July 1 marks the one-year anniversary of the GST rollout, which the NDA government may celebrate with pomp and gaiety. But the grim reality is, confusion and anxiety prevail even after an year. The ‘one-nation, one-tax’ system, subsuming 20 federal and state taxes, repulsed companies, MSMEs and traders, punctured growth prospects and failed to juice the economy despite frequent markups and revisions to smooth out its kinks. The GST Council now has to prune the tax structure comprising four slabs, the highest being 28 per cent, which needs correction to minimise the economic and political fallout.
The GST began as a watered-down version, but what everyone agrees is there is only one thing worse and that is not having a reform at all. Now that states and taxpayers are on-boarded, it is time to rationalise rates, possibly with a single, pre-teens slab of 12 per cent. The idea is to play the volumes game, taxing as many products and services—a wider tax base to maximise tax revenue. States retained 45 per cent of indirect taxes, including those for the lucrative alcohol, electricity and petroleum products, which should be brought under the GST net. Besides, issues involving invoices, e-way bills, input tax credits and compliance need to be resolved to stabilise tax collections. Given that India has a large MSME base, there’s an urgent need to simplify processes if GST were to outlast NDA’s tenure.
The changeover comes at a critical moment for the government, which may boast of GST as one of its biggest successes. But in its current state, it will weigh the ruling party down, and may struggle to survive after the next election—recall that Malaysia’s new government rolled back GST after decades of implementation to please voters. The BJP has already handed the opposition enough ammunition—demonetisation, banking frauds, etc.—to build on people’s frustration. The least it should be doing now is stabilise the tax reform and avoid GST being memorialised in essays and discussions.