Goods and Services Tax (GST)

India introduced the Goods and Services Tax (GST) on 1 July 2017 after a decade of preparation. Ideally, GST should reduce tax driving the market by enabling businesses to invest, reflecting consumer choices rather than through strategising against the tax structure. The basic GST structure poses challenges. It differentiates between goods and services contrary to GST’s essence. Too many rates contest the desirable single- or double-rate structure. There is wide variation among rates. Too many taxpayers have been brought in from the bottom, which will challenge the tax administration adversely. Registration is required in every state where a dealer is trading. This enables the central administration and that of each state to scrutinise the same taxpayer, but comprises a compliance challenge for small taxpayers. Going forward, teething problems in information technology affecting filing of returns should be corrected. There is no monitoring cell to check the GST’s impact on revenue or inflation. GST was intended to be introduced on a revenue-neutral basis. The possibility of reduction in GST rates should be considered if post-introduction revenue has shifted up the pre- introduction collection trend. There should be no significant short-run adverse impact on GDP if cascading elements of the earlier tax structure are reduced under GST. These matters need monitoring and correction. Petroleum has to be brought in the GST base quickly to reduce its cascading effects. Judging from the weekly posts by the Chairperson, CBEC, it is apparent that the top administration is trying to handhold taxpayers, ease compliance, and control remaining elements of corruption.