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Published on:
February 20, 2023
By
Paramita

Five Years of GST: Triumphs and Laments

In July 2017, India implemented the Goods and Services Tax (GST) after months of political negotiations and legislative deliberations. The GST aimed to simplify India's complex tax system and transform the country into a unified market. Five years down the line, the GST has had its fair share of triumphs and laments. In this article, we'll examine the impact of the GST on India's economy, industry, and people.

The Triumphs

One of the primary benefits of the GST is that it has streamlined India's tax system. Before the GST, businesses had to deal with a labyrinth of state and central taxes, which made compliance an arduous task. With the GST, businesses now have to deal with a single tax regime, making it easier to comply with tax laws.

The GST has also boosted India's formal economy by bringing more businesses under the tax net. According to the Ministry of Finance, the number of registered taxpayers has increased from 6.4 million in March 2017 to over 13 million in March 2021. This increase in the tax base has led to higher tax revenues for the government, which can be used for public welfare.

Another success of the GST is that it has eliminated the cascading effect of taxes. Before the GST, businesses had to pay taxes on taxes, which led to a higher tax burden on consumers. With the GST, businesses can claim credit for the taxes they have paid, which reduces the final price of goods and services.

The GST has also made inter-state trade simpler and less expensive. Before the GST, businesses had to pay multiple taxes when transporting goods from one state to another. With the GST, businesses only have to pay an Integrated Goods and Services Tax (IGST) on inter-state transactions, which has reduced the cost of doing business.

The Laments

Despite its successes, the GST has also faced criticism and challenges. One of the main criticisms of the GST is that it has led to an increase in compliance costs for small and medium-sized businesses. These businesses may not have the resources to comply with the complex GST filing requirements, which has led to a drop in their profitability.

The GST has also led to confusion among taxpayers due to frequent changes in tax rates and compliance requirements. The GST Council has made several changes to the GST regime since its implementation, which has led to uncertainty among taxpayers. This uncertainty can lead to non-compliance and an increase in the informal economy.

Another challenge of the GST is that it has led to a decline in revenue for some states. Before the GST, some states had higher tax rates than others. With the GST, tax rates have been standardized, which has led to a decline in revenue for some states. To compensate for this loss of revenue, the central government has introduced a compensation cess, which has led to higher prices for some goods and services.

The Way Forward

The GST has brought about significant changes to India's tax regime. While it has had its fair share of triumphs and laments, it is clear that the GST has had a positive impact on India's economy. However, there is still room for improvement.

The GST Council should focus on simplifying the GST filing process to reduce compliance costs for small and medium-sized businesses. The Council should also avoid frequent changes to the GST regime, which can lead to confusion among taxpayers.

The central government should also work with states to address the revenue shortfall caused by the GST. This can be done by introducing measures to boost economic activity in these states and by reducing the compensation cess on some goods and services.

Conclusion

The GST has been a game-changer for India's tax system. It has simplified the tax regime, boosted the formal economy, and made inter-state trade simpler and less expensive. While it has faced challenges, it is clear that the GST has had a positive impact on India's economy. It is now up to the government to address the challenges and build on the successes of the GST to create a more efficient and equitable tax system.

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Updated on:
March 16, 2024