Exploring the factor that influence GST on small and
medium enterprises with special reference to GST LAW: An analysis of literature
and theoretical aspects
Ankit Rai1*, Dr. Yogini Upadhayay2
1 Research Scholar, Department of law, LNCT
University, Bhopal, Madhya Pradesh, India
2 Associate Professor, Department of
LAW, LNCT University, Bhopal, Madhya Pradesh, India
Abstract: The current review
questions the implementation, benefits, and difficulties of the Goods and
Services Tax (GST) in India through the synthesis of the available empirical
evidence provided by the research papers published between 2014 and 2023. Key
findings depict GST as a radical reform, which aims at creating a single, open
tax system that operates on the principle of One Nation, One Tax hence
eradicating cascading effects and promoting economic growth through indirect
taxation simplification. The benefits described are: augmented tax receipts,
reduced corruption, increased supply-chain performance, and long-term benefits
to the sectors that can be large enterprises and micro-, small-, and
medium-sized enterprises (MSMEs), which are better input-tax credits and
formalisation of informal activity. However, identified impediments include the
initial compliance limitations, high prices of MSMEs, insufficient
infrastructures, and short-lived inflationary pressures especially in areas in
which the unorganised sector forms the major part. Researchers highlight the
urgency of the administrative interventions, education of the stakeholders and
continuous improvements to achieve the maximum potential of GST. On the whole,
despite the initial obstacles to its implementation, GST can be described as a
positive step towards economic growth, and it is through its effective
implementation that scholars believe that the Indian economy will be able to
develop sustainably and become more competitive in the global marketplace.
Key words: Goods and Services Tax
(GST), Indian Economy, Tax Reform, MSMEs, Economic Impact
INTRODUCTION
The Goods and Services Tax (GST) which was introduced
effective 1 July 2017 in India is by far the largest and most extensive
reconfiguration of the Indian indirect tax regime since the independence of the
country. GST replaced an extremely complex, cascading, and fragmented duty
structure by consolidating a multitude of central and state levies such as
excise duty, service tax, value added tax, central sales tax, entry tax, luxury
tax, entertainment tax among others into one destination-based duty. Achieved
through the 101 st Constitutional Amendment Act, 2016, and implemented under
the supervision of the GST Council, it fulfilled the long-held envisagement of
One Nation, one tax, one market. The reform was to abolish inter state taxation,
eradicate the cascading tax effect, decrease the long term compliance costs,
promote efficiency in revenue mobilization and the development of a uniform
national market that will facilitate ease of doing business and long term
economic growth.
The indirect tax system of India before the GST was
introduced was characterized by multiplicity of levies, inconsistent rates at
various states, classification issues, taxation twice, and high compliance
costs especially in inter state trade. The trickle effect of tax increased the
cost of production, encouraged tax avoidance, and falsified economic decisions.
The next set of review organs such as the Kelkar Task Force (2004) then the
Empowered Committee of State Finance Ministers, continued to support a dual GST
as the best fix. After approximately seventeen years of discussions, political
compromising as well as technical planning, India became a member of a group of
over 160 countries with a value-added tax system, adopting an exclusive
concurrent dual GST model in a federal system.
GST has received wide academic criticism since its
introduction. The pre-implementation studies (20142017) focused more on the
benefits that are expected to be realized after the implementation including
the elimination of cascading effects, ease of compliance, increased resiliency
in revenue and the increase in the GDP, but also mentioned future problems as
multiplicity of rate-slabs, lack of petroleum and alcohol, and the readiness of
information technology infrastructure. The current research after 2017 shifted
towards empirical evaluation where studies have explored real performance in
regard to revenue pattern, inflation, logistics effectiveness, industry
performance and, most importantly, the dissimilar effect on micro, small and medium
enterprises (MSMEs) which form the backbone of the Indian economy.
