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Over the past six years, GST has emerged as a pivotal factor in shaping India's economic landscape. Introduced on 01 July 2017, GST replaced a complex web of indirect taxes with a unified tax approach of ‘One Nation, One Tax’, aiming to streamline processes, enhance tax compliance and foster economic growth. As we reflect on the journey of six years of GST implementation, it becomes increasingly important to evaluate its impact on driving economic growth and move towards a ‘Digital India’.
April 2023 marked a historic achievement as GST revenue collection hit an all-time high of INR 1.87 lakh crore, surpassing INR 1.75 lakh crore benchmark for the first time since GST implementation. The upward trajectory of GST collections, coupled with the increased usage of e-way bills, serves as a testament to the underlying economic growth.
“Though it has been a roller coaster ride, with multiple changes and clarifications, GST has evolved over the years and helped in the formalisation of the economy, as is evident from the number of registered taxpayers and the increase in revenue collections. Indeed, it is a big achievement, and not many countries of the size, scale and complexity of India have been able to implement it successfully.”
Vikas Vasal, Partner, Tax
The idea of a unified indirect tax system was conceived to streamline the country’s complex taxation structure and create a more transparent and efficient economy. The initial phase of the GST journey began in 2011 when the government formed a committee to draft GST legislation. This marked the commencement of a series of constructive dialogues and consultations with stakeholders from various sectors and State Governments. The discussions were aimed at resolving concerns and garnering support for the proposed tax regime.
After years of deliberation and rigorous negotiations, the year 2017 witnessed a historic moment in India’s economic landscape when the GST was officially implemented nationwide. This marked the consolidation of numerous indirect taxes into a single unified tax, eliminating the cascading effect of taxes and simplifying compliance for businesses.
However, the immediate aftermath of its implementation presented businesses with a steep learning curve and operational challenges, as they had to adapt to the new tax framework and ensure compliance with the complex regulations. Over the next few years, GST continued to evolve and undergo improvements and amendments based on feedback and suggestions from industry experts and tax professionals. The government made efforts to address issues faced by businesses, reduce tax rates and simplify compliance procedures. These steps aimed to create a more business-friendly environment, promote economic growth and boost investor confidence in the Indian market.
The GST regime has undoubtedly transformed the Indian tax landscape by harmonising the indirect tax structure and creating a single market. While challenges still persist, the government’s commitment to addressing concerns and implementing reforms ensures that the GST continues to evolve into a robust and efficient tax system for the benefit of the country’s economy and its people.
"The journey so far has been marked by notable reforms, simplification measures, increased revenue collections and strict measures against tax evasion. Having set the framework, we now expect to focus on ease of doing business, rate rationalisation, paperless and simple compliances, mandatory e-invoicing and free flow of Input Tax Credit.”
Riaz Thingna, Partner, Tax
The success of this historic tax reform in achieving its desired objectives can be gauged from the fact that we now have 1.39 crore registered taxpayers, and so far, 112.18 crore total returns have been filed. The tax base has witnessed substantial growth over the years, and currently, there are over 139.95 lakh registered taxpayers. There is a growing acceptance and compliance by taxpayers, as well as continuous efforts made by the government to streamline processes, plug leakages and enhance tax administration. The gross GST revenue collected in the month of June 2023 was INR 1,61,497 crore, which marks the fourth time when collections have crossed the INR 1.6 lakh crore mark since the inception of GST.
“The implementation of this federal tax structure has been a transformative milestone in the field of taxation. Technological developments such as effective GSTN portal, e-invoicing and data analytics have played a pivotal role in making the GST law effective. Technology has streamlined processes, enhanced compliance, improved transparency and empowered tax authorities with valuable insights.”
Krishan Arora, Partner, Tax
Although the GST law has undergone significant changes and improvements over the past six years, with the GST Council actively addressing the concerns raised by the taxpayers, there are still numerous issues which require attention and further resolution. There is a growing demand to streamline the rate structure and consolidate different tax slabs, moving towards a three-tier tax structure in a phased manner. To manage the imbalance between exporters who opt for the Letter of Undertaking (LUT) Scheme vis-à-vis the payment of GST, which affects the working capital requirements, GST paid on capital goods should also be eligible for a refund under the LUT Scheme.
Further, there is a requirement to have a single GST return on a monthly basis or have payment on a monthly basis and return on a quarterly/half-yearly basis. Clarity on the taxation of crypto or Virtual Digital Assets (VDAs) is also needed as to whether they will qualify as goods or services and their applicable GST rate based on their classification.