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Increase in Goods and Services Tax (GST) Revenues

GS-3 Mains Exam : Economy 

Revision Notes

Question : Discuss the role of technological solutions in simplifying GST compliance and improving the efficiency of the tax system. Evaluate the potential benefits of investing in user-friendly technology platforms for businesses and government authorities.

In News

  • April 2024 saw GST revenue cross ₹2 lakh crore for the first time, a significant 12.4% year-on-year growth.
  • This growth is driven by a strong increase in domestic transactions (up 13.4%) and imports (up 8.3%).

About Goods and Services Tax (GST)

  • Introduced in India in 2017.
  • Indirect tax levied on most goods and services sold for domestic consumption.
  • Replaced almost all other indirect taxes (except a few state taxes).

Key features of GST

  • Comprehensive: Subsumes almost all indirect taxes.
  • Multistage: Tax levied at each stage of production or distribution.
  • Destination-based: Tax collected at the final point of consumption.
  • Three types:
    • CGST (Central GST) – levied by Central Government
    • SGST (State GST) – levied by State Governments
    • IGST (Integrated GST) – levied on inter-state transactions

GST Council

  • Governing body for GST, headed by the Union Finance Minister.
  • Makes recommendations on GST rates and rules.
  • Members include Union Finance Minister, Union Revenue/Finance Minister, and Finance/Taxation Ministers from each state.

Reason for Increase in Revenue

  • Growth in domestic transactions (13.4%)
  • Increase in imports (8.3%)

Impact of GST Revenue Increase

  • Positive indicator of economic growth.
  • Increased government revenue for spending on public welfare programs.

Achievements of GST (Goods and Services Tax) in India

  • Improved Tax Compliance: GST helped streamline multiple taxes, reducing the burden and improving compliance over the last four years.
  • Automated Tax System: GST enabled a shift to an automated indirect tax system. Electronic compliances, e-invoices, and e-waybills for tracking goods movement are now all online.
  • E-invoicing & Increased Revenue: The e-invoicing system has reduced fake invoicing. Online bill generation has resulted in smoother movement of consignments and fewer disputes with officials. GST collections have risen steadily since November 2020, surpassing the ₹1 lakh crore mark on several occasions.
  • Logistic Efficiency & Reduced Production Costs: Over 50% of logistics time and effort is saved due to the removal of multiple checkpoints and permits at state borders.
  • Lower Transaction Costs: GST has significantly reduced transaction costs. This is a major benefit for interstate movement of products, creating a unified national market for businesses.
  • Cooperative Federalism: GST Council with Centre-State partnership in decision-making and linking of customs portals with the GST portal for import credit availing exemplify cooperative federalism.
  • Improved Ease of Doing Business: India’s ranking has significantly improved in the last four years. It rose from 130 in 2016 to 63rd in 2020.
  • More Freedom for Businesses: Businesses have more freedom to choose vendors and suppliers based on pricing, regardless of location, due to the uniform GST rate for a particular product across the country.
  • Enhanced Competitiveness: GST has removed hidden and embedded taxes, improving the competitiveness of domestic industries in the international market.
  • Boost to Make in India Initiative: GST makes Indian-produced goods and services more competitive, giving a boost to the ‘Make in India’ initiative.

Shortcomings of GST

  • Increased Compliance Burden: Multiple tax returns under GST can be complex for small and medium-sized enterprises (SMEs), especially those operating in multiple states.
  • Higher Tax Burden for Some SMEs: Previously exempt from certain taxes, some small businesses now fall under GST due to the lower registration threshold, straining their resources.
  • Software Costs: Upgrading accounting software to be GST-compliant can be an additional expense for businesses.
  • Challenges for Unorganized Sector: Adapting to GST has been difficult for the large unorganized sector of the Indian economy. Formalizing these businesses takes time.
  • Complexities of GST Rates: The multi-tier structure with various tax rates can be intricate for businesses to manage.
  • Adoption & Technical Issues: Small and medium businesses struggle to adapt to the tech-based system. IT glitches have hampered the seamless flow of input credits and ease of compliance.
  • Other Concerns: The 15th Finance Commission identified areas of concern:
    • Multiple tax rates
    • Shortfall in GST collections
    • Volatility in GST collections
    • Inconsistency in filing returns
    • Dependence of States on central compensation

GST Reforms Needed

  • Simplification of Compliance: Reduce the number of tax return filings, streamline the format, and make the process more user-friendly for small businesses.
  • Reviewing GST Rate Structure:
    • Reduce the number of tax slabs for a less complex system.
    • Raise the threshold for GST registration to exempt some small businesses.
    • Rationalize tax rates by merging slabs or adjusting rates for a balance between revenue collection and affordability.
  • Technological Solutions: Invest in user-friendly technology platforms to simplify GST filing and compliance.
  • Addressing Challenges of Unorganized Sector: Provide training and support to help informal businesses transition into the GST system smoothly.
  • Improved Coordination Between Central and State Authorities: Streamlined communication and data sharing between federal and state GST authorities can enhance efficiency and reduce compliance hassles for businesses operating across states.

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