Next steps for GST – Administrative and policy interventions needed

Source: The post is based on an article “Next steps for GST – Administrative and policy interventions needed” published in Business Standard on 5^th July 2023.

Syllabus: GS 3 – Indian Economy – Fiscal Policy, Growth and Development

Relevance: concerns present with the GST system and measures needed to address them

News: After six years of implementation, the goods and services tax (GST) system seems to have stabilized, with monthly revenues of at least ~1.5 trillion.

A number of interventions over the years, such as the introduction of e-way bills, the use of e-invoice and technology, have improved efficiency.

However, despite the achievements of the past six years, there are still concerns present with the GST system.

What are the concerns present with the GST system?

In a recent special drive conducted by tax officials, approximately 60,000 suspicious entities were identified. After verifying 50,000 of them, it was discovered that about 25% were bogus.

Hence, to strengthen the system, the administration is planning to introduce biometric authentication along with geo-tagging.

The tax authorities have also found a number of instances of fake input tax credit claims. For example, GST officials in recent months have busted over 300 syndicates with estimated fake input tax credit claims of about ~25,000 crore.

Hence, in this regard, it is important for new systems or changes in tax administration to minimize compliance burdens and allow registered entities to focus on their businesses.

Must Read: The unsung hero – After five years, it seems GST has begun to show sustained growth even as it has many weaknesses and policy challenges

What can be the way ahead?

First, there is a need for strengthening supervision in a sustained manner to check tax evasion and fraudulent claims of input tax credit.

Second, the GST Council must also make necessary interventions. For instance, although there has been an improvement in revenue collection in recent years, the system still falls short of the initial expectations.

The estimated GST collection in 2022-23 was 6.65% of the GDP, only slightly better than the 6.3% collected in 2016-17. Also, collection may be affected when the extended compensation cess expires.

Therefore, it is important that the GST Council addresses the long-pending issue of rationalising both rates and slabs. Reducing the number of slabs, along with adjustments in rates, will improve efficiency and collection.