Six years ago, on July 1, India introduced a bold and transformational tax reform: the
Goods and Services Tax (GST). The GST was a major undertaking, requiring a constitutional amendment and the cooperation of all states. It was a significant step towards creating a unified national market and reducing the cascading effect of taxes.
The GST was launched with much fanfare, and for good reason. It was a major achievement for the Indian government and a testament to the strong political leadership, enormous sagacity, and maturity of all parties concerned.
Six years is too short a period in the life of a fiscal legislation, but even its harshest critic will agree that GST has been a success. It has achieved all that it set out to do — merged and subsumed the multiple taxes and cesses, reduced their cascading impact, gave the country a common economic market, and provided an excellent technology-driven tax system.
Revenue has consistently been doing well. May 2023 saw
Rs. 1.57 lakh crore in revenue, clocking a 12 perscent year-on-year growth. This has been a steady trend — showing both better compliance and a spurt in economic activity. Undoubtedly, inflation and high imports have contributed to GST revenue. Yes, there has been criticism. The noise about the need to converge rates,
to include petroleum products, continues. Every tax administrator will readily agree, but these are suggestions for which the political establishment is not yet ready.
This brings us to the wonderful collateral benefits of GST — the
GST Network (GSTN) ), the technology platform that has also played a critical part, and the GST Council, the very embodiment of cooperative federalism.
GSTN has been an unqualified success. It started in a hesitant manner but has rapidly matured. Getting the whole nation on a technology platform is no mean feat, which GSTN has achieved. It has facilitated the taxpayer and the tax administration. It has constantly been at the forefront of making compliance easier — and analytics deeper. It is time that the data available with GSTN is made public. This will facilitate research and ultimately strengthen the hand of the government.
The GST Council provides a platform for debate and discussion. It has brought the states and the Centre closer. It has provided solutions. The council has been a success — and spawned a belief that similar institutions would perhaps be required to address other contentious federal issues, such as water sharing, infrastructure, and healthcare. In its six years, the council has met eight times a year on average — undoubtedly the frequency of the meetings now has sharply reduced. In FY23 for instance, the council met only thrice — given the fact that meetings are also held virtually, this is far too infrequent. It can be argued that most important issues have been sorted and the Council need not meet as often, but this is a fallacious argument.
The
50th session of the council is scheduled to be held on July 11. This brings us to the issues which the Council has to grapple with. First is the setting up of the long overdue GST Tribunal. It may be recalled that
in the last meeting held on February 18, the Council adopted the recommendations of the Group of Ministers (GoM) on the tribunal with certain modifications. A tribunal acts as the second forum of appeal and saves time and money for the taxpayer who. in its absence, will necessarily have to rush to the overburdened courts. A tribunal is urgently required and its contours have yet to be finalised. The rules determining the functioning of the tribunal need to be put in place.
The second issue which has generated debate and discussion, but no conclusion, is the rate and value to be adopted in the cases of
casinos, online gaming, and horse racing — 28 percent was recommended on all earnings; the issue of the base value to be adopted however remained unresolved. The
47th GST Council meeting had decided that the issue needs further examination by the GoM constituted for this purpose. The issue needs closure and a decision. Taxation, after all, thrives on certainty.
Incidentally, as many as 35 GoMs have been constituted so far under the directions of the GST Council. The very fact that a GoM was constituted would suggest that the matter was important enough for a closer examination by a smaller, high-level group whose report would help the Council arrive at a decision. However, none of the GoM reports have been placed in the public domain which is unfortunate. It is necessary that this is done so at the earliest — this will help the taxpayer appreciate the challenges and the thinking behind a particular decision.
The last few weeks have seen
a spurt in enforcement activity based on an analytic risk-based approach; more than 10,000 cases of fake registrations have been detected with the revenue implication said to be in excess of Rs 25,000 crore. This is a serious matter which should prompt the council to debate if any changes in the rules or law are needed to plug loopholes.
The issue of the
inverted duty structure is an ongoing exercise and it is certain that the
CBIC would have recommendations to make based on the inputs of the fitment committee. This issue is particularly a matter of concern for the textile sector. A look at the agendas of the previous meetings as available on the GST Council website would suggest that very many items have been left open— no decisions apparently have been taken. It would be advisable to finalise — or close — these agenda points so that no action is called for on the pending agenda items.
The 50th meeting will see some new faces. The very experienced Krishna Byre Gowda, who had closely participated in the early days of the council, will now represent Karnataka. This meeting will also see a new minister representing Tamil Nadu. The absence of the erstwhile eloquent Tamil Nadu Finance Minister will be felt.
The 50th meeting should address much more than the almost mandatory tinkering of rates. The chairperson of the council has to ensure that these long pending issues are resolved.
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Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. Opinions expressed herein are personal.
First Published: Jun 18, 2023 8:15 AM IST
