The Goods and Services Tax (GST) regime has completed five years. Numerous policy changes and procedural and technological overhauls – many of them avoidable had the government not rushed through the GST regime – finally seem to provide some kind of stability to the tax system.

To be fair, executing GST has been one of the toughest reforms to be undertaken in the country. The States had to be brought on board by persuading them to give up their tax sovereignty in the larger interest of the country and taxpayers. The new regime has increased speed in flow of goods across State borders. More significantly, it has enabled doubling of the tax base from over 66 lakhs to more than over 1.30 crore assessees.

After a sluggish start, average monthly tax mop-up has risen from around Rs 90,000 crore in the first four years to about Rs 1.20 lakh crore in the last one year. The new regime has also led to creation of a whole new digital system for paying taxes, claiming input tax credits, generating invoices, e-ways bills and so on. The digital system, even with its many flaws, has helped in better streamlining of tax administration and tracking tax evasion.

A robust, unified e-way bill system introduced in 2018 has facilitated dispensing with archaic check-posts. This has reduced supply chain lead time and associated costs for companies. It has also facilitated the tax administration to monitor tax compliances and plug revenue leakages better.

The progressive tax regime, however, still continues to be overwhelmed by a fair share challenges. Despite a pick-up in GST collections, the government and the GST Council – the policy-making body of the GST regime, comprising the Union finance minister and finance ministers of all the States – believe that the current tax rates are much below the desired levels. In a recent report, the 15^th Finance Commission has cited that the revenue-neutral rate – the tax rate that fetches a government the same amount of money despite changes in tax laws – is around 11.8 per cent as against the envisaged 15.5 per cent. Frequent changes in tax rates in the initial years seem to have reduced the tax rate and resultant revenues.

A major stumbling block for the GST regime has been a widening rift between the Centre and the States over continuation of GST compensation. The States were provided compensation for five years to protect them from possible revenue losses after joining the GST regime. The five-year period of compensation – calculated on an assumption of annual revenue growth of 14 per cent – has come to an end on June 30. The States have asked for three or four more years of compensation, which the Centre is not keen to continue.

There are other issues that need to be quickly addressed. The GST in India continues to be compliance heavy with multiple filing requirements and lengthy return formats. The process needs to be simplified by slashing onerous compliance norms. The GST regime is hobbled by five tax slabs, which need to be rationalised into three slabs. There is also the contentious issue of bringing some goods – like petroleum products, alcohol for human consumption and so on, which are taxed at different rates under the States’ Value-Added Tax (VAT) – into the GST regime.

For all its flaws, the GST regime has changed the country’s tax landscape for the better. It has streamlined tax administration, ensured uniform tax rates and facilitated a consultative and consensual decision-making process. Overcoming the few hurdles can truly make GST a Good and Simple Tax.