The existing literature agrees on the general view
that GST has brought a number of structural benefits: it has simplified the
input tax credit procedures, eliminated check points, increased the speed of
goods transportation, has raised the level of transparency through the use of
digital invoicing and GST Network (GSTN), and has formalised the informal
sector. However, it equally reports transparently on short-term impediments,
frequent changes in rates and regulations, early malfunctioning of the portal,
augmented compliance pressure on small enterprises, halting credits of
inadequate suppliers, and augmented working capital obligations to MSMEs. As
big organised organisations has quickly adjusted and enjoyed the fruits, many
micro and small businesses still face the challenge of digital and procedural
underwater.
Although the body of research including over a decade
of studies is quite strong, the dynamic nature of GST, including the constant
rate rationalisations, the advent of e-invoicing, the QRMP scheme, and further
adjustments, requires the synthesis and critical analysis of the reform
direction periodically. In this regard, the current research attempts to bring
together and critically evaluate this vast body of literature in order to
provide a balanced, current view regarding the development of GST and its
consequences on the Indian economy.
OBJECTIVE OF THE STUDY
This study aims to critically review and synthesize
the existing literature on the conceptual framework, implementation, benefits,
challenges, and overall impact of the Goods and Services Tax (GST) on the
Indian economy, with special reference to its effects on revenue, ease of doing
business, and micro, small, and medium enterprises (MSMEs). Moreover, it also identify
key policy lessons and areas requiring further reform for maximizing the
long-term benefits of GST.
METHODOLOGY FOR THE STUDY
This study is qualitative in nature all the
theoretical aspects are being examined related to taxes and law. This research
is fundamentally qualitative and descriptive, grounded in a comprehensive
analysis of secondary data. The study is based on over 50 published research
papers, articles, and reports concerning GST in India from 2014 to 2023,
obtained from academic journals, conference proceedings, working papers, and
credible online repositories. The criteria for selection encompassed relevance,
peer-reviewed status, and the inclusion of both pre- and post-implementation
perspectives. Particular attention was given to studies that explored economic
impact, revenue implications, compliance issues, and the effects on MSMEs. The
gathered literature has been methodically structured, rigorously examined, and
thematically synthesized to provide a thorough and balanced overview of the
evolution, accomplishments, and challenges of GST in India. There has been no
utilization of primary data collection methods or quantitative tools.
LITERATURE REVIEW
Pre-implementation (2014–2016) and post-implementation
(2017–2023) studies make up the two main categories into which the body of
research about the Goods and Services Tax (GST) in India may be split. Early
research was mostly conceptual and speculative, but more recent investigations
are empirical and evaluative.
During the time period of 2014 to 2016, studies were
conducted prior to implementation.
The conceptual groundwork was established by Garg (2014), Pinki et al. (2014),
N. Kumar (2014), Jaiprakash (2014), and Rashid et al. (2014) via an explanation
of the need of the GST as a destination-based tax that would replace the
existing cascading system of several indirect taxes. They pointed out that the
implementation of the goods and services tax would address the problem of
tax-on-tax, expand the tax base, lessen distortions, give complete input tax
credit, include the central sales tax, and establish a single, national market.
Pinki and colleagues (2014) presented three potential models for a goods and
services tax (GST) and recommended that the concurrent dual model, which has a
unified return and a single PAN-based registration, be implemented. In the year
2014, N. Kumar highlighted the need of eliminating economic distortions that
were brought about by the differences in state-level taxes. On the other hand,
Jaiprakash (2014) underlined the significance of broadening the scope of input
tax set-off and providing relief to the sectors of industry, commerce,
agriculture, and consumers.
The perspective that India was in need of a tax system
that was straightforward, clear, and of global standard was supported by the
research conducted by Dhanda and Sehrawat (2015), Shefalidani (2016), and Shaik
et al. (2015). Among the advantages that they anticipated were a greater gross
domestic product growth rate, a decrease in corruption, a reduction in
logistical expenses, and an uninterrupted supply of credit. In their research,
Khurana and Sharma (2016) as well as Munde and Chawan (2016) looked at both the
potential benefits (such as uniformity, transparency, and revenue buoyancy) and
the potential obstacles (including various rates, information technology
preparedness, and stakeholder opposition) of the study. They came to the
conclusion that the application of the GST would result in the growth of the
economy and the rationalisation of prices, provided that the loopholes were
eliminated.
