What are the reforms brought in through GST and what can be the future reforms in indirect taxation in India.

Model Answer

GST is a comprehensive indirect tax levied on manufacture, sale and consumption of goods as well as services at the national level. It has replaced all indirect taxes levied on goods and services by the Central and State Governments. It has been a milestone in the economic landscape of India.

Reforms bought in by GST:

  • It brought in more transparency in the tax system, leading to several rounds of tax cuts on goods and services. GST also demonstrated that tax administration could leverage technology to a high degree, use data analytics and zero in on instances of tax evasion with accuracy.
  • GST has achieved better tax compliance through mitigation of tax cascading (instances of tax amount getting taxed), double (multiple) taxation, and reduced tax burden, and has improved the competitiveness of domestic industries in the international market by removing hidden and embedded taxes.
  • GST rates were reduced on 400 goods and 80 services.Under GST, essential goods are either not taxed or are subject to 5% tax, while mass use items are subject to either 12% or 18% tax. Only a few other items are kept on the highest slab of 28%.
  • GST also removed a tax arbitrage across states that distorted business investment decisions.

Future reforms in indirect taxation in India:

  • A simpler tax slab structure limiting commodities to three tax slabs is the need of the hour. Experts have recommended a three-slab structure that will help rationalise this indirect tax system. 
  • Optimising digital resources will help accelerate the process of claiming input tax credit and increasing the capacity of the portal to handle higher numbers of data processing
  • Clarifying the provisions under anti-profiteering laws so that taxpayers can adhere to the prescribed provisions and not indulge in ethical violations or alternatively, taxpayers don’t take any erroneous calls and unknowingly indulge in unethical acts of profiteering. 
  • Close the noose around tax evaders as collections continue to fall month on month due to unethical and illegal tax practices. 
  • Centre needs to urgently figure out and put to rest the battle between the Central and State Governments on sharing of revenue collections.

Indirect taxes have played an increasingly important role in the Indian economy. By subsuming more than a score of taxes under GST, road to a harmonized system of indirect tax has been paved making India an economic union.

Subjects : Economy