Q.9 Discuss the impact of GST on India’s tax revenue and economic growth. What challenges remain in its implementation?
Ans: The Goods and Services Tax (GST), implemented in 2017, aimed to create a unified tax regime, boost revenue, and enhance economic growth. While it has streamlined taxation, challenges like compliance issues and revenue volatility persist.
Impact of GST on India’s Tax Revenue and Economic Growth
- Increase in Tax Base: GST has expanded the tax base by bringing more businesses into the formal economy. Example: The number of GST taxpayers increased from 6.4 million in 2017 to over 13 million in 2023.
- Revenue Growth: GST collections have shown consistent growth, contributing significantly to government revenue. Example: In April 2023, GST collections crossed ₹1.87 lakh crore, the highest since its implementation.
- Simplification of Tax Structure: GST replaced multiple indirect taxes, reducing compliance costs and improving ease of doing business. Example: The World Bank’s Ease of Doing Business Report 2020 highlighted GST as a key reform.
- Boost to Economic Growth: By eliminating cascading taxes and improving supply chain efficiency, GST has supported economic growth. Example: The logistics sector saw a 20% reduction in costs due to the removal of interstate checkpoints.
- Formalization of Economy: GST has encouraged informal businesses to register, increasing transparency and tax compliance. Example: The e-way bill system under GST has reduced tax evasion in the transportation sector.
- Enhanced Competitiveness: A unified tax regime has made Indian products more competitive globally. Example: The export sector benefited from the removal of embedded taxes, boosting competitiveness.
Challenges in GST Implementation
- Complex Compliance Procedures: Frequent changes in GST rules and multiple tax slabs create confusion for businesses. Example: Small businesses struggle with filing GSTR-1, GSTR-3B, and GSTR-9 returns.
- Revenue Volatility: GST collections are often uneven, affecting state revenues and fiscal planning. Example: During the COVID-19 pandemic, GST collections dropped significantly, impacting state finances.
- High Tax Slabs: Multiple tax slabs (5%, 12%, 18%, and 28%) complicate the system and lead to classification disputes. Example: The 28% slab on luxury items has been criticized for being regressive.
- Delayed Refunds: Delays in GST refunds affect the cash flow of exporters and businesses. Example: In 2022, exporters faced delays in Input Tax Credit (ITC) refunds, impacting their liquidity.
- Technological Glitches: The GST Network (GSTN) portal often faces technical issues, hindering compliance.
- Impact on Small Businesses: The Composition Scheme for small businesses has limited benefits, and compliance remains burdensome. Example: Many small businesses opted out of the scheme due to its restrictive turnover limit of ₹1.5 crore.
GST has significantly impacted India’s tax revenue and economic growth by simplifying the tax structure and formalizing the economy.
| Keywords: indirect tax , destination-based tax , GST Council |
| Extra Info : 101st Constitutional Amendment Act introduced the GST in 2017. GST is a comprehensive indirect tax levied on the supply of goods and services.It is a value-added tax (VAT). Features of GST One Nation, One Tax: Replaced multiple indirect taxes levied by the Central and State Governments, such as excise duty, service tax, etc. Dual Structure: Comprises of the Central GST (CGST) and the State GST (SGST). In the case of Inter-state transactions, Integrated GST (IGST) is applicable, which is collected by the Central Government and apportioned to the respective State. Destination-based Tax: GST is a destination-based tax, levied at each stage of the supply chain.Tax Slabs: 0%, 5%, 12%, 18%, and 28%.Governance: GST Council is key decision making body.Goods and Services Tax Network (GSTN) provides IT system of the GST portal. |