"India's evolving tax landscape finds its new rhythm in GST, seamlessly integrating 11 diverse taxes into a single system that mirrors the country's unity and innovation”
A Decade in the Making-The Road to GST: The journey to the implementation of the Goods and Services Tax (GST) in India has been nothing short of monumental. The idea of a nationwide GST in India was first proposed by the Kelkar Task Force on Indirect taxes in 2000 to releasing the First Discussion Paper in 2009 to finally implementing on 1st July, 2017. Spanning over ten years, this transformative fiscal reform was paved with meticulous planning and rigorous debate, involving:
- 30+ Sub-Groups and Committees
- 18,000+ Man Hours of Discussion by the GST Council
- 14 Empowered Committee Meetings in 10 Years
- 13 GST Council Meetings in 6 Months
- 175+ Officer Meetings
- Constitution Amendment and 5 Laws approved by collaborative effort
Source: https://gstcouncil.gov.in
This landmark reform has significantly transformed India's tax system, aiming for a unified, efficient, and transparent indirect tax regime.
At this point, it’s important to recognize that GST became a reality largely due to the significant advantages it offered. Though the list is huge, here’s a look at how GST has transformed India, particularly in shifting parts of the informal economy into the formal economy:
- Streamlined Tax Compliance and Increased Transparency: GST has created a more transparent and accountable tax system, which encourages businesses to formalize their operation. In GST, transactions are recorded and reported electronically on a real time basis making the tax evasion system leak-proof. The mandatory digital e-invoicing and e-way bill system backed with fast-tag database, the information is available on the go with the department to not only track the transactions but also trace back its complete sequence and history making it harder for businesses to evade taxes.
- Cross-Verification Mechanism: GST’s framework includes robust cross-verification mechanisms, such as matching invoices between buyers and sellers, which helps in identifying discrepancies and potential tax evasion. This level of scrutiny makes it harder for businesses to remain under the radar.
- Regulatory Pressure: The enforcement under GST compliance has increased regulatory pressure on businesses. Regular audits, inspections, and penalties for non-compliance further discourage businesses from operating informally.
- Economic Integration: By reducing tax barriers between states and promoting interstate trade, GST has integrated the economy, making it more difficult for businesses to remain informal when operating across different regions.
- Reduced corruption due to electronic filings: The GST regime has significantly reduced the need for bribes in obtaining GST registration. This is due to the shift to an electronic communication system through a common portal (GSTN), which minimizes direct interactions with tax authorities and thereby reduces opportunities for corruption.
- Boost to the Formal Economy: By integrating various tax structures into one, GST has encouraged many businesses to formalize their operations. The simplified tax regime and reduced compliance burden and have motivated small and medium-sized enterprises (SMEs) to register under GST, expanding the formal economy and increasing tax compliance.
- Startups and scaleups able to grow faster: Under the GST regime, startups and scaleups are experiencing increased comfort and confidence, leading to higher rates of GST registration and improved compliance. This enhanced regulatory environment fosters business growth by simplifying tax processes and reducing barriers to entry. The streamlined tax structure not only makes it easier for new and expanding businesses to comply with tax regulations but also encourages more enterprises to formalize their operations. As a result, these businesses contribute more significantly to tax revenue while benefiting from a more predictable and efficient tax system. This positive cycle supports their growth trajectory and strengthens the overall economic landscape.
- Online Litigation: Online litigation in the context of GST (Goods and Services Tax) involves the use of digital platforms and tools to handle legal disputes related to GST issues. It leads to reduced need for physical documentation, transportation, and accommodation can lower the overall costs associated with litigation. It also facilitates better record-keeping and tracking of case progress.
- Foreign investment: Prior to GST, complex tax litigation and regulatory issues under the Income Tax Act had fostered a negative perception among foreign investors, leading many to reconsider their investments in India. However, GST's implementation has revitalized confidence in India's tax regime. The government's efforts to simplify GST have enhanced the overall perception of India's taxation system globally. This positive shift is reflected in various economic indicators: the economy is growing faster, foreign direct investment (FDI) is increasing, the stock market is performing well, and secondary and tertiary sectors are contributing more to the GDP.
- All India Drive against fake registrations: The motive to initiate special drive to detect suspicious/fake GSTINs and to conduct requisite verification and further remedial action to weed out these fake billers from the GST eco-system and to safeguard Government revenue. Currently, second special All-India Drive against fake registrations is initiated from 16th August 2024 to 15th October 2024.
Certainly, no reform is without its flaws, and GST is no exception. The implementation of GST has faced various disadvantages, some of which are inherent to the concept itself, some due to the structural design, and many arising from the way it has been executed, which could have been largely mitigated. Some of the flaws being:
- Increased tax compliance
- GST Portal issues
- Increased Litigation
- Multiple assessing authorities assessing same issues.
In conclusion, the implementation of GST marks a transformative chapter in India's tax landscape, reflecting the nation's commitment to modernizing and streamlining its fiscal systems. By consolidating a myriad of taxes into a unified framework, GST has not only enhanced transparency and compliance but also stimulated economic integration and growth. The shift from an informal to a formal economy, coupled with improved mechanisms for tax collection and legal dispute resolution, underscores the reform’s potential to foster a more robust and dynamic economic environment. While challenges such as increased compliance costs, technical issues with the GST portal, and the complexity of litigation remain, the overall benefits of GST are evident in the burgeoning economic indicators and improved investor confidence. As India continues to refine and adapt its GST regime, the focus will be on addressing these challenges and leveraging the reform’s strengths to further drive economic progress and inclusivity.
Thank you,
Diksha Jindal
NRO0471887