As the Goods and Services Tax (GST) regime completes two years, it is a good time to assess the impact of what is undoubtedly the most audacious indirect tax reform undertaken in independent India. It has been a bumpy ride as the monumental restructuring of one of the world’s clumsiest tax systems faced initial hiccups and technical glitches. Though the filings within the due date have been less than the desired level, experts say the full benefits of the new system will accrue to the economy in the years ahead. There was criticism in some quarters that the rollout was hurriedly done without addressing the concerns of all stakeholders. One of the key challenges was to get the States on board because of their fear of losing their fiscal autonomy to tax. However, the Centre could persuade the States by providing the cushion of a 14% annual increase from the tax base of 2015-16 for a period of five years. The overall experience has been beneficial as the tax compliance has gone up significantly and several businesses have come under the net of formal economy. The assessee base in the last two years has increased by 84%, with the number of businesses covered by the GST going up from 65 lakh to 1.20 crore. This has led to higher revenue collections. The GST, which subsumed a cascade of 17 Central and State taxes and 23 cesses, has improved transparency, enhanced voluntary registration and widened the base of direct and indirect taxes. With the increase in revenues, the country is now in a position to switch to two-rate tax structure by merging the 12% and 18% slabs into one rate.
However, it would be impractical and unviable to have a single slab in a country like India where there are a large number of people below the poverty line. It would be imprudent to have ‘Hawai chappal’ and ‘Mercedes car’ taxed at the same rate. In the pre-GST regime, the rich and the poor, on various commodities, paid the same tax while both the Centre and States were entitled to impose indirect tax on goods. Now, the products being used by the common man are not exorbitantly taxed. The success of GST is a fitting tribute to the spirit of cooperative federalism prevailing in the country, despite political and ideological differences. The GST Council, with representation from all the States, deserves credit for overcoming the hurdles and fixing the transition glitches in uploading returns and settling exporters’ input tax credit claims. Apart from reducing the complexity of taxes, the GST will lead to reduction in transaction costs, plugging leakage of tax, lowering tax burden on the common man and improving ease of doing business.