Introduction

• Almost seven years have passed since India’s Goods and Services Tax (GST) began on July 1, 2017. This major tax reform consolidated 17 central and state taxes and 13 cesses into a single, simplified tax system nationwide.
• Despite challenging transitions, a global pandemic, and geopolitical turbulence, GST has remained stable. In FY24, GST achieved a Tax buoyancy of over 1.4, promising to boost India’s economy. The scale, speed, and complexity of GST’s transformation in India are unmatched.
• Brazil, for instance, is planning a seven-year phased rollout of a new value-added tax system by 2033 to simplify its complex federal, state, and municipal taxes.

GST’s Unique Credentials

• India’s GST is managed by the GST Council, a constitutional body promoting cooperative fiscal federalism.
• The gross GST collections during 2024-25 are on a roll, likely to exceed ₹10.68 trillion, an increase of 11.6% over the previous year.
• The number of active GST taxpayers has more than doubled to over 14.6 million since its inception, due to the transparent GST Network portal.
• Efforts against tax evaders and enhanced Know Your Customer norms, including biometric Aadhaar authentication for GST registration, have also helped transition smaller players into the formal economy.
• Innovations like the E-Way Bill, real-time e-invoicing, and reporting of monthly GST collection data have enhanced the availability of high-frequency economic indicators.
• Data-sharing protocols with other agencies and advanced data analytics by the tax department have effectively targeted GST evaders, especially those using fake bills and dubious entities.
• The Directorate General of GST Intelligence, the investigative arm of the Central Board of Indirect Taxes and Customs, uncovered over 6,074 fraud cases totaling nearly ₹22.01 trillion in FY24, about 10% of the annual gross GST collections.

Areas for Policy Reforms

Despite these salient achievements, several areas clearly require GST reforms.

1. Rate Restructuring:

• The multiplicity of rates with the added complexity of the inverted duty structure needs to be addressed by the newly constituted Group of Ministers under the GST Council. The rate restructuring should enable Indian manufacturing to be competitive and integrate with the global value chain. The council should also decide how to recast the compensation cess, which is no longer needed for payment of compensation to states.

2. Inclusion of Large Sectors:

• GST unfortunately does not cover large sectors of the economy like petroleum/natural gas and real estate, leading to a cascading of taxes.
• Aviation turbine fuel and natural gas are low-hanging fruits that can be subsumed under GST at the earliest.
• A clear road map for the inclusion of these areas would help businesses in their strategic investments and long-term planning.

3. Input Tax Credit (ITC) Restrictions:

• Restrictions on availing of ITC have left businesses in the construction, telecom, hospitality, and other sectors grappling with issues such as working capital crunch.
• Policy reforms in easing ITC availability would bring down costs and enhance ease of doing business.

4. Audit and Investigations:

• A relook is needed at the heightened intensity of audit and investigations that have burdened pan-India entities with huge compliance costs, time, and resources.

5. GST Appellate Tribunal (GSTAT):

• In the absence of the GSTAT, taxpayers are unable to obtain efficacious remedies, forcing many to approach courts by invoking their writ jurisdiction.
• Operationalising GSTAT with end-to-end digital processes should therefore be a top priority.

The Road Ahead

As India gears up towards its goal of becoming the third-largest economy, GST will be a critical lynchpin in supporting our growth and development. There is clearly a need for more collaborative and innovative reforms in the ensuing years to make GST truly responsive, tech-driven, sustainable, and fit for a Viksit Bharat.