove border barriers across states, completes four years on Thursday, even as some of the interim measures such as a cess on automobiles and compensation to states look set to continue longer than originally envisaged.
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The Centre’s endorsement of GST comes at a time states not ruled by the Bharatiya Janata Party (BJP) have become vocal about their fiscal woes and alleged loss of voice in decision-making at the federal body, the GST Council.
Prime Minister Narendra Modi, who had described GST as a ‘good and simple tax’ at the time of its launch in 2017, called it a milestone in India’s economic landscape.
“GST has been a milestone in the economic landscape of India. It has decreased the number of taxes, compliance burden and overall tax burden on common man while significantly increasing transparency, compliance and overall collection," Modi said in a tweet.
GST brought in more transparency in the tax system, showed where it was burdensome on consumers and prompted central and state governments to correct those anomalies, leading to several rounds of tax cuts on goods and services. GST also demonstrated that tax administration could leverage technology to a high degree, use data analytics and zero in on instances of tax evasion with accuracy.
In these four years, GST has achieved better tax compliance through mitigation of tax cascading (instances of tax amount getting taxed), double (multiple) taxation, and reduced tax burden, and has improved the competitiveness of domestic industries in the international market by removing hidden and embedded taxes, the finance ministry said in a tweet.
Over the years, GST rates were reduced on 400 goods and 80 services, minister of state for finance Anurag Thakur said in a tweet.
In the pre-GST regime, the combined tax by the central and state governments was above 31% on most items. Under GST, essential goods are either not taxed or are subject to 5% tax, while mass use items are subject to either 12% or 18% tax. Only a few other items are kept on the highest slab of 28%. Though, indirect taxes are considered regressive as they affect the rich and the poor alike, the GST Council sought to address it by bringing progressivity in rates depending on mass use and goods of essential and luxury nature, with luxury items being kept in the highest tax bracket.
GST also removed a tax arbitrage across states that distorted business investment decisions.
Despite the convenience GST has brought, the economic downturn has led to fissures in Centre-state relations, especially relating to GST compensation to states.
The finance ministry on Wednesday said the Central Board of Indirect Taxes and Customs (CBIC) has identified taxpayers who have made substantial tax contribution and have filed returns in time. It identified 54,439 taxpayers who will be issued certificates of appreciation.
“The government is committed to continuous improvement of taxpayer services and seeks the cooperation of all taxpayers for their voluntary compliance and contribution to national development for a strong and resilient India," the ministry said.
Experts said there is still room for improvement in GST. “One of the major objectives of GST was to prevent cascading of taxes through ‘seamless flow of input tax credit’. However, this is proving to be a myth, with various restrictions being introduced on availing input tax credit with an aim to curb tax fraud. Such blanket measures have only added to the woes of bona fide businesses, for whom the last 1-1.5 years have been challenging because of the covid pandemic," said Saket Patawari, executive director, indirect tax, at Nexdigm, a consultant.
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