India has spent six months attempting to implement an incredibly complex Goods and Services Tax and one year reversing much of it. Keep it simple, was the refrain from across industry and experts when the new tax architecture was being designed. None other than the government’s own chief economic adviser recommended taxing most goods and services at 15 percent—with a lower rate for essential items and a higher one for sin goods—and raising the exemption threshold to Rs 40 lakh. Instead, the GST Council opted for a dual GST regime, that excluded fuel, real estate and electricity, multiple and high tax rates, low thresholds, complex compliance, and an unprepared technology backbone.
It didn’t work.
So in the past one year the GST Council has slashed rates several times (originally the 28 percent category had 224 items now it has 30), delayed returns filing, twice increased the composition scheme threshold so that a larger number of small businesses could avail a simpler tax format (albeit sans input tax) and now doubled the exemption threshold to Rs 40 lakh.
All this as monthly revenues have stagnated.
It is nobody’s case that GST should not have been introduced or that in the 18 months since its implementation it hasn’t produced any benefits. For instance, the indirect taxpayer base has doubled to 1.25 crore. And it is expected that taxpayer information will over time yield better compliance in direct and indirect taxes.
But for now GST is missing even the most critical feature of voucher-matching, that would have ensured better compliance, especially without tax officer intervention that prompts a harassment culture.
#GST is a “vibrant example of cooperative federalism,” said Prime Minister Narendra Modi on July 1, 2018, when the new tax architecture completed a year.
But critics might argue that getting a few recalcitrant BJP-led states on board the tax is hardly cooperative federalism.
Getting all states to agree to a simpler version of GST, right from the start, would have made for more meaningful cooperative federalism. On that India is running about a year late. And time is money.