A Progressive GST Is Far Easier To Promise Than Achieve

Focusing on Direct Taxes Instead Is a Better Way to Combine Tax Efficiency With Fairness

- AJIT RANADE

This month, India's goods and services tax (GST) completed eight years. This is a milestone reform. It is a consumption tax that unifies the national economic market, getting rid of inter-state frictions and tax cascades, and is fully electronic with in-built incentives for compliance and prevention of leakage. In the five years since 2020-21, annual gross GST collections have more than doubled to ₹22 trillion. This growth has generally kept pace with that of India's nominal GDP, although its promise was of higher buoyancy. It still leaves out nearly half the economy—most notably fuels, energy and electricity—from its purview. Even among the items covered, it has too many exemptions. Perhaps that explains why its gross mop-up is still around 6.8% of GDP, although it is on a gradual upward trajectory. The number of registrations under GST rose from 0.65 million in 2017 to 15 million now. Even after eight years, one can't escape the feeling that GST is still a work-in-progress. Frequent changes in tax rates are unsettling and its multitude of tax slabs is a big problem. Its apex governance body, the GST Council, has met 55 times in the past eight years and has had to grapple with rate changes and item classifications on numerous occasions. A tax system should be stable and predictable, and hence such frequent tweaks are not healthy for this tax or the economy. Constant tinkering can lead to disputes in classification or interpretation, even problems of discretion and outright corruption. Legal cases are mounting.