Why GST had been opposed by various stakeholders?

• Refund delay issues: the Government has taken many steps to smoothen the process of export refunds, automatic processing of refunds has always been an area of major concern under GST.
• Rate differentiation-  This is an inefficient way of targeting benefits for the poor.
• Lack of Dispute redressal mechanism- There is no statutory mechanism under the GST regime that could ensure uniformity in the rulings passed by the Authorities.
• Constant amendments: Over the last few years, the GST law has seen many amendments. During this time, all these revisions often confused the taxpayer and as well the tax administrators which created misunderstandings and misconceptions.
• Adaption & Technical Issues: Small and medium businesses are still grappling to adapt to the tech-enabled regime. The fundamental principles on which the GST law was built viz. seamless flow of input credits and ease of compliance has been impaired by IT glitches,
• Complex Penalties: Many businesses are genuinely not able to monitor their vendor behaviour and feel that they should not be penalised for the tax compliance deficiencies of their vendors once they have paid the GST amounts to their vendors.
• Other Concerns: Further, the 15th Finance Commission, in its report, has also highlighted several areas of concern in the GST regime relating to:
• multiplicity of tax rates,
• shortfall in GST collections vis-à-vis the forecast,
• high volatility in GST collections,
• inconsistency in filing of returns,
• dependence of States on the compensation from Centre
• Compensation to States: The GST (Compensation to States) Act guaranteed full compensation to States for the first 5 years of the GST if their revenues (after the implementation of GST) fall below 14% annual growth.
• A lot of States have been dependent upon the compensation.
• Since the clause is coming to an end, many States are demanding an extension. However, the Union Government appears to be reluctant. Moreover, the Union Government had delayed GST compensation to the States from 2019-20 when the economy started slowing down. It was paid in May 2022 after much delay.
• Bogus or No receipts: Despite coming out with e-way bills and e-invoicing, genuine receipts are not being given in every segment of the economy. For instance, retailers of fast moving consumer goods (FMCG), and chemists buy their stocks from super stockists who, in turn, buy from distributors appointed by the companies concerned.
• Though these distributors are tracked by e-invoicing and e-way bills, in many cases, the super stockists sell the products to stockists who do not keep records and do not give receipts.
• Technical glitches: Frequent technical glitches have led to, first, the suspension of forms GSTR 2 (a purchase return) and GSTR 3 (an input-output return), and then, their scrapping altogether.  Technical glitches were so rampant that the launch of the e-way bills had to be suspended in February 2018 because the system could not bear the load. Unfortunately, the glitches crop up even now.
• National Anti-profiteering Authority (NAA): The NAA was set up in December, 2017 to ensure that GST rate reductions were passed on by firms to consumers and there was no profiteering. But right from the outset, the process of imposing penalties on companies was criticised for the alleged lack of a proper methodology to ascertain profiteering. As of May, there are close to 400 cases pending with it.

Measures

• Streamlining of anti-profiteering measures and simplification of compliance procedures also needs to be revisited to ensure that the cost efficiency and reduction in prices envisaged under GST law finally reach the common man.
• To overcome the issues of dispute related to GST and increase efficiency in tax administration, there is a need for a robust dispute redressal mechanism.
• GST requires administrative reforms which will establish a robust mechanism to redress such irregularities and will also remove gaps in the provisions of advance rulings under the GST law.
• Pandemic has had severe impacts on GST also and led to economic contraction.
• Certain structural level changes to the law may help boost the business and economy.
• A group of ministers (GoM) reviewing goods and services tax (GST) rates has proposed removal of exemptions on a host of services, including for stay in relatively cheaper hotel rooms, hospital rooms above a tariff threshold and services provided by financial sector and food safety regulators.

When the idea of GST was given?

• The idea of moving towards GST was first mooted by the then Union Finance Minister in his Budget speech for 2006-07.
• Initially, it was proposed that GST would be introduced from 1st April 2010.
• The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State VAT was requested to come up with a roadmap and structure for GST.
• Joint Working Groups of officials having representatives of the States as well as the Centre were set up to examine various aspects of GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies.
• Based on discussions within and between it and the Central Government, the EC released its First Discussion Paper (FDP) on the GST in November, 2009.
• This spelt out features of the proposed GST and has formed the basis for discussion between the Centre and the States so far.
• The introduction of the Goods and Services Tax (GST) is a very significant step in the field of indirect tax reforms in India.
• By amalgamating a large number of Central and State taxes into a single tax, GST will mitigate ill effects of cascading or double taxation in a major way and pave the way for a common national market.
• From the consumers point of view, the biggest advantage would be in terms of reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%.
• It would also imply that the actual burden of indirect taxes on goods and services would be much more transparent to the consumer. Introduction of GST would also make Indian products competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production and distribution.
• Studies show that this would have a boosting impact on economic growth.
• Last but not the least, this tax, because of its transparent and self-policing character, would be easier to administer.
• It would also encourage a shift from the informal to formal economy. The government proposes to introduce GST with effect from 1st July 2017.

