In the labyrinthine world of India’s taxation, the Goods and Services Tax (GST), introduced seven years ago with much fanfare, continues to grapple with complexities far removed from its envisioned simplicity. Arvind Subramanian, the former Chief Economic Advisor, has cast a critical eye on the tax regime, asserting that the promise of a ‘Good and Simple Tax’ remains an unfulfilled aspiration.
Revenues generated under the GST have, disappointingly, only now matched the levels seen before its implementation, Subramanian lamented on Thursday. This sluggish revenue performance, he attributed to a “rate-cutting spree” initiated by the GST Council from late 2017 through 2019, a period during which both the Centre and States were culpable.
Subramanian highlighted a significant oversight: the absence of critical data on refunds. “Our focus was misguided, fixated on collections because refunds were not published. This led us to an erroneous conclusion about the health of GST revenues. Had refunds data been transparent, the approach to rate cuts would have been far more prudent,” he explained.
Earlier this year, the government resumed the practice of releasing net GST collection figures, only to halt it once more. Without access to refund data, there is a misleading perception that GST revenues are robust,” Subramanian observed during a seminar on GST’s seventh anniversary, organized by the Centre for Social and Economic Progress.
Subramanian did not mince words when addressing the GST’s convoluted structure, referring to the multiple cess rates and the overall rate framework as ‘monstrous. He proposed a radical simplification: a single cess rate, one standard rate, and one lower rate. This, he argued, would bring much-needed clarity and efficiency to the system.
Frequent amendments and adjustments every time the GST Council convenes, Subramanian contended, have further complicated the tax regime, moving it away from the simplicity and rationalisation initially intended. Reflecting on his 2015 recommendations, he noted he had proposed a tri-rate structure: one for essential goods, a standard 18% rate, and a 40% rate for demerit goods.
Interestingly, Subramanian’s stance on including sectors such as electricity, petroleum, and alcohol within the GST ambit has evolved. Once a proponent, he now sees such inclusion as politically unfeasible and ill-advised, especially given the strained relations between the Centre and the States. Expecting States to relinquish more sovereignty under current conditions is unrealistic,” he conceded, acknowledging the significant concessions already made by States for GST’s original rollout.
Subramanian’s incisive critique underscores a fundamental reality: the GST, envisioned as a streamlined and efficient tax system, remains ensnared in a web of complexities and political dynamics, far from the straightforward solution it was intended to be.
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