Despite rise in revenue, GST far from being perfect even after six years

The government needs to iron out several issues such as setting up of tribunal to make GST better.
Image used for representational purposes only. (File photo)
Image used for representational purposes only. (File photo)

NEW DELHI:  The GST turned six on 30th June this year. A ‘pathbreaking’ tax reform despite the many early hiccups the laws seem to have started to settle down and deliver results as was expected.

The growth in GST collection has been picking up as compliances improved and more taxpayers came under the GST fold. Though the compliances have increased, digitalization of all the processes have reduced the paperwork. However, the GST is far from being perfect even after six years.

Robust collection, speedier movement of goods

From an average monthly GST collection of Rs 82,000 crore in the first year of GST in 2017-18, the average collection has surpassed Rs 1.50 lakh crore, registering a compounded annual growth rate (CAGR) of almost 13 per cent. In the first full year of GST in 2018-19, the total GST collection was Rs 11.77 lakh crore. In 2022-23, the collections rose to Rs 18 lakh crore, growing at a CAGR of over 11 per cent.

As per Abhishek Rastogi, a GST lawyer and founder of Rastogi Chambers, the GST framework has certain inherent characteristics, which require businesses to complete compliance on time. “As a corollary, GST collections have been increasing consistently over a period of time,” he says.

The states, which had their doubts about the loss of revenue due to GST, have not fared poorly either. Finance Minister Nirmala Sitharaman while speaking at an event on the completion of 6 years of GST in New Delhi on Saturday said that the states’ tax growth was at 8.3 per cent before GST, but post-GST tax revenues have gone up at 12.3 per cent.

“States have not lost out under GST. GST has brought higher tax buoyancy for states, and even without GST compensation, states tax buoyancy at 1.15,” the FM said. Though, it is also true that some state governments have raised the issue of their shrinking tax sovereignty under GST. The movement of goods across states has improved with the introduction of GST as most of the documents are uploaded electronically and there is a better mechanism to track the goods, classification and tax details, say experts.

Over the last six years, the government has introduced several measures, including rolling out e-way bills, leading to faster movement of goods across state borders.

Ironing out issues

After teething problems in the initial years, and the resultant chopping and changing of tax rates and rules, the GST laws have started settling down, but there are still some issues that need ironing out.

The situation is way better as compared to 2017 when it was first introduced, but as it stands, the GST regime is yet to become a perfect or close to a perfect system, says Anita Rastogi, Partner, GST & Indirect Taxes at Pricewaterhouse Co & LLP. Abhishek Rastogi of Rastogi Chambers says that addressing a few structural changes such as blocking of credit issues, decriminalisation of certain provisions, clarity on jurisdictional issues, and clear provisions of penalty will further improve the tax structure.  

“Industry is still grappling with several issues surrounding the free flow of credits, and this needs to be looked into with a broader lens. He also pointed out that the provisions relating to blocked credits are also a huge cause of concern for the businesses, which should be rationalized,” says Shashi Mathews, partner, Induslaw.

Merging of 12 per cent and 18 per cent tax rates is of utmost importance, feels Abhishek Rastorgi, as this will reduce classification disputes as well. There are certain goods and services which are exempted under GST, and as a result, the suppliers are not able to utilise the input tax credits. Experts say these supplies should either be taxed at a 5 per cent rate with the option of utilising the credit or a refund must be granted to keep the prices of these supplies under control.

Clarity on various interpretational matters should be provided, and a special focus should be on the new age sectors such as NFT (Non-Fungible tokens),  cryptocurrencies, etc, feels Anita Rastogi, Partner, GST & Indirect Taxes at Pricewaterhouse Co & LLP.

Rise of litigations under GST

It was expected that litigations under GST would be fewer as it was supposed to be a simple and uniform tax law. However, tax experts and lawyers feel litigations under the GST are on the rise.

Due to varying rates applicable on goods and services, a lot of litigation on the issues of classification has emerged, says Mathews. The contrary views of the Authority for Advance Ruling in states have added to the litigations. And without the formation of a GST Tribunal, even High Courts and even the Supreme Court are burdened with GST cases. 

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