Studies Conducted in the Immediate Aftermath of
Implementation (2017–2018)
The following authors made reference to the Goods and Services Tax (GST) as a
"game changer" and a "milestone" that was constructed on
the foundation of the "One Nation, One Tax" principle: Lourdunathan
and Xavier (2017), Kawle and Aher (2017), B. Mitrapriya (2017), Abda S (2017),
Nayyar and Singh (2017), Yadav and Shankar (2018), and Nishitha Guptha (2017).
The findings of these research identified the eradication of cascading, the
implementation of tax brackets (ranging from 0–28%), and the repercussions that
these changes had on a variety of industries, including telecommunications,
e-commerce, the automotive industry, banking, and the real estate market. The
special emphasis placed by Nayyar and Singh (2017) was on an administration
that is devoid of corruption and transparent in its operations.
MSMEs and small-scale industries were the subjects of
study conducted by a number of researchers. The following researchers have all
agreed that while large organized players benefited quickly through input
credit and logistics efficiency, micro and small enterprises faced significant
short-term difficulties: Ankita Verma and Priyanka Khandelwal (2018), M.
Jayalakshmi and G. Venkateswarlu (2018), Nedunchezhian et al. (2018), Subhamoy
Banik (2018), Shubham Khaithan (2018), Nabendu Basak (2018), and S. Deivamani et
al. (2018). The obstacles faced by smaller businesses included the following:
increased compliance burden, frequent return filing, portal glitches, blocked
credits due to supplier non-compliance, higher working capital requirements,
and fear of tax scrutiny. Nevertheless, the majority of writers argued that the
challenges were temporary and that the early discomfort would be outweighed by
the benefits accrued in the long run, which include formalization, a fair
playing field, and the facilitation of mobility across states.
A number of detailed studies were published by
Khasimpeera and Sugantha Reddy (2018), Raveendra Saradhi and Wali (2018), N.
Ramalingam (2018), and Aryan Agarwal and Richa Sekhani (2018). They observed
the favorable rearrangement of the supply chain, an increase in the speed of
goods movement as a result of e-way bills, and a decrease in transaction costs
(up to 3.5 times in certain states), but they also emphasized the fact that
sourcing was being shifted in favor of registered suppliers and that compliance
costs were rising for dealers who were not registered.
Subsequent Empirical Studies (2019–2023) After two to
five years of implementation, Shetty Deepa Thangam Geeta (2019), Shivani
(2019), Basavanagouda (2020), Gautam (2022), and Kanimozhi (2023) redirected
their emphasis toward ground realities. Their findings revealed that a
significant number of the advantages that were promised—such as simpler
compliance, a single market, and decreased logistical time—had been realized;
nevertheless, the level of MSME readiness remained low, and the ongoing
existence of errors in GSTN continued to create difficulties in seamless
filing. Shetty Deepa Thangam Geeta (2019) said that there was only a minor
effect owing to network challenges and a lack of awareness. Gautam (2022) said
that the web interface was seen in different ways: some people found that it
made it easier to comply, while others found that it raised expenses and
limited the options available to them when making purchases. The authors of the
studies conducted by Basavanagouda (2020) and Shivani (2019) both emphasized
the need of small and medium-sized enterprises (MSMEs) keeping up with
technology advancements and developing digital literacy in order to survive and
thrive in the long run.
