At long last, India has been able to enter the goods and services tax (GST) regime. It was opportune that the glittering ceremony to usher in the biggest tax reform since Independence was held at the Central Hall of Parliament, even though several opposition parties, most notably the Congress, decided to boycott the event. But none of that can take away from the fact that the GST
will be celebrated as a watershed moment in the history of India’s economic reforms. Nor can anyone deny that it is, as both Prime Minister Narendra Modi and Finance Minister Arun Jaitley said in their speeches, a “high point” of Indian politics and a shining example of the success of its federal structure. The GST
was first mooted by a task force headed by Vijay Kelkar in 2003 and the Atal Bihari Vajpayee-led government welcomed the recommendation. Later, the Congress-led government of the United Progressive Alliance took the first concrete legislative steps in 2011. Over time, the GST’s framework received critical inputs across party lines: From the BJP’s Yashwant Sinha, who led the Parliamentary Committee and gave the format of the GST
Council, to several leaders from Opposition parties who served as the head of the empowered group of state finance ministers such as Asim Dasgupta of the CPI(M) in West Bengal, K M Mani of the Kerala Congress (M) in Kerala, and A R Rather of the National Conference in Jammu & Kashmir. It is indeed creditworthy that notwithstanding the 14-year-long wait, all decisions by the GST Council were taken by consensus.
In terms of economics, the GST replaces 17 indirect taxes (each requiring a separate return) and 23 cesses and will thus unify the country (Jammu & Kashmir will hopefully join the new system by next week) into a single market, at least in terms of all the goods and services that are covered in it. Since it is a tax based on the value addition at each stage of production, allowing producers to claim input tax credit, it removes the cascading effect of indirect taxation that existed till now. It also is more equitable and socially reformative since it strengthens the hands of the honest taxpayer while making it more arduous for the corrupt to evade taxes. In the process, it expands the tax base, allowing lower tax rates to possibly throw up higher revenues for the central and state governments, and those, in turn, could be spent on increased welfare spending. Apart from simplifying processes for the domestic producers and reducing the discretionary powers with tax officials, the GST also makes it easy for the global investors looking to plough their money into India. Clearly, the GST does provide India with a truly modern “way of doing business”.
However, it is also true that many commodities such as petrol, diesel, and potable alcohol as well as over 80 services have been kept out of the GST net. This will not only restrict expanding the tax net as well as the potential revenues but also impede the prime minister’s express objective of curbing black economy. Moreover, as several reports suggest, many a small business appears ill-equipped as of now to transition to the GST framework, thanks to the breakneck speed with which the government has chosen to run the last lap of the GST’s introduction. It is important to note that such wrinkles need to be ironed out at the earliest to strengthen the people’s faith in the tax system. It is in this regard that it is yet again the shared responsibility of the governments — both at the Centre and the states — to heed the president’s advice and continuously review and improve the implementation of the GST.