New Delhi, Sep 5 A simplified definition doing the rounds on the two chapters of Goods and Services Tax (GST) is that while GST 1 was about unification, GST 2.0 was simplification.
“You can look at GST 1 from this point that the structure and format that was adopted that time was one which took care of the concerns of all the stakeholders," said Navin Kumar, the first chairman (March 2013-August 2017) of GST Network (GSTN).
The effort then was to integrate Value Added Tax (VAT), service tax, and a host of other taxes into one. There was state VAT, there was Central VAT, and also service tax.
“Thus, GST 1 was about unification,” he said.
“When the law for GST was being drafted by tax officers, their attempt was to ensure that the due tax should not lead to a situation where the revenues of the state or Centre fall,” continued Kumar, who has also been Chief Secretary, Government of Bihar (September 2011-August 2012).
The officers then faced a tough task where each state had its own interest and had different conditions which were uniquely their own.
“In the process, a lot of provisions were incorporated in the first GST just to ensure that everybody came on the same page. That means that everybody agreed to bring GST into existence, and that is why you see all these various tax rates came in,” explained the retired IAS officer.
That brings the question why a simpler, single, or perhaps two-slab regime was not introduced in GST 1? There are countries where a single rate, some with two rates, are followed. Why introduce such a large number of tax slabs?
“Every country has a situation peculiar to itself. In India, you could not imagine, say, for example, foodstuff to be charged at the same rate as, say, an air-conditioner or an automobile,” he explained.
Therefore, he added, different tax rates had to be introduced for the Centre and the states to concur. However, he agreed that it may not have been a very good solution, but it was then the solution acceptable to all.
Thus, from the point of view of an economist or a financial manager, the best would be to have a single rate; there will be no confusion and everybody can understand the law and follow it very easily, he acceded.
Critics said that the earlier structure was loose and not efficient. Corrective measures had to be taken, they argued.
"With the experience gathered since 2017 – when GST 1 came – all the stakeholders came to understand and believe that a lower number of tax slabs will be more efficient," he stated.
Initially, there was hesitation in accepting the regime. There were apprehensions of losses by governments. So, to allay fears of the states, the Centre introduced compensation.
"There were of course, problems in implementation; problems in collection; there were indeed some losses to states which were compensated by the Central government,” continued Kumar, who has also served as Secretary, Ministry of Urban Development (2010-2011).
“Now, collections have been going up and this compensation is not being given. Yet, the states are comfortable and the Central government is also comfortable, because revenues have gone up,” he pointed out.
Another question being asked is why did it take eight years for the reforms?
“Any reform or correction is based on your actual experiences. That is why accumulated experience since 2017 has shown that GST is a viable tax regime and if you make it easier to comply, you may expect higher tax collections,” he said.
What is his view on GST 2?
“GST 2 has brought in rationalisation of rates. Instead of a multi-slab regime, you are now going to have two broad rates. This is a big improvement,” he opined.
And in the end, “I believe that with the restructured GST regime, revenue will definitely go up,” was his observation.
Two important sectors still not covered by GST are petroleum and liquor. Kumar pointed out there is already a decision that the former will be brought under GST once there is an agreement with states.
The other too, he feels, will finally be included as well, “at some point of time”.
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