Despite so many feats, GST still a work in progress

Source: Business Standard

Relevance: GST is a comprehensive indirect tax(IDT) that comprises a majority of India’s IDT.

Synopsis:

The GST is still a work in progress. Hopefully, the GST Council will rediscover the spirit of cooperative federalism and move forward.

Improvements after the GST:

• Due to the introduction of GST, Voluntary tax compliance increased, tracking tax evasions quickly and faster movement of goods through various states.
• After several slip-ups, the GST Network (GSTN), the digital platform through which almost all processes are carried out, is now functioning smoothly
• The e-invoice details and reports from the GSTN help the taxpayers chase the vendors who don’t promptly report the supply details.
• The exporters get refunds automatically and more quickly than earlier.

Present challenges are associated with the GST system:

• A major issue is the hold up of a conveyance due to minor defects in the e-way bill.
• Most decisions of the GST Council have been unanimous, but that is now getting more difficult. Because of the adverse effects of some compromises made to attain consensus by appeasing the States are now showing up. For instance,
  • “Principle of equivalence” (to fix the GST rate for an item at the aggregate of excise duty and sales tax in the earlier regime) was abandoned. This resulted in lower tax rates for many items and a consequent shortfall in tax revenues.
• The governments have responded by borrowing, raising the Customs duties, imposing fresh cesses and surcharges, increasing the excise duty and sales tax on fuel and so on.
• The Central government is unable to keep its promise to compensate the states for the shortfall in the projected increase in revenues.
  • Thus, apparently, the consumers have gained through lower GST rates, but they have to pay in other ways to make up for the revenue shortfall.
• The states have been given jurisdiction over 90 per cent of the taxpayers. But many GST authorities in the states are not as familiar with the complexities of the import and export trade or taxation of services.
• Further, the States tax collection efforts are also relatively sloppy, as the States are assured of compensation for the shortfall in projected revenues. Rigorous tax audits have not taken place due to the pandemic. So, many compliance issues have not yet shown up.
•  A centralised authority for the advance ruling has not been set up. GST appellate tribunals have also not been constituted.