A critical appraisal of GST in India

The introduction of Goods and Services Tax (GST) is one of the biggest tax reforms for India. GST is not just a tax change but it will benefit the economy as a whole and have far-reaching impact on businesses. GST is a value added tax (VAT) on both goods and services, as against the prevailing VAT on only goods. The important gains from the GST reform are that it is expected to broaden the tax base, reduce distortions in the economy through a more comprehensive input tax credit, enhance export competitiveness by comprehensively relieving domestic consumption taxes on exports, ensure greater regional equity by getting rid of inter-state sales tax and having a destination-based tax, and help create a seamless national market by removing inter-state trade barriers. It is hoped that the reform will significantly reduce the compliance cost for taxpayers by simplifying and harmonizing the tax structure and by making the administration uniform across states. While the desirability of the reform is not in doubt, making a transition to GST involves not only considerable work but also formidable challenges. Unlike in many other countries where GST is a centralized tax, in India it is leviable by both central and state governments, according to the proposals. This implies that both the structure and administration of the levy will have to emerge after detailed negotiations and bargaining between the centre, 29 states and the two Union Territories with legislatures. This paper is about critical appraisal GST in India.