The Goods and Services Tax (GST) has completed five years. It has been five years of some hits and many misses. One of the toughest reforms to be undertaken in the country—where states gave up their tax sovereignty in the larger interest of the country and taxpayers—GST has in a way helped better administration of taxes, increased speed in the flow of goods across state borders as well as achieved greater uniformity in rates across all states.
After a sluggish start and underwhelming tax collections, GST collections in the past two years have seen a strong pick up. The average monthly collections have risen from Rs 90,000–100,000 crore in the first four years to Rs 1.20 lakh crore now. GST has also led to the creation of a whole new digital system for paying taxes, claiming input tax credits, generating invoices, e-ways bills, etc. The digital system, even with its many flaws, has helped administration of taxes and tracking tax evasion.
The GST has failed on two major counts. It has only widened the rift between the Centre and the states and it has failed to achieve the ‘correct’ tax rates. Despite the pick-up in GST collections recently, the government and the GST Council believe the current tax rates are much below the desired levels. The 15th Finance Commission has in a report cited that against the revenue neutral rate of 15.5%, the average GST rates are around 11.8%.
In the early years, the GST Council chopped and changed rates in response to the initial year chaos created by a new tax system. Those rate cuts and exemptions are coming back to bite the government.This also created a rift between the Centre and states. Many states have been struggling with their revenues, and they blame it partly on having to give up their taxing rights under GST.
Now, they demand the compensation (for the loss in revenue due to implementation of GST) that the Centre gives to states (initially for the first five years) to extend for another three to five years, a demand the Centre has not been too keen to yield to. The success (or failure) of GST now depends on the smooth resolution of these issues. The GST Council meeting on June 28–29 could give a glimpse of what lies ahead for GST.