Two years ago, the NDA government implemented the single largest tax reform in India that had been under discussion and research since 2000. As Indias GST policy turned two on July 1, we took a look at some of the successes and failures of such a monumental policy reform.
The government has also announced some new amendments to the existing 2017 policy such as merging slab rates and introducing a new-age filing system that will streamline refunds and returns.
Indias largest indirect tax reform has created confusion and chaos, but the government maintains that the momentary trouble was worth it because the GST has widened the tax base and increased tax revenue.
What is GST?
GST or Goods and Services Tax, first proposed by the Indian government in 2000, is a centralised tax system that overhauled the existing Central and state VATs (value added tax). The policy we know today came into effect on July 1, 2017.
The GST Council, an advisory body comprised of union and state representatives, decided that taxable goods would be categorised under the following slab rates of 5%, 12%, 16%, and 28%.
Taxed at 5% are clothing worth up to Rs 1,000, fishing nets and hooks, aircraft engines, biogas, railway tickets, and economy class airline tickets.
Between 12% and 18% are clothing that cost over Rs 1,000, bio-diesel, printing ink, sewing machine parts, bamboo and cane furniture, fork lifts, chocolates, marbles and granite, contractual workers, business class airline tickets, telecom and financial services, and hotels with rates between Rs 1,000 and Rs 7,500.
At 28% are ACs, digital cameras, radio broadcasting equipment, betting and gambling arenas, hotels with rates above Rs 7,500, and other luxury items.
Alcohol, electrical, and petroleum products, milk, newspapers, stamp duty, and food grains are exempt from GST, but tobacco and tobacco products are taxed.
Moreover, those earning less than Rs 20 lakh per annum or Rs 10 lakh per annum in special states are exempt from GST.
By bringing the whole country under a single tax system, the government says it eliminated the problem of doubt taxation and reduced the overall tax burden on consumers. The GST policy removed taxes like central excise duties, service tax, customs duties, luxury tax, purchase tax, entertainment tax, and more.
It also sought to make taxing more transparent, centralised, and easily enforceable. The slab rates were also intended to make Indian goods and services more competitive in the international market.
What are the new GST reforms?
According to India Today, Indias tax revenue increased by 12% to Rs 89,700 crore, with a monthly average increase of 10% in tax collection. The number of registered taxpayers in the country also increased from 68 lakh to 72.5 lakh.
With these successes have also come some failures.
The GST collection was around Rs 5.8 lakh crore, about 20% less than what was projected in the 2018-19 budget. Some experts also said the multilayered tax rate and constant notification of rate revisions is still creating confusion and ambiguity.
The government is mulling around 90 amendments to the 2017 policy.
These new GST reforms will possibly include a reduction of slab rate categories. Former Finance Minister Arun Jaitley said the 12% and 18% slabs could be gradually merged, revising Indias tax policy to only two slabs.
Except for luxury and sin goods, the 28% slab has almost been phased out. Zero and 5% slabs will remain. As revenue increases further, it will give an opportunity to policymakers to possibly merge the 12% and 18% slabs into one, thus, effectively, making the GST a two-rate tax, said Jaitley on Facebook.
The government is also introducing a new, centralised filing system for returns and refunds by October 1. It is considering installing e-invoicing facilities in the future.
Experts have suggested that the government now focus on reducing tax evasion by effectively enforcing the policy through fast-tracked resolutions for many back-logged tax disputes and ensuring large corporations are following rule of law.
Rhea Arora is a Staff Writer at Qrius