• GST is applicable on ‘supply’ of goods or services as against the old concept on the manufacture of goods or on sale of goods or on provision of services.
• Destination based Taxation: GST is based on the principle of destination-based consumption taxation as against the principle of origin-based taxation.
• Dual GST: It is a dual GST with the Centre and the States simultaneously levying tax on a common base. The GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
• Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.
• GST rates to be mutually decided: CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates are notified on the recommendation of the GST Council.
• Multiple Rates: GST is levied at four rates viz. 5%, 12%, 18% and 28%. The schedule or list of items that would fall under these multiple slabs are worked out by the GST council.
• This is aside from the tax on gold that is kept at 3% and rough precious and semi-precious stones that are placed at a special rate of 0.25% under GST.
• The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
• GST, which subsumed almost all domestic indirect taxes (petroleum, alcoholic beverages and stamp duty are the major exceptions) under one head, is perhaps the biggest tax reform in the history of independent India. It was launched into operation on the midnight of 1st July 2017.

• The Goods and Service Tax Council (hereinafter referred to as, “GSTC”) comprises of the Union Finance Minister, the Minister of State(Revenue) and the State Finance Ministers to recommend on the GST rate, exemption and thresholds, taxes to be subsumed and other matters. One-half of the total number of members of GSTC form quorum in meetings of GSTC. Decision in GSTC are taken by a majority of not less than three-fourth of weighted votes cast. Centre has one-third weightage of the total votes cast and all the states taken together have two-third of weightage of the total votes cast.
• All decisions taken by the GST Council has been arrived at through consensus. The option of exercising a vote has not been resorted to till date.
• To ensure smooth roll-out of the GST, various Committees and Sectoral groups has been formed comprising of members from both Centre and States.

• It is a constitutional body (Article 279A) for making recommendations to the Union and State Government on issues related to GST.
• The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
• It is considered as a federal body where both the centre and the states get due representation.
• Reforms brought about by GST: Creation of a common national market: By amalgamating a large number of Central and State taxes into a single tax.
• Mitigation of cascading effect: The GST that a merchant pays to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services. The set off tax is called input tax credit.
• The GST thus avoids cascading effect or tax on tax which increases the tax burden on the end consumer.
• Reduction in Tax burden: From the consumers’ point of view, the biggest advantage is in terms of reduction in the overall tax burden on goods.
• Making Indian products more competitive: Introduction of GST is making Indian products more competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production.

• Following steps can be taken by Government to simplify the GST-
• First, the Governments can consider bringing petroleum and electricity under GST ambit that will help prevent cascading and ensure further uniformity.
• Second, Most states have sought an extension to the compensation mechanism and a final decision is likely to be taken at the next GST Council meeting in Madurai in the first week of August.
• Third, with emerging technology, there is emergence of newer asset classes like the virtual digital assets (VDA) or cryptocurrency. Hence, there is a need for clarity on whether they would be classified as supply of ‘goods’ or ‘services’ and what would be the tax rate on them.
• Fourth, the Government can consider setting up of Central authority to resolve conflicting AAR judgements across states. It can also consider doing away with anti-profiteering provisions freeing businesses to set prices. The Chief Economic Advisor has advised setting up a complaint-redressal mechanism (a GST Tribunal).
• Fifth, some checks can also be incorporated on system generated GST notices, so as to avoid any unnecessary harassment of taxpayers.
• Sixth, the GST system has a rich database. The data can be analysed to provide useful insights about the health of the economy. It can provide information about trends in economic activity like (consumption patterns) or the level of the formalization of the economy. It can also help understand which areas or districts are thriving or lagging behind. The data-driven insights can help prescribe appropriate policy interventions.

Achievements of GST:

• Automated Indirect Tax Ecosystem: The introduction of e-way bills coupled with the crackdown on fake invoicing has helped in bringing in a substantial portion of GST revenues, which were either being evaded or under-reported.
• E-invoicing system would also usher the taxpayers into a fully automated compliance regime wherein the computation of tax liabilities and matching of input tax credit would become very simple.
• Simplification of Compliance: Various initiatives viz. linking the customs portal with GST portal for credit availability on imports, making available proper means for matching input tax credit, increased automation of the refund procedure to seamless operation of the Invoice Registry Portal, helped simplify tax compliance.
• Functioning of GST Council: The GST Council made corrections to law, issued clarifications on complex issues, rationalized GST rates and introduced relaxations for dealing with the Covid-19 pandemic, which establishes that the GST Council structure has been very functional and agile.
• Example to the World: India has served as an example to the world by successfully implementing one of the most complex tax transformation projects for the country.