GST 4th anniversary: Hits and misses under ambitious tax regime

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One of Prime Minister Narendra Modi’s most ambitious initiatives after assuming office was the rollout of the Goods and Services Tax (GST). The GST regime came into existence four years ago on July 1, 2017, when late Arun Jaitley was the finance minister.

The GST subsumed at least 17 indirect taxes including value-added tax (VAT), excise duty, service tax. It is worth mentioning that GST is imposed at every step of the production process but is collected at the end, refunding all parties eventually other than the final consumer.

Exemptions under GST

In an attempt to boost small establishments, the GST Council decided that businesses with an annual turnover of up to Rs 40 lakh will be exempt from GST. Furthermore, those businesses which have a turnover up to Rs 1.5 crore can opt for the Composition Scheme & pay only 1 percent tax.

Meanwhile, a service provider having turnover up to Rs 50 lakh in a year can opt for a composition scheme for services and pay 6 percent tax.

While many exemptions have been allowed, the paperwork to enrol for GST remains cumbersome. This is why many businesses, especially the smaller ones, have opted to remain out of the ambit of GST.

GST: Tug of War Between States & Centre

Before the coronavirus pandemic, there was consensus between the Centre and the state on GST. However, the tax regime soured relations between the Centre and some states after the pandemic battered the economy. The debate over compensation cess to states continues between states and Centre.

Despite the tug of war between Centre and states, GST collections have improved after the initial wave of the pandemic; it remained the Rs 1 lakh crore for the past eight months in a row. The collection was Rs 1,02,702 crore in the month of May.

After the country was hit by the pandemic, the government was asked by businesses to cut down GST rates and the Council had temporarily removed the tax on two medicines. GST rates on medical items like drugs, medical-grade oxygen, testing kits were slashed to 5 percent.

The levy on ambulances was slashed to 12 percent for a little over three-and-a-half months.

Experts Concerned Over GST Growth

While tax collection has remained a little over Rs 1 lakh crore, experts believe the government has been unable to widen the tax net, which is why GST collections have not increased beyond a certain limit.

It may be noted that the Centre’s share of GST grew by just 3.5 percent in 2019-2020. It had dropped to 7.9 percent during the pandemic in 2020-2021. This shortfall is also the reason behind high excise duty on fuel prices.

Some experts suggest that the GST net may not widen further as many small businesses have not enrolled under the tax regime due to complex paperwork.

States Unhappy

The key factor for the success of the GST regime is consensus among states and government, but relations have sourced over the last year, evident by the claims and counter-claims in past GST Council meetings.

States continue to slam the Centre for not being able to pay timely compensation, as promised during the implementation of GST four years ago.

Many state finance ministers, who are part of the council, are now terming council meetings as political slugfests. The opposition-ruled States often complain of not being heard at the GST Council meetings.

Government Hails GST

Despite the setbacks, the government has maintained a positive outlook about the GST regime, citing achievements under it.

On Twitter, Prime Minister Narendra Modi said, “GST has been a milestone in the economic landscape of India as it has decreased the number of taxes, compliance burden and overall tax weight on the common man.”

Finance minister, Nirmala Sitharaman said, “This year on GST day, the Union ministry of finance will issue certificates of appreciation to over 54,000 GST payers for timely filing of returns and a cash payment of the tax.”

Many other Union ministers have praised the GST regime for helping increase compliance in indirect taxation besides reducing the burden on millions of smaller traders and businessmen.

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