Does India’s GST System Need a Complete Overhaul?

GST started its journey in India in July 2017 and since then, it has seen a series of ups and downs. GST was introduced to simplify the indirect tax system in India, which consisted of a plethora of tax laws, tax rates and tax-filing systems.

The best outcome of introducing GST was the fact that all indirect taxes now come under a single law. This led to several other positives like filing a single tax return by businesses, who would previously file returns under multiple different tax laws. Tax rates have also been regulated by the central government, which has taken into consideration taxpayers’ feedback. It has also helped reduce tax evasion, which had been a huge issue in the past.

However, all hasn’t been well since the inception of GST and there have been several glitches along the way. GST, supposed to have been a simple tax, turned out to be one of the most complicated reforms India has ever seen. It started off with four tax rates, which met flak from experts across the country. This was not just due to the numerous rates which kept getting added on, but also for the highest tax slab of 28%. A tax rate this high was not even seen in developed countries. 

To add to the problems of inception, came the numerous problems of transition. Several flaws were detected in the working of the system, with glitches on the GST portal experienced by frustrated taxpayers, time and again. And while a single form for the upload of returns was promised, it ended up being a total of 36 returns to be filed by a taxpayer each year. Some of these were rescinded, however, the setbacks kept mounting. Consumers also did not end up seeing the benefits of lower prices of goods. This was something that was promised, taking into account the cascading effects of taxes under the erstwhile tax regimes, a problem GST wouldn’t have. 

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Just when taxpayers had seemingly had enough, the government brought in the new return system under GST. The new return system was supposed to be a simplified means to file returns sans the multitude of forms presently used. But this was not the case. The intricacies of the new forms and annexures further irked taxpayers, who began doubting the preparedness of the government in terms of managing GST in India.

On its third-year anniversary, it would be worth considering if the Goods and Services Tax was prematurely implemented, and whether an overhaul of the system needs to be done. The good and simple tax, as it was promoted as turned out to be a tax, not even experts could figure out. The government now needs to take into consideration lessons learned over the past three years and make changes for the better.

For starters, while a single tax rate might now be possible, certain modifications to the tax rates can definitely be conducted. It’s high time the 28% tax slab gets repealed, having got enough flak over the years, and replaced with a more justifiable rate, limited to luxury goods only. All other goods and services can fall under the remaining tax slabs, based on similar rates from countries who have already tried and tested the GST system. 

Alcohol and fuel, two of the biggest revenue-generating products for our GDP, can be brought under the purview of GST. Nothing will get accomplished under the ‘one nation, one tax’ vision unless it actually turns out to be an all-inclusive tax system. The return forms also need to be reassessed, as there is definitely scope to simplify reporting and tax payments. E-invoicing will bring in some consistency in the invoicing formats, dynamic implementation of the same is requisite.

Lastly, upgrading the government portal for GST is the need of the hour. Errors arising on the upload of data, or filing of returns takes away taxpayers faith in the system. The Goods and Services Tax was overall a great move for India. Now, if we can only get past the teething trouble we’re still facing three years down the line, it will turn out to be one of India’s most successful reforms ever implemented.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in