New Delhi: India’s biggest tax reform since Independence of replacing a convoluted indirect tax system at Union and state levels with a simpler code and dismantling regional trade barriers to create a single $2.6 trillion market succeeded in its broad objectives, but with inevitable disruptions.
The goods and services tax (GST), which was rolled out last July, added more indirect taxpayers, made tax evasion difficult, brought tax transparency to consumers and reduced the tax rates on many mass-use goods and services. However, it unexpectedly led to a disruption in economic activity in the months before the rollout as businesses cut down production as they adjusted to the new system. This led to economic growth slowing to 5.7% in the April-June quarter of 2017-18 from 6.1% in the previous quarter. Growth subsequently recovered to 6.5% in the September quarter and 7.2% in the December quarter.
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Businesses also found it hard to file GST returns on time as the technology platform of GST Network, or GSTN, could not cope with the last minute surge in filings, forcing several deadline extensions.
The GST returns filing procedure initially designed with the intention of preventing tax evasion was relaxed several times for the benefit of vast majority of honest taxpayers. A further simplification of returns is around the corner aimed at making compliance easier.
Simplifying procedures to encourage compliance, bringing petroleum products into the GST and eventually converging the 12% and 18% tax rates remain the tasks ahead for the GST Council. Revenue collection is expected to improve when compliance improves. At present, 70% of registered regular assessees file monthly GST returns.
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