Two significant milestones were reached in the larger GST architecture. The President of the GST Appellate Tribunal (GSTAT) has been appointed & gross GST collections crossed a landmark of Rs 2 lakh crore – thanks to heightened economic activity.
This post is divided into three parts. The first part explores the origins of GST and its role in streamlining the Indirect tax system. The second part discusses how GST has benefitted people through a pro-poor approach. The third part underscores GST’s role in promoting cooperative & fiscal federalism.
Part -1:
- The idea of GST was first mooted during the former PM Atal Ji-led NDA government. In 10 years, UPA was unable to achieve political consensus on GST. Under the leadership of Prime Minister Shri @narendramodi, the necessary consensus was carefully built, and GST Acts were passed by Parliament in 2016.
- Before GST, India’s indirect tax system was fragmented & complicated, and every state was practically a distinct market in itself with different rules and tax rates. Inputs for central excise duty, etc, could not be availed, leading to an increased tax burden for the common people.
- GST streamlined 17 taxes and 13 cesses into a 5-tier structure, simplifying the tax regime. The turnover threshold for registration rose to Rs 40 lakh for goods and Rs 20 Lakh for services (from Rs 5 lakh on average under VAT). GST also reduced 495 different submissions (challan, forms, declarations, etc) across states to just 12.
- GST simplified compliances through uniform processes, simple registration, single returns, and a fully IT-driven system with minimal physical interface.
- Quarterly Returns with Monthly Payment (QRMP) scheme, with much lower compliances, has benefited over 44 lakh small taxpayers & MSMEs. As per a Deloitte Survey (2023), 88% of MSMEs credit GST for cost reductions along with optimized supply chains. GST has enhanced MSME financing through tools like e-invoicing, TReDS, and the Account Aggregator framework. Number of registered taxpayers under GST grew to over 1.4 crores from 65 lakhs in 2017.
- The E-way bill system removed inter-state checkpoints, reducing logistics costs. Trucks travelled 44% more daily, and corruption at tax ‘nakas’ decreased. Consequently, domestic goods’ inter-state trade surged to 35% of GDP in FY22, up from 23.5% in FY18.
Part -2:
- Reflecting a pro-poor approach, the effective weighted average GST rate has consistently fallen since 2017. The Revenue Neutral Rate was suggested to be 15.3% but was lower at 14.4% in 2017, and it has come down to 11.6% in 2019.
- GST lowered taxes on many essential items compared to pre-GST rates. Common items like hair oil and soaps saw tax cut from 28% to 18%. Electrical appliances taxed at 12% v/s 31.5% before. Movie tickets were taxed lower, too. Further tax rate rationalization has been done since 2017. National Anti-profiteering Authority ensured that companies passed the benefits to the consumers.
- GST has exempted many essential items and services, such as unbranded food items, certain life-saving drugs, healthcare, education, public transport, sanitary napkins, hearing aid parts, agricultural services, etc.
Part -3:
- GST exemplifies Cooperative Federalism in India, empowering states. The @GST_Council, with a 75% majority vote requirement, assigns one-third voting power to the Centre & two-thirds to states. Out of 52 meetings, all decisions but one was reached through consensus. As Chairperson of @GST_Council, I have ensured all states’ voices are equally heard without bias.
- It is a myth that all GST collections are pocketed by the Centre. GST contributes significantly to state revenues – States receive 100% of SGST collected in that state, approx. 50% of IGST (i.e. on inter-state trade). A significant portion of CGST, i.e., 42%, is devolved to the states based on the Finance Commission’s recommendations.
- GST has improved tax buoyancy from 0.72 (pre-GST) to 1.22 (2018-23). Despite compensation ending, state revenues remain buoyant at 1.15.
- Without GST, states’ revenue from subsumed taxes from FY 18-19 to 2023-24 would have been Rs. 37.5 lakh crore. With GST, states’ actual revenue amounted to Rs. 46.56 lakh crore.
- Despite the GST rate being less than the prescribed Revenue Neutral Rate and COVID-19 affecting the revenues, GST collections (as a % of GDP) have now reached the levels they were before GST (both net and gross). This demonstrates that the Centre & States, collectively, through better tax administration, are able to collect the same revenue with a lower burden on our taxpayers.
- GST is an expression of Modi Govt’s commitment to‘Sabka Saath, Sabka Vikas, Sabka Vishwas, Sabka Prayaas’. Our continuous efforts are towards ensuring that new heights are scaled through better taxpayer services and increased efficiencies instead of increased taxes.
- Through the @GST_Council, both Central and State Govts should collectively strive to make the system more taxpayer-friendly to meet PM Shri @narendramodi’s vision of a ‘Viksit Bharat’.
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