Decoding GST’s future course in India

Decoding GST’s future course in India

Article: The article discusses the issues with GST and suggests reforms

Important Facts:

GST

1. Goods and Service Tax (GST) is a single tax on the supply of goods and services.
2. It is considered to be a destination based tax as it is applied on goods and services at the place where final/actual consumption happens.

Issues with GST:

1. Tax slab classification and Product Rationalization: The structure of the tax rate has led to complexity. With different tax slab categories, it has become difficult to classify goods and has further added to confusion among consumers
2. Exemptions: Many goods and services are outside the ambit of GST such as electricity, alcohol, petroleum goods and real estate which further adds to the complexity and confusion over GST. Further, exemptions of these goods and services indicate that the cascading effect continues and the consumers are not benefited.
3. Input Tax credit: In the present GST system there are certain items where input tax credit is not allowed which breaks the chain. Example: Restaurants (GST rate on restaurants is 5% but without input tax credit), transport vehicles, oil or gas pipelines, telecom tower. Exclusion of items from availing input tax credit results in accumulated credit and has a cascading effect.
4. Centre’s Revenue: The compensation mechanism in which 14% incremental growth rate of revenue is assured for states. However, the revenue for the centre is not certain.

Reforms Suggested

1. Eventually the tax slabs should be converged to remove complexity in the GST tax structure.
2. To effectively deliver the promise of ‘one nation one tax economy’, products such as petroleum goods should be brought under GST. This will not only expand the tax base but will further remove the cascading effect and benefit the citizens
3. A clear roadmap should be prepared and steps should be taken to stabilise revenue for both states and the Centre.