Addressing uncertainty – Necessary changes in GST must be made in time

News: The Goods and Service Tax (GST) is going to complete its five years in a few months. Therefore, it has triggered a debate for big structural change in the system.

GST was expected to reduce complications in the indirect tax system, contain tax evasion, and boost revenue and economic growth over time. However, it has fall short of expectations.

What are the issues linked with GST?

Compensation Issue: Provision of the compensation cess against the shortfall in revenue for the first five years may be removed with completion of five years. It is expected that the compensation cess will continue, but the proceeds will be used to repay the loans taken to compensate states for the revenue shortfall during the pandemic period.

Uncertainty for the states: The fact that cess will not be used to compensate the states for revenue shortfall will create significant uncertainty for the states. It is particularly important when economic activity is weak and states are expected to reduce their budget deficits.

What are the suggestions?

Compensation Issue: To compensate the states for their revenue shortfall, additional cess might need to be imposed. It is because the cess will remain beyond June 2022, and will be used to repay the loan.

Changes in tax structure: The group of state finance ministers is reportedly expected to recommend increasing the 5 per cent slab to 8 per cent, which is projected to increase revenue collection by Rs 1.5 trillion annually.

Inclusion of some items: The Group of Minister (GOM) in its report is also expected to recommend the removal of items from the exemption list.

Operational Issues: The GST Council should review operational issues in the GST system. It can lead to improvement in the ease of filing, which will help boost compliance and revenues.

Source: The post is based on an article “Addressing uncertainty” published in the Business standard” on 11^th March 2022.