On 1st July, 2021, the Goods and Services Tax (GST) completed its four years and celebrated it by flagging the ease it brought to businesses and the relief on tax burden to consumers.
GST implementation in India was a historical move, as it marked a significant indirect tax reform in the country. The amalgamation of a large number of taxes which was levied at a central and state level into a single tax had expected to have big advantages. Four years ago, on this day, GST had replaced 17 local levies like excise duty, service tax, VAT and 13 cesses. One of the most important benefits of the move is the lessening of double taxation or the removal of the cascading effect of taxation. It is now paving the way for a common national market and Indian goods are also expected to be more competitive in international and domestic markets.
On this occasion, the Union Finance Ministry has notified a cut in the GST rates on 400 goods and 80 services, thus giving a big relief to the common citizens of the country. The combined GST rates levied by the central and state governments on most of these goods and services were up to 31 per cent, which has now been cut. This is a big relief from the government for the taxpayers who are affected by this pandemic situation.
“Before the implementation of the GST regime, the combined Centre and States rates were more than 31% on most of the items. The necessary goods are either not taxed or are subject to 5% tax, while mass use items are subject to either 12% or 18% tax under GST. Only a few other items are kept on the highest slab of 28%.” - the ministry said. Though indirect taxes are considered regressive as they affect the rich and the poor alike, the GST Council sought to address it by bringing progressivity in rates depending on mass use and goods of essential and luxury nature, with luxury items being kept in the highest tax bracket.
Most of the complex indirect system problems have also been eased by GST with a simple, transparent and technology-driven tax regime and has thus integrated India into a single common market. Also, a company looking to do business in every state had to make as many as 495 different submissions. But under the GST regime, that number has been reduced to 12. Tax arbitrage across states that distorted business investment decisions has also been eliminated by the implementation of GST.
Tax reduced from 29.3% to 18%
Apart from this, the Union Finance Ministry said that in the pre-GST system, the rates of central and states combined on most items were reduced from 29.3 percent to 18 percent on items of daily use such as hair oil, toothpaste and soap under GST. is. At the same time, the GST rates on home appliances such as washing machines, vacuum cleaners, TVs have been reduced from 31.3 percent to 18 percent.
Looking into its cons, GST has brought, the economic downturn has led to fissures in Centre-state relations, especially relating to GST compensation to states. There is a bitter stand-off between the Centre and these protesting States.
The structure also faces a tough challenge from the increased round of contentious battles between the states and the Centre, with most issues coming to the fore because of lower revenue collections. GST Council meetings over the last one year have repeatedly turned into altercations as states have raised issues of pending compensation payments, the narrowing revenue gap, calling for changes in the rule-making structure.
According to FM of an opposition-ruled state - “The meetings were cordial earlier but lately they tend to turn more political. The GST council was supposed to resolve issues irrespective of the ruling governments at the Centre or at the state level. Revenue concerns remain, so do the concerns about leakages. The mechanism needs to be tweaked with changing times as there can’t be only a selected group of states getting a higher chance to be heard than others or with only the Centre having its way.”