Goods and Services Tax (GST) Reforms

Context:

The Goods and Services Tax (GST), now in its six-and-a-half-year milestone this month, has generated nearly ₹3.4 lakh crore during October and November. October witnessed the second-highest monthly collections, and November followed closely as the third highest.

Relevance:

GS3-

• Indian Economy and issues relating to Planning
• Mobilization of Resources
• Inclusive Growth and issues arising from it

Mains Question:

Healthier inflows from GST offer policy makers the bandwidth to fix its flaws. Comment in the context of recent GST collection figures. (10 marks, 150 words).

About GST:

• The Goods and Services Tax (GST) is a value-added tax imposed on the majority of goods and services sold for domestic consumption.
• Consumers bear the burden of the GST, but businesses selling the goods and services are responsible for remitting it to the government.

Key Characteristics of GST:

• Applicability on the Supply Side: Unlike the previous concept of taxing the manufacture, sale, or provision of services, GST is applicable to the “supply” of goods or services.
• Destination-based Taxation: GST follows the principle of destination-based consumption taxation, in contrast to the existing principle of origin-based taxation.
• Dual GST: It operates as a dual GST, with both the Centre and the States concurrently imposing taxes on a shared base. The GST levied by the Centre is known as Central GST (CGST), and that imposed by the States is State GST (SGST).
• Import of goods or services is considered inter-state supplies and is subject to Integrated Goods & Services Tax (IGST) along with applicable customs duties.
• Mutual Agreement on GST Rates: CGST, SGST, and IGST rates are determined through mutual agreement between the Centre and the States, with the rates being notified based on the recommendations of the GST Council.
• Multiple Rates: Initially, GST was applied at four rates – 5%, 12%, 16%, and 28%. The specific items falling under these categories are decided by the GST Council.

Legislative Basis of GST:

The GST Bill was introduced in India in 2014 as The Constitution (122nd Amendment) Bill. It received approval in 2016 and was renumbered in the statute as The Constitution (101st Amendment) Act, 2016. The provisions include:

• Central GST covering Excise duty, Service tax, etc.
• State GST covering VAT, luxury tax, etc.
• Integrated GST covering inter-state trade, serving as a coordination system for state and union taxes.
• Article 246A grants states the power to tax goods and services.

GST Council:

• Article 279A establishes the GST Council, formed by the President to administer and govern GST. The Union Finance Minister of India serves as its Chairman, with members nominated by state governments.
• The council is structured such that the centre holds 1/3rd voting power, while the states collectively have 2/3rd.
• Decisions are made by a 3/4th majority.

More on the Collection Figures:

• Both months exhibited accelerated revenue growth after a series of slowing upticks, with September marking a 27-month low of 10.2%.
• October’s GST inflows increased by 13.4%, and November’s by 15.1%, notably with domestic transactions contributing a 20% rise, the highest in 14 months.
• The festive season likely played a role in boosting last month’s GST revenues, reaching nearly ₹1.68 lakh crore based on October transactions, a trend that might continue this month, especially with anticipated last-minute Deepavali spending.
• Before this two-month upswing, GST revenues had crossed ₹1.65 lakh crore only three times, usually driven by year-end compliances.
• of 2023-24, the average monthly collection stands at ₹1.66 lakh crore, and economists suggest that central GST receipts may surpass Budget estimates, even considering a potential relative slowdown in the final quarter of this year.

Associated Shortcomings:

• In response to concerns raised during a recent industry interaction about the handling of numerous GST demand notices and investigations in recent months, Finance Minister Nirmala Sitharaman acknowledged that the GST is currently transitioning from “uncertainty to certainty” on certain fronts, and efforts are underway to address these issues.
• An essential aspect is the escalation in pending taxpayer appeals against central GST levies, which surged by a quarter this year, reaching nearly 15,000 cases by October.

Making GST more effective:

• Benefiting from robust revenues, primarily attributed to enhanced compliance measures and intensified actions against tax evaders, the government should contemplate readjusting its goals to transform the Goods and Services Tax (GST) into a genuinely efficient and straightforward tax system, as initially promised.
• This pursuit of certainty should extend broadly to instill genuine confidence among investors regarding the stability and predictability of India’s tax system.
• It is imperative for the GST Council to expedite the operationalization of appellate tribunals cleared by them, resolving this backlog and establishing clear precedents for future tax treatment disputes.
• Equally crucial is the formulation of a roadmap to integrate excluded items like petroleum and electricity into the GST framework, along with streamlining its intricate multiple rate structure.

Conclusion:

While some hesitation on these reforms may be understandable given the upcoming general election, the GST Council must stay focused on its unfinished agenda. Continuous deliberation on the to-do list is necessary so that these crucial steps can be promptly implemented after the Lok Sabha election.