Looking back at GST implementation: What the future holds?

The system is stabilising and efforts for simplification and strict compliance are seen in collections.

Gross GST revenue touching an enviable Rs 1.42 lakh crore in March, 2022, highest till now and higher by 15% and a whopping 46 % year on year from preceding two years provides a vantage point to look back at the challenging path traversed in ushering in India’s greatest economic reform. Even if rise in commodity prices is taken into consideration, there is a significant rise in revenue indicative of a strong economic recovery as also showcased by an increased generation of e way bills going up to 6.91 crores in Feb, 2022 from 6.88 crores in Jan, 2022 as also catalysed by various policy measures undertaken to iron out creases in the GST fabric. Even States like Haryana, Punjab, Manipur, Meghalaya, Odisha and Maharashtra, Andhra Pradesh have shown growth in GST numbers higher than the national average. Besides, there has been a steady increase in the number of registrations which stood at 1.35 crores in Feb, 2021 out of which 38% tax payers migrated into the GST system during its inception. Additionally, the absolute number of returns filed have increased showcasing the GST system stabilizing and increased statutory compliances.

Before the rollout of GST, a study by NCAER had assessed that a full-scale implementation of GST could raise GDP by 0.9 to 1.7 %. Although the said study by the prestigious think tank may not have taken into consideration black swan events like Covid, lockdowns and geopolitical turmoils and the ensuing disruptions in supply chains, GST has not only held its own in terms of extreme resilience but has also grown steadily becoming a bed rock of State revenue and national financial market place integration.

From this vantage point, two issues need primary focus: firstly, weeding out errors of exclusion in respect of taxpayers who are eligible but not in the GST system and secondly, strengthening the invoice verification within the system which was envisaged but could not take off for various reasons.

The first point alludes to the various unorganized sectors of the economy which cater to raw material needs of manufacturers at various levels. The presence of the unorganised sector has been the biggest reason for the prevalence and proliferation of fake billing. The fake bills landing up at the threshold of unscrupulous manufacturers have invariably been juxtaposed alongside supply of non-GST paid goods from the sector not compliant under GST. Even if the originators of fake firms when identified face the full force of law until the lure of cheap non-GST paid raw materials from the unorganised sector is addressed the issue may take more time to resolve. Only when this issue is resolved the error of exclusion would be addressed and the numbers of the taxpayer base would rise tremendously.

The second point pertains to invoice verification and matching within the system which was originally envisaged in GST but was kept in abeyance. Tremendous progress have been made in introducing the system beginning with large tax payers. The standardized mandatory e invoicing system would be the leitmotif that would usher in a complete verification within the system. An incremental approach adopted not only allows the system to identify glitches but also to lay a strong foundation for the future.

Apart from the above operational issue, tremendous progress has been made on dispute resolution mechanism as compared to the earlier taxation regimes where disputes pertained to multiple tax statutes. Although non uniformity of rulings at certain forums did give rise to uncertainty and an increase in transaction costs but recognizing the same as reported variously is in the process of helping in course correction. A speedy dispute resolution mechanism and an ambiguity resolution forum are the best ways of unclogging the paths for smooth functioning of business and freeing up capital that can be used productively in nation building.

Lastly, the biggest Economic reform which was the greatest effort in cooperative federalism in Independent India needs to flow like smaller rivulets from various States into the vast ocean of India where the processes and procedures at the level of each State integrates and becomes uniform so that businesses can be conducted across India facilitated in tax compliance by a unified tax administration.

The GST system is stabilizing each passing day. The efforts made by the tax administration towards simplification and strict compliance are palpable given the buoyancy seen in the GST collection. As I rest my case an anecdote comes to mind. When the idea of a value added tax was planted in the year 1976 by Sh. Raja Chelliah in the LK Jha Committee of Indirect taxes, the committee famously quipped that they had only heard of the alcoholic beverage “VAT 69”. Forty-six years later although alcoholic beverages are out of GST but the progress of the biggest reform does call for a celebratory drink!

(The author is Director, Economic Advisory Council to the Prime Minister.)