Seven Years of GST: Time to Move Beyond the Exuberance

Abstract

The introduction of the Goods and Services Tax (GST) in the country in July 2017 marked a watershed in the history of indirect tax reforms in the country. The dual structure of GST in India, with all its infirmities, has had significant positive outcomes. It has reduced multiplicity of taxes, cascading of tax, created uniform tax structure on a common base, a uniform GST architecture, rules and processes, and seamless flow of credit across different tax jurisdictions, across the country. But like any other major tax reform, GST in India initially had its fair share of glitches, some of them still continue, although to a much lesser degree and intensity. Due to constraints imposed by the federal nature of our polity, the centre and the states opted for an ‘imperfect GST’ in place of ‘flawless GST’, with the hope that the design flaws would be corrected once the GST stabilizes. While we celebrate the success of GST in the country, we need to usher in the second-generation GST reforms that will broadly encompass; first, the rationalization of tax slabs, and second, expansion of the tax base by pruning exemptions and bringing petroleum products, electricity, alcohol and real estate under GST. The feasibility of inclusion of excluded items, which constitute around 43% of the state’s own tax revenues, in GST, remains bleak at this stage as it will greatly impact the fiscal autonomy of the states. A beginning can, however, be made to rationalize the rate structure which will remedy many of the complexities and problems being faced at present. But, to even address the issue of rate rationalization, the trust deficit between the centre and the states that has suffered a huge dent during the intervening years has to be bridged. JEL Classification: H21, H77