What real relief had GST brought to the masses? While the states continued to impose their taxes
![](https://theemergingworld.in/wp-content/uploads/2024/09/AMIT-PANDEY.png)
Amit Pandey
Once upon a time, in the bustling land of India, the government’s chest of treasures seemed boundless, overflowing with the wealth of taxes collected from its industrious citizens. But deep within the intricate web of financial policies, one particular taxation regime stood tall—GST (Goods and Services Tax). Lauded by the authorities as the backbone of the country’s revenue, GST was introduced with promises of a streamlined and unified tax system. Yet, for the common folk, understanding its complexities was akin to deciphering an ancient, cryptic script.
The origins of GST could be traced back to an era when the Congress proposed a regime that wouldn’t exceed 18%, fostering hope for simplicity and fairness. However, as the baton was passed to the BJP, the clause was slyly omitted, leading to contentions and debates. Critics argued that the GST, touted as the panacea for economic ills, had instead evolved into a labyrinth of complications, its intricacies as enduring as the cycle of day and night.
As the dust settled, the public found themselves grappling with more questions than answers. What real relief had GST brought to the masses? While the states continued to impose their taxes, like Bengal’s sales tax, GST excluded excise and petroleum products, leading to further confusion. The nation’s citizens felt the weight of a system that seemed to burden rather than ease.
Amidst the clamor, voices rose, questioning the very essence of GST. How had it simplified the lives of common people? Did it alleviate the pressures of daily expenses or merely add to the already substantial tax burden? With essential items like petroleum products remaining outside its purview, did GST truly offer the comprehensive solution it promised?
State governments, too, wielded their power to levy taxes—property tax, stamp duty, electricity duty, and more—adding to the intricate tapestry of fiscal responsibilities. The question echoed louder: why, despite paying more than 60% of their income in taxes, did citizens still witness a lack of significant investment in education, research, and youth employment?
As the narrative unfolded, the GST’s shortcomings became evident. The absence of relief measures and the persistence of state-specific taxes painted a picture of disarray. The common man, burdened by rising GST rates that could reach a staggering 28%, found themselves questioning the very foundations of governance. How had a tool meant to unite and simplify become a device that wrenched the public’s hard-earned money?
In the heart of the story lay the unanswered questions: Why was the original proposal’s simplicity discarded? Why did the government’s discretionary power to alter GST rates persist? And most importantly, how had a system designed to benefit the populace transformed into a convoluted ordeal?
As the tale of GST continued to unfold, the voices of the people remained steadfast, demanding clarity, fairness, and a taxation regime that genuinely served the needs of the many rather than the few. The story of GST, with its complexities and controversies, remained a chapter yet to be fully understood and resolved.
Revenue Trends and Growth
Since its inception, GST has become a pivotal component of the Indian government’s revenue system. Empirical studies have indicated that GST revenue has a positive impact on the country’s economic growth in both the short and long term. For instance, research utilizing data from August 2017 to March 2024 demonstrated that GST revenue positively influences India’s economic growth. However, despite its revenue-generating potential, there remain concerns about the structure of taxation and its impact on economic inequality.
GST collections have witnessed significant fluctuations over the years, often reflecting broader economic trends such as demonetization, the COVID-19 pandemic, and inflationary pressures. According to government data, the GST revenue in 2023-24 consistently exceeded Rs. 1.5 lakh crore per month, signaling strong compliance and economic recovery. However, revenue buoyancy has been uneven, with concerns raised about tax evasion and revenue leakages.
The revenue distribution between the Centre and states has also been a contentious issue. The GST compensation to states, initially assured for five years, ended in June 2022, leading to financial stress in several states. States such as Punjab and West Bengal have demanded an extension of compensation, arguing that GST has not entirely replaced their lost revenue streams.
One of the major concerns associated with GST has been its inflationary impact. While GST aimed to reduce the cascading effect of taxes, multiple slabs have led to price fluctuations in various sectors. Essential goods, such as milk and food grains, have been exempted, but other necessary items such as bicycles and sanitary napkins have seen higher tax rates.
Economists argue that GST has disproportionately affected lower-income households, as indirect taxes constitute a larger share of their consumption expenditure. On the other hand, businesses have experienced reduced logistical costs due to the removal of interstate tax barriers, enhancing efficiency in the supply chain.
The implementation of GST has been a subject of intense political debate. The Indian National Congress (INC), which initially proposed the GST framework, later criticized its execution under the Bharatiya Janata Party (BJP)-led government. The INC advocated for a simplified GST with a standard rate capped at 18% and the establishment of an independent dispute resolution mechanism. Senior Congress leader P. Chidambaram emphasized the need for a single-rate GST, arguing that multiple slabs defeat the purpose of simplification.
