Creating certainty

General Studies Paper 3

Context: Healthier inflows from GST offer policy makers the bandwidth to fix its flaws.

 Introduction

• The Goods and Services Tax (GST), which turns six and a half years old this month, has yielded almost ₹3.4 lakh crore through October and November. While revenues in October marked the second highest monthly collections, November’s kitty is the third highest.
• Both these months also recorded accelerated revenue growth after a sequence of slowing upticks that culminated with September recording a 27-month trough of 10.2%.

Goods and services tax (GST)

• GST is a unified tax system that replaced multiple indirect taxes levied by both the Central and State Governments. Under GST, both the Central and State Governments share the authority to levy and collect taxes on goods and services. This has led to greater harmonization and uniformity in the tax structure across States, promoting economic integration.
• The GST system follows a dual structure, comprising Central GST (CGST) and State GST (SGST), levied concurrently by the Central and State governments, respectively. Additionally, an Integrated GST (IGST) is levied on interstate supplies and imports, which is collected by the Central Government but apportioned to the destination state.

Festive fervour

• Festive fervour surely bolstered last month’s nearly ₹1.68 lakh crore of GST revenues, which were based on transactions in October, and that trend may persist this month as well on the back of anticipated last-minute Deepavali spending.
• Prior to this two-month spike, GST revenues had crossed ₹1.65 lakh crore on only three occasions, which were typically driven by year-end compliances.
• Now, the average monthly collection so far in 2023-24 stands at ₹1.66 lakh crore, and economists believe central GST receipts may surpass Budget estimates even if one factors in a relative slowdown in the final quarter of this year.

GST Council

• The process for creating GST Council started in India when the Constitution (One Hundred and Twenty-second Amendment) Bill 2016, for the introduction of Goods and Services Tax (GST) was accorded assent by the President on 8th September 2016. As per Article 279A (1) of the amended Constitution, the president should approve to constitute within 60 days of the commencement of Article 279A.
• The GST Council, consisting of the Union Finance Minister and representatives from all States and Union Territories, was established to make decisions on various aspects of GST, including tax rates, exemptions, and administrative procedures. It played a crucial role in shaping the GST framework in India.
• The GST Council will make recommendations on:
• GST shall include taxes, cesses, and surcharges;
• Goods and services which possibly will be subject to, or exempt from GST;
• The threshold maximum value of turnover for the function of GST;
• Rates of GST;
• GST laws, principles of levy, apportionment of IGST and principles associated with place of supply;
• Special provisions with respect to the eight northeastern states, Himachal Pradesh, Jammu and Kashmir, and Uttarakhand; and other associated matters.
• Other matters pertaining to the implementation and regulation of GST in India.

Moving from “uncertainty to certainty”

• With revenues buoyant, in no small part due to tighter compliance and a crackdown on tax evaders, the government must consider resetting its ambitions and work towards making the GST a truly good and simple tax, as it was promised to be.
• At a recent industry interaction, responding to concerns about the manner in which a spate of GST demand notices and investigations have unfolded in recent months, Finance Minister Nirmala Sitharaman said the GST is still at a stage of moving from “uncertainty to certainty” on some grounds and those aspects are being sorted out now.
• That certainty needs to be pursued at a broader level to provide genuine comfort to investors about India’s tax regime being stable and predictable. For one, pending taxpayer appeals against central GST levies have risen by a quarter this year to hit nearly 15,000 cases by October and it is necessary that appellate tribunals cleared by the GST Council become operational at the earliest to unwind this pendency and set clear precedents for future tax treatment disputes.
• It is equally critical to lay down a road map to bring in excluded items such as petroleum and electricity into the GST framework as well as the rejig of its complicated multiple rate structure.

Conclusion

• With the general election ahead, some dithering on such reforms may be understandable, but the GST Council must not lose focus of the unfinished agenda and keep deliberating on its to-do list, so that these steps can be fast-tracked after the Lok Sabha election.