GST

What is the problem with GST tax system in India and what is its solution

The future of GST in India now seems to be in crisis. And in India, the central government and state governments are seen colliding in the GST Council. The central government has been consistently saying in the GST Council that state governments should take loans from the Reserve Bank of India. While the state government seems to deny this.

Now the situation has become such that GST seems to be failing completely. When GST was implemented, it was said by the central government that India’s GDP would increase by 2%. But now the situation is the opposite. And India’s GDP has been steadily shrinking. Corona virus has increased India’s GDP and GST difficulties even more.

The biggest problem with GST is that it was implemented in a hurry. And today, both ordinary citizens and businessmen of India are being forced to bear the consequences. In fact, when the GST was implemented by the government, the reason for this was stated as political consensus. And it was described as the largest tax reform in post-independence India. But today one of the biggest failures in the case of GST tax reform is visible.

What are the problems with GST in India?

When GST was introduced in India, it was said that this would increase India’s GDP by 2%. But now the situation has become such that GDP is constantly shrinking. And the targets of GST are also not being achieved. When GST was introduced, it was thought that lowering the tax rate would increase market demand. There will be a lot of GST collection. This will benefit both the state and the central government as well as the general consumer will also get the benefit of the tax rate cut. But ever since GST has been implemented, there has been a continuous decrease in India’s GDP. And the growth rate remains down. Due to this, the difficulties of GST are continuously increasing.

Also, when GST was implemented, it was said that the target of GST collection would be one lakh 50 thousand crore. But you would be surprised that it has been almost 4 years since the implementation of GST. But not even once GST collection has reached around ₹ 150000. Now the situation has become such that the GST collection is around 85,000 crores. Which is a concern for the central government.

There is also a problem in India with GST that traders are not yet aware of it properly. And frequent changes are being made in GST. Due to this, traders are facing even more difficulty in understanding GST.

You would be surprised to know that when GST was implemented, more than 450 changes were made in the first two years. So far, more than 750 changes have been made in GST. Which is a concern. Which government was describing GST as its biggest success. Now it is not even talked about.

GST tax reform law is deviating from its target

The goals with which GST was implemented in India. Now almost GST law has moved away from those targets. In such a situation, experts are expressing opinion about GST that it can ever fail. If the Narendra Modi government does not take any major steps soon, the economic condition of the central government may become worse in the coming times.

GST was implemented in India to create a complete tax law system in the country which will bring transparency in the tax system. And the tax collection will increase. But the GST collection is continuously decreasing. At the same time, tax reforms were implemented to facilitate trade. There were four types of GST taxes levied as tax slabs. Many cesses were imposed on it over the GST law. With this, GST seems to be failing.

Currently, 14% additional tax is levied in India as cess. In the recent GST Council meeting, 14% cess has been extended indefinitely. When GST was implemented, it was said that GST cess would be applicable only for 5 years. But now the central government has also understood that GST is not collecting so much that the Indian economy can be run. Perhaps that’s why it has been extended for eternity now from GST.

Demonetisation has also played the biggest role in the failure of GST. GST was introduced in the country only a few days after demonetisation. GST was no less than a shock to the already troubled Indian economy. And Indian businessmen could not understand it. This caused the Indian economy to go down even further. And got caught in a deep economic recession. The Indian economy was emerging from demonetisation and GST now that the corona virus almost shut down the Indian economy. Due to this, India’s economy got caught in a new problem.

It is not that the GST system in India itself seems to be failing. Earlier, Malaysia also implemented GST tax system in 2015. Which has now been withdrawn. A tax system was implemented throughout Malaysia. And only one type of tax slab was kept. Despite this, the GST tax system in Malaysia failed. In such a situation, there are about 5 to 6 types of GST tax collection laws in India. Therefore, experts are also questioning the success of GST tax system.

We also have to keep in mind that Malaysia is a small country. And it is easy to apply text there but it is a difficult task to implement GST tax system on a country with large population and large land area like India.

Central government and state government are colliding in GST Council

The relationship between the central and state government is also seen to be deteriorating due to GST. Now, almost all opposition state parties have more state governments all over the country. Due to this, the difficulties of the central government are increasing continuously. Now the state and central government are colliding with the money in the GST Council, the state governments say that the central government is not paying the outstanding money for our GST.

According to a recent report, the Central Government owes Rs 235000 crore to the states from the share of GST. Which the central government is refusing to give. The central government says that we do not have money to pay part of GST. In such a situation, we are asking the states to take loans from the Reserve Bank of India. But the state government has to say that when we have our outstanding tax collection, then why should we take a loan from the Reserve Bank of India?

If the state government is already stuck in debt crisis, again if it takes a loan with the Reserve Bank of India, then the difficulties for it will increase even more. When the tax GST tax system was introduced, the state government promised that 14% additional tax collection would be given to the state government, including their losses, but now the central government has given up on its promise. And denying any kind of tax. The central government says that more money will come from the cess. We will give the same amount of money to the state governments, so now there is a continuous debate between the central and state governments in the GST Council. Which may not augur well for India’s tax system.

What is the solution to GST tax system crisis

In India when the new GST tax system was implemented. Then the central government said that this is the second largest tax reform in post-independence India. At that time, the Central Government had declared it as the second independence of India. And had said that this would see a 2% increase in India’s GDP although now the situation is the opposite.

Now gradually the central government has also started to believe that the tax system in India is not working properly. And its biggest challenge is GST. However, major improvements can be made now. If the central government has to implement major reforms in GST, first of all the state governments will have to pay their outstanding money. So that they can be brought back to faith. As well as any major reforms that can be done in GST. It should be implemented by the central government.

The same state governments should also give the right to more or less GST to the central government. This will attract investment in India. And state governments will have more powers. So that it can implement major reforms in itself.

In order to attract new investment, it is necessary to have powers regarding the tax system in the hands of the state governments. If the Central Government has the power to reform the GST tax system, the Central Government will be able to implement the economic reforms in the coming time. Because we should not forget that right now the state governments belong to most opposition parties.

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