July 1, 2023, marks the sixth anniversary of the introduction of the Goods and Services Tax (GST), a transformational tax reform. And in a nice coincidence, the meeting of the GST Council, scheduled for July 11, would be the golden jubilee meeting of this constitutional body.
The Goods & Services Tax (GST) was launched in 2017 with much fanfare. Here was a tax reform that, though everybody agreed was needed, kept getting delayed. It required a Constitutional amendment and the cooperation of all the states, as they were pooling their fiscal sovereignty with the Centre. That it did happen was the result of the enormous sagacity and maturity of all concerned — the states and the Centre.
In 1972, Chinese Prime Minister Zhou Enlai, when asked to comment about the French Revolution, is said to have remarked (perhaps apocryphally) that it was too early to say. This is even more true of fiscal legislation. But even its worst critics will agree that the GST has been a success. It has achieved what it set out to do: merge and subsume multiple taxes and cesses, reduce the cascading impact, give the country a common economic market and provide an excellent technology-driven tax system.
Revenue has been consistently good: May 2023 saw Rs 1.57 lakh crore in revenues, a 12% year-on-year growth. This has been a steady trend, showing better compliance and a spurt in economic activity. Undoubtedly, inflation and high imports have also contributed to GST revenue. Incidentally, Deloitte India’s survey of the industry about ‘GST at 6’ has evoked an overwhelming acknowledgement of the positive impact of the GST.
Yes, there have been voices of criticism. The noise about the need to converge rates and bring in petroleum products continues. Every tax administrator will readily agree, but these are suggestions for which the political establishment is not yet ready. GST represents the most acceptable compromise between disparate interests among the states and between the states and the Centre. Tax administration is always a challenging tussle between facilitation and enforcement and needs close, pragmatic monitoring.
Which brings us to the wonderful collateral benefits of the GST: the GST Council, the very embodiment of cooperative federalism, and the GST Network (GSTN), the technology platform that has also played a critical part in improving compliance.
The GST Council provides the platform for debate and discussion. In its six years, the Council has met on an average eight times in a year (undoubtedly, the frequency of the meetings has now sharply reduced). In FY 2023, for instance, the Council met only three times; given the fact that meetings are also held virtually, this is far too less.
It can be argued that most important issues have been sorted and the Council need not meet as often; this is a fallacious argument. The Council should never lose sight of the enormous responsibility cast on it — to make recommendations as spelt out under Article 279A of the Constitution on all aspects of the GST. The success, or failure, of the GST depends on them. Petty politics should not come in the way of sound economic decisions.
Having said that, the Council has been a success and has spawned the belief that similar institutions would perhaps be required to address other contentious federal issues such as water sharing, infrastructure and health care. The 50th meeting of the Council is scheduled to be held on July 11, which brings us to the issues this meeting of the Council has to grapple with.
First, finalising the contours of the long overdue GST Tribunal. This is a critical institution whose absence is hurting the taxpayer. The second issue, which has generated debate and discussion but no conclusion, is the rate and value to be adopted in the cases of casinos, online gaming and horse racing.
Twenty-eight percent was what was recommended on all earnings. The issue of the base value to be adopted, however, has remained unresolved. This needs closure, and a decision. Taxation after all thrives on certainty.
Incidentally, as many as 35 Group of Ministers (GoMs) have been constituted so far under the directions of the GST council. The very fact that a GoM was constituted would suggest that the matter was important enough for a closer examination by a smaller, high-level group, whose report would help the Council arrive at a decision.
However, the GoM reports have not been placed in the public domain, which is unfortunate. It is necessary that these are done as it will help the taxpayer appreciate the challenges and the thinking behind a particular decision.
The last few weeks have seen a spurt of enforcement activity based on an AI- driven, analytic risk-based approach. More than 10,000 cases of fake registrations have been detected, with the revenue implication said to be in excess of Rs 25,000 crore. This is a serious matter and should engage the Council to debate if any changes in the rules or law are needed to plug loopholes.
The issue of correcting the inverted duty structure is an ongoing exercise which engages the Council. A look at the agendas of the previous meetings, available on the GST Council website, would suggest that very many items have been left open. It would be advisable to finalise these agenda points, or close them.
The 50th meeting will see some new faces. The very experienced Krishna Byre Gowda, who had closely participated in the early days of the Council, will once again represent Karnataka.
The GST and the Council have done well. Both will only improve going forward. Any tax reform necessarily takes patience and consensus-building.
(The author is former chairman of Central Board of Indirect Taxes & Customs)