Evolving Issues and Future Directions in GST Reform in India

Govinda Rao

Working Papers from Madras School of Economics,Chennai,India

Abstract: The Goods and Services Tax (GST) was implemented in July 2017 to simplify the domestic consumption tax system by unifying various taxes, to minimise cascading effects of the taxes by setting off the tax paid at earlier stages of the production and distribution chain and to enhance revenue productivity by introducing self-policing embedded in the value added tax. However, the potential gains from the reform are yet to materialise. The promised increase in revenue productivity is yet to be realised. The tax base remains narrow due to a large list of exemptions. The inability to stabilize the technology platform has not helped to improve compliance. The multiple rates have complicated the tax structure, created scope for misclassification, inverted rate structure, and disputes arising therefrom. The exclusion of petroleum products and electricity from the GST base has continued significant cascading from the excluded taxes. In addition, the agreement on compensating the States for the loss of revenue will come to an end in June 2022, even before stabilising the reform. The paper makes detailed recommendations on the future reform agenda on the GST to reap the potential benefits of the reform and suggests that the compensation scheme may be extended by three years with modifications and used as an incentive to the States to agree for undertaking the much needed reform.

Keywords: Tax reform, Goods and services tax; Value added tax (search for similar items in EconPapers)
JEL-codes: H20 H25 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2022-07
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