Today, the Goods and Services Tax (GST) regime has entered its third year. It would, therefore, be only fair to look back at the last two years and analyse the implementation and the impact/ consequences of the GST.

Pre-GST regime

In a federal structure, both Centre and States were entitled to impose indirect tax on goods. The States had multiple laws which entitled them to impose taxation at different points. There were twin challenges. Firstly, to get the States to agree because some of them felt they were losing their fiscal autonomy to tax and, secondly, to develop a consensus in Parliament. The States were scared of the fear of the unknown. The critical point which enabled the Government to persuade the States was to cushion them with a 14 per cent annual increase from the tax base of 2015-16 for a period of five years.

The GST merged all the 17 different laws and created one single tax. Today, there is only one tax, online returns, no entry tax, no truck queues and no inter-state barriers.


One can confidently argue that GST proved to be both consumer and assessee- friendly. The high taxation of pre-GST era pinched the consumers’ pocket and acted as a disincentive against tax compliance. The last two years have seen each of the meetings of the GST Council reducing the tax burden on consumers as the tax collections improved. An efficient tax system certainly leads to better compliance. The 31 per cent tax, which was temporarily 28 per cent, has seen the largest single reform.

Most items of consumer use have been brought in the 18 per cent, 12 per cent and even 5 per cent category. Only luxury and sin goods remain in addition to some white goods.

A sudden reduction of all categories can lead to a massive loss of government revenue leaving the government without resources to spend. This exercise had to be done in a gradual manner as the revenues increased. The cinema tickets, earlier taxed at 35 per cent to 110 per cent, have been brought down to 12 per cent and 18 per cent.

Most items of daily use are in the zero or 5 per cent slab. The loss to the revenue on account of this reduction collectively has been more than ₹90,000 crore annually.

The assessee base in the last two years has increased by 84 per cent. The number of assessees covered by the GST was around 65 lakh. Today, it is at 1.20 crore.

This obviously leads to higher revenue collections. In the eight months of 2017-18 (July to March), the average revenue collected per month was ₹89,700 crore per month. In the next year (2018-19), the monthly average has increased by about 10 per cent to ₹97,100 crore.

The fear of the States today is that for the first five years they get a guaranteed 14 per cent increase. The lurking doubt is as to what will happen after five years?

Every State has been paid its share of tax as also from the compensation fund, if necessary. We have just completed two years of GST. Already after the second year, 20 States are independently showing more than a 14 per cent increase in their revenues and the compensation fund in their case is not necessary. Businesses upto an annual turnover of ₹40 lakh are GST exempt. Those with a turnover upto ₹1.5 crore can make use of the composition scheme and pay only one per cent tax. There is now a single registration system which works online and the procedures for the trade and business are reviewed and simplified regularly.

The GST Council

The GST Council is India’s first statutory federal institution. The Centre and the States jointly sit and decide. Both have pooled their fiscal rights in a collective forum to create one common market. The Council worked on the principle of consensus. This has added to the credibility of the decision-making process. I am sure this trend will continue in future.

The writer is a former Union Finance Minister

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