GST in India: the way forward

Abstract

The debate on implementation of Goods and Service Tax (GST) in India is going on since early days of present century alongside the blueprint to replace the Sales Tax by near uniform and harmonized Value Added Tax (VAT) at state level. The harmonised GST implementation aims atachieving goal of nationwide common market through an indirect tax system free of cascadingand distortions. With the 122nd Constitutional amendment laid in parliament in December, 2014, the ball has been set for rolling the Goods and Service Tax (GST). The constitutional amendment when enacted will signify the first milestone achieved. The GST is inevitable and so is the well thought implementation map. The implementation would require careful designing of institutional framework with aim to win the trust of states on one hand and that of stakeholders on the other befitting the fiscal federalism. The dual-GST model proposed demands that questions on administrative efficiency, cost effective revenue collections, enforcement, audit and compliance costs etc. are addressed well beforehand, as a typical taxpayer would be dealing with two different levels of GST tax administrations. This is also important so that revenue and efficiency gains are not washed off in long run due to systemic deficiencies and hindrances.The Policy Memo attempts to examine certain aspects related to institutional framework and tax administration re-engineering to chart out a possible way forward in the context. This is done by examining possible alternatives and integration points between the two levels of tax administrations in operational, joint audit and enforcement mechanism and also the dispute resolution issues under GST. The major recommendations made include not providing for exclusions in constitutional amendment but providing for the same under GST legislation by zero rating and/ or additional levy for special goods like sin goods; Keeping revenue neutral rate moderate if not low; keeping thresholds higher and uniform across goods and services; single window interface for taxpayers comprising of GST Network (GSTN) and joint audit and enforcement mechanism; service level reforms; and creation of unified national GST tribunals.