Since its establishment nearly seven years ago, the Goods and Services Tax (GST) has unequivocally demonstrated its prowess as a transformative fiscal reform. The consolidation of state levies has provided businesses with a more efficient taxation framework, and the advent of transparent e-filing mechanisms has curbed revenue leakages, thereby augmenting tax collections. Remarkably, the gross GST revenue for FY24 has surged past the ₹20-lakh crore threshold, marking a notable 11.5% increase over the previous year and an impressive 71% growth since FY19, despite the economic disruptions caused by the pandemic. As the GST Council convenes for its 53rd session, the inaugural meeting under the new administration, it is imperative that the focus shifts to pivotal reforms such as rationalising tax rates, integrating alcohol and fuel into the GST framework, and eliminating punitive tax collection strategies.
One of the critical items on the agenda is the rationalisation of GST rates. The council is expected to address sector-specific tax issues, including the 28% levy on online gaming and the inverted duty structures in sectors like textiles, footwear, medicines, and fertilizers, which impede input tax credit claims. Additionally, exorbitant tax rates on everyday items such as cement and two-wheelers warrant urgent reassessment. While the Council has previously rectified some anomalies, substantial progress in contentious areas like rate rationalisation and the inclusion of new taxable items will require navigating the complexities of electoral politics and coalition dynamics.
The paramount objective of GST rate rationalisation is to enhance business facilitation. However, there are concerns about its inflationary impact. Proposals under consideration include a revised rate structure—8% instead of 5% and 12%, and 15% instead of 12% and 18%, with a potential reduction of the 28% rate to 18%. The deliberations of the fitment committee, composed of central and state tax officials, will be crucial. The adept consensus-building abilities of BJP’s state ministers, particularly within the multi-party group of ministers led by Uttar Pradesh Finance Minister Suresh Khanna, could prove instrumental in achieving these reforms. GST’s success as a consensus-driven reform in a diverse polity must be preserved and advanced.
Procedural reforms present a more straightforward pathway for immediate action. The establishment of GST tribunals is urgently needed to expedite dispute resolution. Addressing delays in disbursing input tax credits is also critical, especially those stemming from discrepancies in tax filings by sellers, which can cascade into higher costs for buyers. Recent directives from the Central Board of Indirect Taxes and Customs aim to curb excessive zeal among tax officials, but the issue of harassment, particularly for MSMEs, remains pressing. Controversies surrounding the powers of arrest under Section 132 of the GST Act highlight the necessity of ensuring that GST facilitates rather than hinders business operations.
Ultimately, the overarching goal of GST is to streamline and simplify business processes. Ensuring that the tax system evolves to support this objective will be pivotal in maintaining the momentum of this landmark reform.