The implementation of the GST transformed the economy into a digitised tax administrative set-up, which in turn helped the seamless flow of information and the availability of common datasets
The Goods and Services Tax (GST), the most ambitious tax reform of independent India, completed five years on June 30. The then President (Late) Pranab Mukherjee acknowledged that the GST is a disruptive change during his speech. When a change of this magnitude is undertaken, there are bound to be teething troubles and difficulties, which have to be resolved with an understanding and speed that does not impact the growth momentum of the economy.
Well into the first three years of the reform, India, as well as the global economy were plagued with the uncertainty of a pandemic, causing global lockdowns and supply chain disruptions. This deeply impacted growth, GDP, and GST collections.
However, with the revival of the economy, the GST emerged as a buoyant source of revenue for both the Centre and the states. The GST collections have consistently crossed Rs 1 trillion since October 2020 (except for two months). The average monthly gross GST revenue in 2021-2022 was Rs 1.2 trillion compared to Rs 1.02 trillion in 2019-2020 and Rs 945 billion in 2020-2021.
This signifies a robust rebound in the economy, despite the disruption caused by COVID-19. This can be credited to the measures taken by the government to improve the GST ecosystem, and its emphasis on compliance, which not only boosted revenue, but also contributed to the formalisation of the economy.
The implementation of the GST transformed the economy into a digitised tax administrative set-up, which in turn helped the seamless flow of information and the availability of common datasets. It is exemplary to note the transparency and pace of integration of various statistics, and use them to reduce tax evasion. A few key developments that have been catalysts in the GST journey are:
Introduction of live monitoring of the movement of goods and integration of the FASTag (RFID) system of the NHAI with the e-way bill system to capture real-time vehicle movement. This has not only halved travel time but could be reducing tax evasions as well. As a measure to increase compliance and reduce evasion, the government also implemented blocking e-way bill generation where returns are not filed by the taxpayer.
Phased implementation of the e-invoicing system basis turnover threshold and auto-population of data in the monthly returns reduced malice of fake invoices. The government has a laid-down road map to carry-out advanced e-invoice analytics to improve validations and verifications, thereby controlling fraudulent invoices.
Integration of customs/SEZ/income tax data with the GST, which helped seamless reporting and recording of a transaction as well as communication between the authorities to reduce friction, and increase transparency.
The industry has also responded positively to the systemic changes implemented by the government, which is evident from the return filing data published on April 8 as per which the GSTR-3B filing has improved from 74 percent in September 2020 to 87 percent in February 2022, and GSTR-1 filing has significantly increased from 54 percent in September 2020 to 82 percent in February 2022.
However, a critical decision that is still pending is the inclusion of petroleum products under the GST, which would further reduce cascading taxes and improve tax collections.
The government’s intention to broaden the tax base and improve tax buoyancy is bearing the desired results with the implementation of the GST. The fact that FY 2021-2022 marked the highest tax-GDP ratio of 11.7 percent with indirect taxes standing at 5.6 percent appears to be a healthy sign.
Though the first five years of the GST have been a rollercoaster ride for all stakeholders, in the long run this unified tax system would have a positive impact on the GDP due to improved tax collections, formalisation of the economy, and plugging of tax leakages with digitisation and analytics.