Long years ago when the Value Added Tax was first introduced, the traders were up in arms, protesting that it would have a disruptive impact all around. Yet, after the initial glitches, VAT was successfully implemented, everyone got used to it. Ahead of the implementation of the Goods and Services Tax on July 1 last year, there were similar voices, warning that its introduction would prove a disaster, that the country was not prepared for a single indirect tax, that there was inadequate preparation for introducing this disruptive measure, etc.
Even the Opposition parties fuelled the protests, accusing the Government of pressing ahead with a half-baked measure when not everyone was ready for it. Yet, the Modi Government went ahead and stuck to the July 1 date for implementing the GST which has been called the single most important tax reform since Independence. A year later, the nay-sayers seem to have been silenced. Despite the initial glitches, harassments and even deficiencies in the dedicated internet platform, the faith the Modi Government posed in GST has turned out to be well worth the effort. Correcting errors, inbuilt glitches, even a flawed design in the GST network as the time passed, the authorities seem to have got their act together. GST payers no longer have major complaints about its implementation.
The switch from multiple taxes to a single, omnibus country-wide tax was painful but eventually successful. The disruption caused, too, seems to have fully settled with the taxpayers coming to terms with the new slabs and the way to pay them. The last-point consumption tax was sound in principle, too, with the suppliers in the producer-chain giving tax credit at every step. The entrenched digitisation of GST also meant that it would eventually make tax evasion difficult. After initially mopping up a little over Rs 85,000 crores per month, the average monthly collections have now hovered close to Rs one lakh crore. The Government hopes to collect over Rs 13 lakh crores in the current fiscal. The tax buoyancy is based on the premise that GST has made tax evasion harder.
According to official data, 47 lakh new enterprises have registered under the GST in just one year, giving hope that more and more people would join the formalisation of the economy. The GST has also helped expand the direct tax base, resulting in over 40 per cent growth in personal advance income tax collections this year. The audit trail under GST makes it harder for businesses to stay under the tax radar. No less significant is the introduction of e-billing for the movement of goods within the boundaries of a State and for the inter-state movement. After the initial problems, and even resistance by the truckers’ bodies, e-billing is turning out to be a success. Because it has ended the toll tax menace and the resultant removal of check-posts and petty corruption, e-billing has cut down the travel time for truckers, saving precious fuel and reducing the turnaround time drastically. Introduced only a couple of months ago, the e-billing success will help make the GST a truly national tax.
However, the multiple tax slabs remain a major point of criticism against the GST. Given that the GST Council is an all-party representative body, multiple tax slabs reflect the current consensus, though the ultimate goal must be to make it only two slabs. The Congress Party insistence on a single tax slab seems impractical under the current economic conditions. As the prime minister said, milk and Mercedes cars cannot be taxed at the same rate. Multiplicity of slabs ought to be reduced and as far as possible the average rate ought to be lower than the 18 percent as at present. A cess on luxury goods can be charged separately. Also, alcohol, petroleum products and electricity ought to be brought under the GST to make it a single uniform national tax. Yet, GST regime is still a work in progress. As digitisation of the economy grows, there will be more transparency and less tax evasion and theft. How to further fine-tune a progressive tax is a continuing challenge for the GST Council in the light of the daily experience of Indians.