Dr. H.R. Kaushal (2018) and Kanimozhi (2023)
emphasized that despite the fact that GST initially caused compliance shocks,
it ultimately managed to achieve its goals of lowering cascading taxes,
promoting consistency, and progressing towards the goal of "One Nation,
One Tax, One Market." They made the case that consumers and micro, small,
and medium-sized enterprises (MSMEs) would eventually reap the rewards of
reduced tax incidence and a more competitive environment, as long as the
government continues to make processes simpler.
A Comparative and International Viewpoint A small
number of research used lessons from other nations. The planned goods and
services tax (GST) that Malaysia is planning to impose in 2015 was the subject
of an analysis by Rashid et al. (2014), who recommended that rate reviews be
conducted on a regular basis. In the year 2014, Saravanan Venkadasalam used the
Least Squares Dummy Variable Model to the nations of the Association of
Southeast Asian Nations (ASEAN) and discovered that there were discrepancies in
the effects of growth after the introduction of the GST. This finding confirmed
that the results are strongly influenced by the quality of both the design and
the execution. Shared Topics and Agreements
When examining the whole of the written works published between the years 2014
and 2023, it is possible to identify several themes that appear with
regularity:
Goods and Services Tax (GST) is a significant and
daring change that has replaced a fragmented, cascading tax structure with a
unified, destination-based system.
The advantages that are the most significant are the following: the elimination
of tax-on-tax, the smooth input tax credit, the removal of inter-state
obstacles, transparency, the formalization of the economy, and a boost to the
gross domestic product in the long run. The difficulties that are encountered
in the short term include the following: the existence of several slabs, the
frequent occurrence of modifications, problems with IT infrastructure, an
increased cost of compliance for MSMEs, blocked credits, and stress related to
working capital.
Large and well-organized industries were able to
adjust rapidly and profit as a result. Although small and micro-sized
businesses had more challenges during the transition period, they are
anticipated to benefit in the long term. Continuous simplicity (returns, rates,
procedures), a powerful IT backbone, taxpayer education, and political
commitment to incorporate excluded industries (petroleum, alcohol, electricity)
are all factors that determine success.
The majority of the literature comes to the conclusion
that despite initial difficulties and difficulties with implementation, the
Goods and Services Tax (GST) continues to be a good and irreversible
advancement toward an indirect tax system in India that is contemporary,
transparent, and growth-oriented. In order to achieve the full potential of the
reform, researchers have consistently advocated for the implementation of a
number of improvements, including rate rationalization, single return, the
addition of previously prohibited goods, and increased assistance for micro,
small, and medium-sized enterprises (MSMEs).
DISCUSSION AND FINDINGS
India started using the Goods and Services Tax (GST),
on 1 July 2017, as a significant change in the indirect tax system in the
country. On this date the transition between the former multi-layered,
disintegrated regime, typified by interstate inequalities and ripple effects,
and the one-place, destination-based system was complete. This discussion
provides an analytical reflection on the wide implications of GST using the
available synthesised literature published in the period between 2014 and 2023;
evidence shows some emerging themes, inconsistency, temporal patterns, and gaps
in research.
The discussion shows that there is an overall
agreement on the transformative potential of GST as one of the agents of
economic integration and greater efficiency. However, it simultaneously
highlights the gap between the optimism of pre-implementation and the facts of
post-implementation, especially in terms of compliance costs, industry effects,
and revenues.
In this segment, the author explains how the Goods and
Services Tax has transformed the Indian tax environment. It does this by
critically reviewing the scholarship reviewed, pinpointing some aspects of the
policies that are subject to improvement, and also outlining areas where future
academic research can be done.
The literature that was published prior to the
implementation of the GST (for example, Garg, 2014; Pinki et al., 2014; N.
