As the Indian electorate goes to vote to choose candidates for the 18th Lok Sabha, the ruling NDA government will be showcasing the roll-out and implementation of the Goods and Services Tax (GST) as one of its significant achievements.

This was a herculean task, not just because all the States and Union Territories had to be convinced to give up their powers to set tax rates on various goods, but also because of the sheer size of the indirect tax-payer base which had to be migrated to the new system.

A unified system of indirect taxes, covering both goods and services was initially mooted by the Kelkar task force on indirect taxes in 2000. But it took several years, many meetings of several parliamentary committees and state finance ministers, a constitutional amendment and passage of GST bills in all the States and Union Territories before it came into force.

It needed some great statesmanship on the part of the NDA government ably led by the then Finance Minister Arun Jaitley and mammoth effort from the CBIC, with its staff working around the clock to enable the launch of the GST on July 1, 2017.

The initial years were not smooth with problems in return filing, technical glitches at the GSTN and constant wrangling over tax rates and compensation payment to States. While the system has stabilised now, some changes can make it more effective.

The achievements

Let’s first look at what the GST system has achieved. It has certainly helped expand the indirect taxpayer base. While the total number of registered GST taxpayers are 1.41 crore, only 44.3 lakh have migrated from the previous tax system. But the base could have been larger if leeway was not afforded to smaller businesses in initial years.

The functioning of the GST Council, the body comprising the Union Finance Minister and State Finance Ministers, which decides on rates, exemptions, concessions etc has set a fine example for cooperative federalism. While there was a lot of bad blood over the compensation cess issue, the Council has largely managed to take the inputs of all members into account while framing the rules.

GSTN (goods and services tax network), the IT backbone for the GST system, has managed to integrate the disparate IT systems of 36 States and Union Territories and the Centre into one common portal. While the great load in initial months saw it struggling, it has scaled-up the system since then. It has handled 130.44 crore returns since inception, processed 1,923 crore B2B invoices and 70.35 lakh crore of tax payment till date. . Data generated from the GSTN is also useful in checking tax evasion, detecting fake invoices and so on.

GST collections initially faltered due to glitches in the system. But they have stabilised now with average monthly collections at ₹1.67 lakh crore in FY24, registering a year-on-year growth of 11 per cent.

Another positive fallout of the GST system has been the introduction of e-way bills system, which enabled faster movement of goods on highways and checked corruption at tolls and check posts. This has resulted in several benefits including reducing the diesel consumption of commercial vehicles and reducing the logistic expenses of companies. According to various studies, there is at least 10 per cent reduction in turnaround time for commercial vehicles post GST.

What is lacking

The first two years of the GST roll-out were quite challenging with taxpayers struggling to file the multiple returns on the GSTN. Smaller businesses too complained about increased compliance burden. Therefore, leeway was provided in the initial months to ensure that the tax collection was not disrupted. Taxpayers were asked to self-assess their tax and input tax credit and file the truncated return of GSTR 3B, instead of the more elaborate GSTR 1 and GSTR 2.

This leeway resulted in doing away with invoice matching and self-populated returns which was the original intention of the GST system. While there is a partial move towards bringing back invoice matching through the new GSTR 1 return and filing of e-invoices for B2B transactions, there should be a focus on moving towards the original design of GST returns. This self-policing mechanism is essential to check evasion and increase collections.

Finally, the rates of GST and the slabs need a thorough review and overhaul. There are currently 6 slabs under GST, if the 0 per cent slab and the 3 per cent rate on gold are taken in to account. This is far higher than the ideal 3 slabs followed by most countries. Also, the rates on several items have been tweaked in consecutive GST Council meetings resulting in lowering the revenue neutral rate lower from the initial 15.5 per cent in 2017 to 11.5 per cent now. This is resulting in loss of revenue to both Centre and the States. An exercise to simplify the slabs along with review of the rates should be on the agenda for the next government.