A Bold Initiative

GST reforms are welcome but a structurally superior tax will require a far broader base

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It is impressive that the Centre has taken the difficult task of resetting the over-eight-year-old goods and services tax (GST) head-on.

The structure, administration, and revenue-sharing mechanism of GST has turned unnecessarily complex over the years. To be sure, even from the very beginning of India's GST, much was left wanting. A clutch of product categories and thereby a fairly large section of the economy was kept outside the tax's purview. With petroleum products, electricity, and real estate (transactions of completed properties) having been kept out, the principal purpose of GST, which is to reduce cascading of taxes to the extent possible, hasn't been met satisfactorily.

As a result, the long-standing issue of redundant tax costs to businesses largely persisted. Units burdened with accumulated, unusable input tax credit (ITC) have had little incentive to pass on the "benefits" of tax rate reductions to the consumers, and the tendency to evade the tax lingered.