The average in the early phase was about ₹ 0.9 trillion, which today hovers at upwards of ₹ 1.5 trillion. The relevant data reveals a widening of the tax base, increased compliance, plugged leakages and better enforcement.
A hat-tip to the GST Council is first in order. It is India’s largest and most successful Constitutional body till date; most recommendations emerged by means of a consensus among members, with voting seldom required. And the Council has ably guided and shaped GST in India.
The motto, “One nation, One market, One tax,” captured how GST aimed to eliminate inter-state barriers to trade, fostering economic integration and enhancing the ease of doing business. The labyrinthine structure of the erstwhile indirect taxes regime often hindered inter-state trade, burdened businesses with multiple compliance requirements and bred inefficiencies in the supply chain.
The GST regime brought the nation under one umbrella by subsuming 17 taxes and 13 cesses; its architecture was a winner from the beginning. It has eased how we do business in India; no longer do we witness goods carriers queuing up at octroi or entry tax check-posts for hours on end. Let’s take a closer look through four prisms.
Digitalization: GST has been in consonance with the clarion call for a ‘Digital India.’ The tax system is nearly fully digital, making it ready for the future. Technology was harnessed from the get go, starting with registration to all compliances and filings being done online via the GSTN portal.
The Revenue Department has taken to data analytics and various technology-enabled tools to assist it during audit and assessment proceedings. After overcoming initial teething issues, including a still-born credit matching system, today the GST regime has an impressive monthly throughput of information recorded.
The issuance of e-way bills for movement of goods (valued over ₹ 50,000) and e-invoicing for registered suppliers (with a turnover of over ₹ 50 million) has provided timely data to the Revenue Department to detect and discourage non-compliance and fraud. A staggering 103 million e-way bills (inter-state and intra-state) were generated in March 2024 alone.
The GST law: The heart of the GST regime is its code, comprising the Central GST Act, Integrated GST Act and various rules framed. The government has been nimble in updating this code; there have been more than 250 amendments to the central statute and more than 500 changes of central rules. Besides these, the other enactments and rules have been amended from time to time.
Hundreds of notifications have been issued for GST rates, exemptions and other legal aspects. The recently held 53rd meeting of the GST Council had recommendations on a variety of topics that will take the form of statutory amendments. Similarly, the GST Council has in the past (and again at the 53rd meeting) recommended more than a dozen topics (mostly legal issues) on which clarifications will be issued.
It cannot be said that the code was flawless, but the volume of changes reveals an intent to improvise and improve the law so that it evolves in response to shifting circumstances. In turn, tax-law practitioners, taxpayers and the administration have been tasked with wrapping their minds around an ever-evolving law, lest there be a lapse or transgression.
Input tax credit: This set-off system has been the fabric of GST, a far cry from the erstwhile tax regime that led to a cascade of taxes. The GST regime has all but eliminated the cascading effect of taxes by enabling taxpayers to claim input tax credit (ITC) seamlessly.
Anecdotally, various sectors, including logistics, manufacturing and retail, have witnessed operational efficiencies and cost savings due to GST. The Prime Minister recently noted that GST has been reformative, as it led to goods for household use becoming cheaper, translating into savings for the common man.
The digital matching of ITC was not operationalized in the initial years of GST, and so the shift from provisional availment to invoice-level reconciliation (Form GSTR-2A/2B) has been challenging and a difficult change for taxpayers. Unfortunately, this resulted in an avoidable avalanche of mismatch notices that forms the bulk of today’s GST-related litigation in India.
Some aspects of the tax credit system require a relook so as keep a cascading effect of taxes at bay. The GST Council should revisit the blockage of ITC on construction-related expenditure, especially, given how the creation of infrastructure or any other immoveable apparatus can generate taxable revenue.
The inclusion of petrol, diesel, aviation fuel and natural gas in the GST net, while significantly increasing collections, will offer relief from a tax cascade in a big consumption category.
Litigation and dispute resolution: An effective mechanism for dispute resolution is the backbone of any tax regime, especially so in India, where tax litigation is widespread. On this front, the GST regime has fallen short. Seven years since the tax rollout, we still do not have an operational GST Appellate Tribunal (GSTAT).
The absence of this mechanism has led to a backlog of litigation and burdened our high courts. Ironically, even the setting-up and framework of the GSTAT underwent legal challenges, although the decks have been cleared for it. Hopefully, the GSTAT will be up and running within calendar year 2024.
Also read: GST Council meeting: Tax rates changed for goods & services; Here’s what gets cheaper & costlier
In conclusion, GST in India is here to stay, unlike in Malaysia, which introduced it and abolished it in less than five years. Indubitably, the Indian GST regime will go from strength to strength after the inclusion of petro-sector commodities and further digitalization. In time to come, perhaps the Indian GST regime will be hailed globally as a model for other economies to follow.