Kumar, 2014; Jaiprakash, 2014; Rashid et al., 2014; Sehrawat & Dhanda,
2015; Shaik et al., 2015; Khurana & Sharma, 2016; Munde & Chawan, 2016;
Shefalidani, 2016) overwhelmingly characterized the GST as a panacea for the structural
inefficiencies that were present in the tax system that was in place at the
time. These studies highlighted the following conceptual strengths: the
eradication of tax cascading by means of a seamless input tax credit (ITC), the
consolidation of a number of levies into a dual structure (Central GST and
State GST), and the establishment of a "One Nation, One Tax, One
Market" paradigm. From an analytical standpoint, this body of work
demonstrates a normative economic approach, which is grounded on neoclassical
theories of tax neutrality and efficiency. These theories suggest that the
implementation of a GST is intended to reduce distortions in both production
and consumption choices. As an example, Jaiprakash (2014) and N. Kumar (2014)
made the case that the implementation of the GST would result in a more
indifferent approach to tax structures in terms of geography. This, in turn,
would increase allocative efficiency while also decreasing the incentives for
tax evasion. This optimism was further strengthened by the comparative insights
provided by Rashid et al. (2014) and Saravanan Venkadasalam (2014), who drew
upon experiences in the Association of Southeast Asian Nations (ASEAN). These
insights suggested that, in theory, well-designed systems for the Goods and
Services Tax (GST) might provide commercial benefits and favorable correlations
with components of gross domestic product (GDP), such as household spending. On
the other hand, these predictive examinations often failed to take into
consideration implementation difficulties, which included technology
preparedness and federal conflicts. These factors subsequently surfaced as
significant impediments.
According to the studies conducted by Lourdunathan
& Xavier (2017), Kawle & Aher (2017), B. Mitrapriya (2017), Abda S
(2017), Nayyar & Singh (2017), Yadav & Shankar (2018), Nishitha Guptha
(2017), Khasimpeera & Sugantha Reddy (2018), Ankita Verma & Priyanka
Khandelwal (2018), N. Ramalingam (2018), Raveendra Saradhi & Wali (2018), M.
Jayalakshmi & G. Venkateswarlu (2018), Nedunchezhian et al. (2018),
Subhamoy Banik (2018), Aryan Agarwal & Richa Sekhani (2018), Shubham
Khaithan (2018), Nabendu Basak (2018), and S. Deivamani et al. (2018), the
immediate post-implementation phase (2017–2018) brought about empirical nuance,
thereby revealing a temporal bifurcation between short-term disruptions and
long- From an analytical perspective, the body of work presented here
emphasizes a conventional trajectory for reform, which is marked by an initial
state of disequilibrium that is followed by a period of stability. The results
were favorable in that they led to improved transparency and a decrease in
corruption (Nayyar & Singh, 2017), more efficient supply chains as a result
of e-way bills and uniform rates (Raveendra Saradhi & Wali, 2018), and
lower transaction costs, which were determined by Agarwal & Sekhani (2018)
to have decreased by a factor of 3.5 in certain states. The multi-slab
structure, which consists of the following percentages: 0 percent, 5 percent,
12 percent, 18 percent, and 28 percent, was seen to be in line with India's
socio-economic variety in that it permitted progressive taxes on luxury items.
However, it has also been criticized for its complexity (B. Mitrapriya, 2017).
Additionally, the contribution of the GST to the formalization of the informal
sector was apparent. The need to register and match invoices obligated
disorganized firms to get included into the formal economy. This process is in
accordance with theoretical models of tax base growth (Lourdunathan &
Xavier, 2017).
