Goods and Services Tax (GST)


Dr. Debasis Bhattacharya
Amity Business School
Amity University Gurugram

Goods and Services Tax (GST) - Enabling Transformational Reforms in Indian Economy

With the grand ceremonial launch of the much awaited GST at the historic Central Hall of Parliament at midnight of 30 June–1 July 2017, the country entered a new era of tax reforms. It was indeed a giant leap forward towards unification of the fragmented indirect tax structure that was existent so far. Since its inception GST has taken centre-stage in deliberations in academia, industry and policymakers. There have been intense discussions in academic and industry circles regarding the immediate and long-term consequences of GST that has been not only dynamic but also transformational for Indian economy. From the socio-economic standpoint GST primarily aims at making us all better off. A unique feature of GST is that its architecture is designed to ensure compliance through an inbuilt self-policing mechanism that is based on a sophisticated software-driven portal – the GST Network. GST has the right kind of capability for getting rid of the menace of tax terrorism and black money. Any new policy intervention, particularly of the nature and size of GST, is bound to have initial hiccups and glitches. That is quite natural. However, the hopeful sign is that GST has an inbuilt robustness and adequate safeguards to address such issues in place.

With regard to enhancing tax accountability and making the system more transparent, GST aims at eliminating multiple tax components in the production, distribution and consumption channels into a single comprehensive tax umbrella. It enhances the transparency of the tax system as a whole. Under the new system, traders cannot hide any taxable component in the production and distribution network from the tax administration. Simultaneously, end consumers will be aware of the basis of their paying the indirect tax at the point of purchase irrespective of the location of transaction. In general, by eliminating the cascading effects of tax incidence through the tax input credit mechanism, GST has already ensured that the consumers will be benefited. In a way, therefore, we see it is a win-win outcome for traders and end-consumers. With the bold and historic decisions made from time to time in the GST Council meetings regarding rationalization of tax slabs, the long-term positive effects of the new tax regime are expected to more than offset the possible short-term hurdles.

Starting from 23rd GST Council meeting up until 30th GST Council meeting, a series of important measures have been taken up in rationalizing the tax slabs and simplifying the system of tax assessment and governance. In these meetings, important strategic decisions were made in transitioning greater number of consumer goods from high GST slabs to lower slabs. As of now, almost all common man’s commodities are now adjusted in 5% and 12% category in GST slabs. This has widened the tax base and enhanced revenue collection.

Another astounding feature of GST is the implementation of E-Way Bill that has brought transformational changes in interstate and intra-state movement of goods. According to this Bill under GST, Businesses and transporters moving goods worth over Rs 50,000 from one state to another carry an electronic or e-way bill that has significantly reduced corruption at the transport checkpoints between states and within states. This has also ensured timely and systematic and legitimate assessment and collection of GST when consignments are being moved across various parts of the country. Timely delivery of goods has also saved significant time of inter-state movement of consignments of commodities, especially to the interiors and far-flung areas of the country. In the 36th GST Council meeting held in August 2019, strategic GST rationalization decisions are made to boost e-Vehicle industry in India. The GST rate for E-Vehicle has been brought down from earlier 12% to 5%. The ongoing slump in the automobile sector is also likely to be addressed by GST Council in future so that the Indian economy can accelerate its rate of growth and make Indian automobile sector one of the largest in the world.

GST as a major structural economic reform has also been at the forefront in transforming large informal sector to formal sector. According to the latest report prepared by market research organization IMRB Kantar for Indian Staffing Federation (ISF) published in 2019 six reforms and two initiatives by the Union Government have made significant impact on job formalization during this period. These include demonetization, GST, employee provident fund (EPF) reforms under Pradhan Mantri Rojgar Protsahan Yojana, fixed-term contract reform, Pradhan Mantri Kaushal Vikas Yojana, reforms in employee insurance and maternity benefits.

Amity Business School