Opposition and Critique
Several state governments, particularly those ruled by non-BJP parties, have raised concerns about the federal structure of GST. Kerala, Tamil Nadu, and West Bengal have repeatedly voiced concerns about revenue loss and central control over taxation policies. These states argue that the GST Council, dominated by the Centre, often does not accommodate regional economic disparities.
Former Prime Minister Dr. Manmohan Singh also expressed concerns about the GST’s design and implementation. He described the GST in its current form as a “fraud,” highlighting that it deviated from the original vision of a simple and unified tax structure. Dr. Singh warned that the hasty implementation could disrupt the informal economy and adversely affect small businesses.
Furthermore, the BJP government has faced criticism for making frequent modifications to GST rates. Over 400 changes have been made since its launch, leading to policy uncertainty and confusion among businesses. Critics argue that such frequent revisions indicate poor initial planning and a lack of long-term vision.
From the perspective of the common citizen, GST’s impact has been multifaceted. While the elimination of multiple taxes has simplified the tax structure, the imposition of GST on essential commodities has raised concerns about increased living costs.
Burden on Small and Medium Enterprises (SMEs)
The compliance burden on small and medium-sized enterprises (SMEs) has been significant. The requirement for regular filings and the complexity of the tax slabs have posed challenges for businesses with limited resources, leading to calls for further simplification and support mechanisms.
Many small traders have struggled to adapt to the digital filing system required for GST. The introduction of the e-invoicing system, aimed at reducing tax evasion, has further complicated compliance for businesses with low digital literacy. Additionally, the late refund of input tax credit (ITC) has led to working capital issues, forcing many small businesses into financial distress.
Employment and Informal Sector Impact
The introduction of GST significantly disrupted India’s vast informal economy. Before GST, many small traders operated outside the formal tax net. However, the requirement to register under GST has forced businesses to either comply or shut down. This has led to job losses, particularly in sectors such as textiles, handicrafts, and small-scale manufacturing.
The textile industry, which employs millions of workers, has faced challenges due to the imposition of GST on raw materials like synthetic fiber. Similarly, the handloom and handicraft sectors have struggled to cope with taxation that did not previously exist, leading to fears about cultural and artisanal decline.
Despite the government’s efforts to increase revenue through GST and other taxes, concerns have been raised about the allocation of these funds. Critics argue that despite substantial tax collections, there has been inadequate investment in critical sectors such as research, education, and youth employment.
Growing Fiscal Deficit and Debt Burden
The GST system has failed to fully replace previous revenue streams, leading the government to rely on increased borrowing. India’s fiscal deficit remains a key concern, with public debt reaching Rs. 196 lakh crore. Economists argue that while GST has boosted revenue, the government’s expenditure on welfare schemes, infrastructure, and defense has escalated, exacerbating the fiscal deficit.
Some experts believe that GST collections should be linked directly to developmental projects, ensuring that funds are utilized efficiently. However, the lack of transparency in fund allocation has raised concerns about mismanagement and inefficiencies in public spending.
Reforms and Way Forward
For GST to truly achieve its potential, certain reforms are necessary.
Single-Rate Structure and Rationalization
Economists and policymakers have long advocated for a single-rate GST structure to simplify compliance and enhance transparency. Countries such as Australia and Singapore have successfully implemented a uniform GST rate, reducing classification disputes and improving tax efficiency.
The GST Council has hinted at the possibility of merging the 12% and 18% slabs, but no concrete decision has been made. A more streamlined approach with a single rate for most goods and a higher rate for luxury items could improve compliance and ease the burden on businesses.
Enhanced Digital Infrastructure
While GST has increased digitization, further improvements in the GST Network (GSTN) are needed. The frequent technical glitches on the GST portal have frustrated taxpayers, leading to delays in filing returns. Upgrading the IT infrastructure and providing better digital literacy support to small businesses can enhance compliance rates.
Addressing State Concerns
A more equitable revenue-sharing model is needed to address concerns raised by states. The reintroduction of compensation or alternative revenue mechanisms should be explored to ensure that states do not bear disproportionate financial burdens.
The implementation of GST in India represents a landmark reform with the potential to unify the national market and enhance economic efficiency. However, its journey has been accompanied by challenges related to complexity, compliance, and socio-economic impacts. Continuous engagement with stakeholders, periodic reviews of tax rates, and a commitment to simplification are essential to ensure that GST realizes its foundational objectives and equitably benefits all segments of society.
( Author is Managing editor of The Emerging World)