What Four Years Of GST Have Taught Us About This Tax Regime

Livemint     7th July 2021     Save    

Context: There’s a long way to go for the GST system to fulfil its promise, even as many of its myths have been demolished.

Promises of GST when it was implemented

  • Accelerated growth: GDP growth will increase by 1-2 percentage points.
  • Lowering down of Inflation.
  • Increase in revenue: Clocking Rs 1 trillion every month in GST revenue emerged as a thumb rule for its success.

Challenges

  • Issues faced by MSMEs: Micro, Small, and Medium Enterprises (MSMEs) faced serious problems on taxes, refunds, set-offs and fines.
  • Concerns overcompensation to states: Need to review 14% growth-determined compensation for five years as it is about to end.
    • Continuance of the compensation to consider the impact of extended lockdowns amidst pandemic, Centre’s decision to borrow to cover compensation in FY21 and demands for a 5-year extension of the system from states.
  • Large share of exclusions from GST network: Fuel and ‘sin goods’ still out of GST’s ambit.
    • Leveraging fuel taxes for higher revenues leading to unintended consequences such as higher inflation, adding to the stresses from rising crude oil prices and a fall in demand amidst pandemic.
  • Complexities associated with multi-slab tax regime: There is now a pressing need to reduce multiple rates into a single slab.

Steps taken by government towards streamlining GST regime

  • Introduction of ‘composition scheme’ for MSMEs
  • Altering of GST rates for various commodities after representation

Learnings from four-year GST experience

  • GST cannot itself increase GDP: GDP growth increases only in case there is more income that gets spent, which is best accomplished by creating more jobs.
  • Deep contradictions in our tax structure: Inflation will remain beyond the grasp of GST.
  • Revenue growth to remain moderate: Higher revenue needs higher buoyancy in the economy, which is not feasible in the present low-growth syndrome.