However, there is a great deal of inconsistency in the
effects on stakeholders and sectors, notably for micro, small, and medium-sized
businesses (MSMEs), which are a fundamental pillar of the economy of India. In
studies such as those conducted by Ankita Verma and Priyanka Khandelwal (2018),
Jayalakshmi and Venkateswarlu (2018), Nedunchezhian et al. (2018), Shubham
Khaithan (2018), and S. Deivamani et al. (2018), the asymmetric effects of the
situation are analyzed in detail. The organized sectors gained from
efficiencies in information technology and logistics; however, micro, small,
and medium-sized enterprises (MSMEs) were faced with increased compliance
costs, a higher frequency of return filings, and working capital constraints
due to blocked credits from suppliers who did not comply with regulations. This
imbalance is consistent with the principles of institutional economics, which
holds that smaller organizations who do not have access to digital
infrastructure are disproportionately impacted by the expenses associated with
transactions. Basing their work on the research done by Basak (2018) and
Khasimpeera and Sugantha Reddy (2018), the authors discuss how the government's
anti-black money policies after the demonetization of currency have led to
short-term inflationary pressures and changes in sourcing that favor registered
vendors, which might result in the marginalization of micro, small, and
medium-sized enterprises (MSMEs) that are not registered. According to N. Ramalingam
(2018), a well-organized criticism has been put out that categorizes analysis
into three distinct sections: conceptual concepts, comparisons between
value-added tax and general sales tax, and state-level preparedness. This
critique advocates for stakeholder discussions as a means of alleviating these
frictions. In general, the literature that pertains to this period highlights a
learning curve, in which the reform's ability to withstand challenges was put
to the test by the early "teething issues" (for example, problems
with GSTN) that arose, but ultimately, the reform's fundamental advantages were
validated.
The empirical evaluations that were carried out later
(2019–2023), which include Shetty Deepa Thangam Geeta (2019), Shivani (2019),
Basavanagouda (2020), Gautam (2022), Kanimozhi (2023), and Dr. H.R. Kaushal
(2018), provide a more experienced point of view by assessing the consolidation
of GST amid the ongoing amendments that have been implemented (for example,
returns on a quarterly basis, e-invoicing). The findings of these research
provide analytical confirmation of the benefits that may be gained over the
long term: the implementation of technology will result in a decrease in costs,
an increase in the convenience of doing business, and an improvement in the
competitiveness of micro, small, and medium-sized enterprises (MSMEs) (Shivani,
2019; Basavanagouda, 2020). conflicting opinions are emphasized by Gautam
(2022), who points out that although people have a good view of procurement
limitations and government backing, they are critical of compliance burdens and
outsourcing. These conflicting perspectives demonstrate adaptive resilience.
Kaushal (2018) and Kanimozhi (2023) portray the Goods and Services Tax (GST) as
a means of attaining consistency in the "One Nation, One Tax" system,
which promotes socioeconomic development by reducing regional inequities and
encouraging entrepreneurship, particularly in small and medium-sized
enterprises (MSMEs) in rural areas. Nonetheless, it has been shown that
significant gaps continue to exist. The exclusion of petroleum, alcohol, and
real estate, for example, results in a distortion of the tax base (Shefalidani,
2016; Kapoor Kapil, 2017). Additionally, there are inadequacies in the network
as well as deficits in knowledge that serve to inhibit the full realization of
the tax base (Shetty Deepa Thangam Geeta, 2019). When considered from an
analytical standpoint, this progression demonstrates the concept of path
dependence in policy changes, in which a series of iterative
refinements—carried out throughout more than fifty GST Council meetings—have
served to lessen the significance of initial shortcomings. This is consistent
with theories of adaptive governance.
Insights that are derived from an analytical perspective
may be gained via the examination of the literature's cross-cutting themes,
which provide light on the larger implications of GST. To begin with,
connections to economic growth: Despite the short-term inflation that has been
seen (Basak, 2018), the early estimates (Shaik et al., 2015; Nishitha Guptha,
2017) of increases in gross domestic product due to commercial advantages have
been partly justified, since studies such as those conducted by Nath (2017) and
Mujalde & Vani (2017) have shown benefits within certain sectors of the
economy. Secondly, dynamics of federalism: According to the findings of
Ramalingam (2018) and Pinki et al. (2014), the dual structure required a
cooperative form of federalism; nevertheless, issues pertaining to state income
and compensation mechanisms between the years of 2017 and 2022 revealed the
presence of conflicts. Thirdly, there are the concerns about fairness: Although
the implementation of slabs within the GST system encourages progressivity, its
regressive components pertaining to basic goods have a disproportionate impact
on those belonging to low-income brackets. This is a subject that has not been
thoroughly investigated, although it has been alluded to in conversations on
the relief provided to consumers (Jaiprakash, 2014; Lourdunathan & Xavier,
2017). Fourth, and most importantly, how well it compares to the international
standard: The distinctiveness of India's federal model is highlighted by
lessons that have been learned from both Malaysia (Rashid et al., 2014) and
ASEAN (Venkadasalam, 2014), which recommend that periodic reviews be conducted;
a recommendation that has been accepted by India.
