Rocky road for GST as dissent grows louder
The Goods and Services Tax (GST) had a bumper year in 2022–23, with total collections crossing Rs 18 lakh crore and growing at a healthy rate of 22%. So far, so good. But the next big challenge awaiting the country’s relatively new indirect tax regime is this: With states no longer receiving compensation from the Centre for the revenue loss due to the implementation of GST, many states will find it difficult to raise enough revenue, and dissatisfaction with GST will only grow. Voices of dissent within the GST Council have gotten shriller in recent times, and things may get uglier as the number of opposition-ruled states grow.
Punjab, Himachal, Puducherry and a few others, where the share of GST compensation in tax revenue exceeded 10% on average, may struggle to generate revenue. Bigger states, such as Gujarat, Maharashtra, Karnataka, and Tamil Nadu, may also struggle as GST collection growth slows down. Non-BJP-ruled states have already been expressing their disillusionment with GST. West Bengal Chief Minister Mamata Banerjee recently said she regretted supporting the GST bill. Tamil Nadu and Kerala finance ministers have been equally critical of GST in its present form. If these voices of opposition grow louder, there are chances of structural changes in GST in the future, and the change will not come only because of political opposition. Taxpayers would also force changes.
FY23 was particularly good for GST collections, with average monthly collections crossing Rs 1.5 lakh crore—when GST was implemented in July 2017, the government had set a monthly collection target of Rs 1 lakh crore for that financial year. While the rebound in economic activities post-Covid lockdowns is one of the reasons for higher collections, the crackdown on ‘evasion’ since 2020 also contributed. In 2021–22 alone, the GST authorities detected tax frauds of more than Rs 54,000 crore and recovered more than Rs 21,000 crore in evaded tax. But such crackdowns lead to excesses by the GST officers, resulting in multiple writs filed in different courts. Taxpayers have been raising their voices against a rule that denies a business claiming input tax credit if one of its vendors fails to file a return or pay taxes. These excesses are bound to increase litigations, forcing the authorities to mellow down. The test for the GST regime will be to proactively address the issues raised by states and taxpayers and change for the better.