On July 1st, 2017, PM Modi has revolutionized the entire system of indirect taxes at the stroke of midnight with the introduction of GST. This was the second substantial course of action by the NDA government after demonetization and citizens also had high hopes from it. The prime aspiration of the government behind GST was to streamline the complex indirect tax system in India. Before GST, our indirect tax system was as convoluted as some mathematics problem. There were several taxes separately for the Center and States. For example, Center excise duty, Additional duty, CVD, SAD, Service tax, Surcharges, and CESS levied by Center. Then for states, there was VAT, Purchase Tax, Central Sales Tax, Entry tax, Surcharges, and CESS. On 1st July 2017, all these taxes were eradicated and merged into one- Goods and Services Tax.
One Nation, One Tax!
With GST, the government centralized the existing federal structure of our tax system. This meant that now a consumer in Kanyakumari will be paying the same tax as that in Kashmir which will be determined by the central council. The government also guaranteed that GST will source around a 2% increment in our country's GDP growth rate. Then finance minister Arun Jaitley also claimed that all the states would be able to surpass their revenue collection by 14%.
They projected GST as a revolution widening the compliance base, rates can be maintained reasonably, expanding our collection. GST is not merely a tax reform or a financial reform but it is a pivotal step towards a better social reform.
However, the revenue collection didn't improve.
The loss in annual revenue caused the Central government to pay Rs 36,400 crore as compensation. Although, GST was not an inadequate idea. The UPA government during their term was itself struggling to bring GST in India for years.
The Positive Impacts
Theoretically, even Science is not an unpleasing subject but, practically, we are never prepared for it. GST also had this very anomaly. Although occasionally, some practicals worked out fine as well. As aspired, there were no long ques of trucks at the state borders anymore. This made the transport of goods across the country much easier. There was a unified and identical tax system across the nation. The digitization of the tax system was also initiated in tandem with GST. Although, a country where we couldn't even go through a video call unbuffered, filing tax returns digitally was still a far-fetched objective.
It was also forecasted that inflation would rise as a consequence of GST which was admirably avoided by the government. If the picture seems pretty clear till now, what exactly caused it to fail?
Now when GST was a much-needed initiative; Congress and BJP were both in agreement with it; After the assurance of a 14% rise in revenue collection, all state governments also conceded to GST; then what went wrong?
The problem was the same as with any New Year resolution- failed implementation. Whilst the principal agenda of GST was to simplify and unify the tax system, GST itself turned out to be so intricate that the sheer time needed for it to be acknowledged made our economy fall into shambles. GST could've been studied and outlined better. But as you can imagine, until the decision is not taken in a flash, it is not appreciated as a Masterstroke. The government itself wasn't lucid about what rates are to be levied, how much to be levied, and so on, leave alone the public to understand it.
Despite the catchphrase 'One Nation One Tax', there was an entire range of tax slabs offered by the council, from 0% to 28%. Moreover, liquor and tobacco products were kept out of the scope of GST which could have generated more revenue. This didn't prove to be beneficial for the people.
Later, when the States weren't able to fulfill their GST targets, compensation CESS, and other duties on these products shot up.
On the hind side, the government was introducing new taxes every day and on the other, the people were no less evil. The tax evasion exceeded the government's expectations because the recent invoice system turned out to be horrendously complex. This gave many people a getaway to cheat the system.
The entire system was largely depended on invoice matching, but the online platform for this matching was poorly designed. This made the fake invoices in cottage industries to increase by all means. To combat this, the government had to give more power to the tax officials. So neither GST proved to be a straightforward tax system, nor it helped in eradicating corruption.
Besides poor implementation, GST had some major glitches; to which the government gave no attention.
First, it was brought up in a haste; then the IT backbone failed and above all the overconfidence. In case the states are not able to achieve a 14% growth in their revenue collection, the Government promised them compensation for it. Nevertheless, neither did the states fulfill their target, nor did the government had the capital to compensate up till recently(after three years). But what was wrong with the scheme itself?
The e-way bill system was implemented in a hurry without adequate infrastructure and naturally, it failed. The GST not just fell short of its target but the revenue collection even decreased below previous years' collections. Despite the sharp reduction in the tax burden, there was no decrement in MRP. What happened is that even after decreasing the tax rates, consumers like us couldn't be benefited at all.
Consequentially, consumption shrunk that made the GDP decline and economy fall into ruins.
The side-effects of GST were apparent even in 2017 itself. But today, after roughly three years of GST, these side-effects have grown exponentially, with woes of lockdown yet to come. According to the government's own organization CAG, GST has failed to live up to its full potential. The 2018-19 actual GST collection was way below the budget estimate for the same. GST caused the indirect tax collection to decline by 10% from the pre-GST era.
All the states were already demanding their promised compensation from the states prior to lock-down. However, the government did finally released that compensation recently.
Post-lock-down, the states' revenue collection is going downhill. The Center's GST collection dropped by 87% in April. In comparison to 2019, the scenario is getting far worse every day.
Presently the situation is so grim, that it is being advised to the GST council to borrow money to compensate the states, in layman terms, borrowing money to lend to others.
Center is nowhere close to compensating the states, leading to state governments hiking up alcohol and fuel prices continuously.
GST despite being a revolutionary idea, failed implementation by the government has once again caused its aftermath to be faced upon by us, the normal citizens of this nation.