Despite the progress that has been made, there are
significant deficiencies in the literature that call for examination by the
academic community. Methodologically speaking, there is a heavy reliance on
perceptual surveys and secondary data, and there is a limited amount of
longitudinal econometrics to quantify long-term implications (for example, on
the elasticity of gross domestic product or employment). In terms of geography,
the differences that exist across states have not been given enough analysis,
which has led to the diversity of industrial compositions being overlooked.
Examples of this include Agarwal and Sekhani's 2018 research on Kerala and
Uttarakhand. On a sectoral level, micro, small, and medium-sized enterprises
(MSMEs) are the primary focus of discussion, although there is a lack of
detailed breakdowns (micro vs. medium, rural vs. urban). In terms of timing,
studies conducted after 2020 would be able to more effectively consider the
impacts of the pandemic on GST compliance and income. From a theoretical
standpoint, the integration of more comprehensive frameworks—such as the use of
institutional theory for compliance or public choice for federal
negotiations—remains in its infancy.
To summarize, the material that was examined
analytically situates GST as a robust reform that has contributed to the
modernization of the Indian tax system despite the difficulties that were
encountered at the outset. Its ability to succeed is contingent upon a
continuous effort to simplify, improve digital capabilities, and implement
inclusive policies that provide an equitable distribution of rewards. The focus
of future research need to be on empirical rigor, comparative assessments, and
simulations that look to the future. This will serve as a guide for GST 2.0 and
ensure that it keeps its promise of equitable economic growth.
CONCLUSION AND POLICY SUGGESTION
One of the most ambitious and structurally
transformative fiscal reforms in the post-independent period is the Goods and
Services Tax (GST), which, however, was introduced in India on 1 July 2017. An
extensive body of literature dating back to 2014 to 2023 shows a very evident
trend: the mood of pre-implementation optimism of a united, transparent and
expansionary tax system has been changed by the reality of considerable
successes and continuing challenges. There is a unanimity of over fifty
academic works that GST has achieved its objectives of breaking down the
cascading nature of the indirect taxes, inter-state barriers, unprecedented
transparency in digital invoicing and GST Network and has also established a
common national market on the vision of One Nation, One Tax, one Market. It has
increased the tax base, augmented revenue buoyancy at the Centre, as well as
the states (as a result of the post-compensation period), decreased the
logistics expenses, and facilitated formalisation of informal economy. These
structural advantages have enhanced the ease of doing business ranking of
India, enhanced its supply chain efficiencies and brought Indian industry
closer to the global value chains. However, the reform has not come free. It is
reported in the literature that there is still a strong asymmetry in
adaptation: large, organised enterprises quickly seized the advantages of
smooth input -tax credit and interstate movement, but micro, small and medium
enterprises (MSMEs)- the key to employment and manufacturing output still struggle
to manage the increased compliance costs, changes in procedures, frozen credits
by non-compliance of suppliers and working-capital strain. The many tax
brackets, the omission of petroleum products, alcohol, and electricity as well
as first time technological hiccups have eroded the simplicity that initially
was suggested. The pressures of inflation in the short term, especially during
the first two years and the perceived retrogressive effect on some of the
necessities further dampened the emotion of the people and the entrepreneurs.
However, as further research (20192023) shows, the challenges surrounding much
of this have been short-term. Numerous refinements made by the GST Council
which include: introduction of quarterly returns, improvements to the
composition scheme, e-invoicing, QRMP scheme, and gradual rationalisation of
rates, demonstrate a responsive and adaptive form of governance that has been
acting upon early pain points. To sum up, GST should be considered as a product
of 2017 that is still at its developing stage and had already provided much
macro and micro-economic benefits without considering the potential of its
significant enhancement. The reform has guided India conclusively on a path of
modern destination-based technology-driven indirect taxation. It can increase
the long-term growth in GDP by 1 to 2 percentage points, improve the tax-to-GDP
ratio, and create a better balanced and more resistant to corruption fiscal
system with sustained political determination and administrative dexterity.
Policy Suggestions In order to achieve the full potential of GST and overcome
the gaps that were identified in the literature, the following specific,
action-oriented policy actions can be recommended: Merger of Slabs and
Accelerated Rationalisation of rates. The existing five-slab structure (along
with special rates and cess) continues to be a cause of classification
challenges and compliance complexity. The GST Council must strive to harmonise
into three brackets, namely, merit 5-8, standard 12-14 and demerit 28 in the
next 24-36 months and should achieve a clear roadmap well in advance. The 12-18
percent slabs should be phased out to one revenue neutral standard rate. This
would severely cut the litigation and compliance cost, especially to MSMEs.
Excluded Sectors to be included in GST. The most notable distortions in value
chain still include petroleum products, alcohol, electricity and real-estate.
Their outsourcing disrupts the ITC chain, stimulates tax evasion, and inflates
industry and transport input costs. An incremental penetration, starting with
natural gas and ATF, crude, petrol and diesel has to be given priority in a
five-year perspective. The issue of state-level concerns could be solved by
designing revenue-sharing schemes and interim compensation plans. Permanent
Simple compliances of MSMEs. Increase the composition scheme threshold of 300
000 000 to 300 000 000 turnover (instead of 150 000 000) and enable the
composition dealers to make interstate supplies and keep receiving scheme
benefits. ConventionalMake quarterly return and pay monthly (QRMP) together
with annual reconciliation the default of the all tax payers up to 10 crore
turnover. Bring fully faceless, AI-powered assessment and refund of MSMEs, with
considered approval of refunds within 30 days. Until 1 st April 2023,
permanently exempt permanently exempted businesses with a turnover of less than
75 lakh on the mandatory e-invoicing and e-way bill requirements.
Well-developed Technological and Capacity-Building Ecosystem. GSTN
infrastructure is complex and is plagued by downtime, even with the upgrades.
They should invest in next-generation cloud architecture, predictive analytics,
and a blockchain-based invoice matching. At the same time, a countrywide GST
literacy campaign, via industry associations, common service centres, and
schools should be introduced to overcome the digital/knowledge divide that has
befallen micro enterprises. Enhancement of Credit Flow and Working-Capital
Support. The biggest grievance of MSMEs is still blocked ITC caused by default
of the suppliers. Provide a temporary credit scheme (8090 ITC) despite the
defaulter not filing returns, and recovery by the defaulter by attachment to
the bank-account. Work with RBI, banks to establish special GST working-capital
line of credit at special rates (based on the MUDRA or PMEGP).
Institutionalising Periodic Review and Evidence-Based Policymaking. Form an
independent GST Evaluation Commission (consisting of economists, tax
professionals, state officials, and industry associations) to extensively
review on a five-year basis using econometric impact analyses, satellite
accounts data and enterprise polls. This would remove ad-hoc changes in rates
with predictable policymaking data. Federal Revenue Protection and Dispute
Resolution Consensus. Expand the concept of cooperative federalism by
institutionalisation of a permanent reserve fund of revenues (after the
cessation of the compensation period which is planned post 2022) to the states
with structural revenue deficits. Rapidly adjudicate the GST Appellate Tribunal
to minimize the time required to put a case before the court, which serves as a
drag to high courts and investor confidence.
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