Goods and Services Tax (GST)

Fine-tuning GST


From UPSC perspective, the following things are important :

Prelims level: Types of the GST returns.

Mains level: Paper 3- How the GST has performed and ways to improve it.


Even as the 31-month-old GST evolves, the debate on its success rages on. Many have argued that GST is losing its sheen and needs a complete overhaul while others contend that the new tax system is on course and the trials and tribulations were not unexpected.

Analysis of GST collection

  • 39% increase over the average of the base year 2015-16: The average monthly GST collection for the period August 2017 to January 2020 stands at Rs 97,188 crore which is an impressive 39 per cent increase over the average monthly collection of subsumed taxes in the base year 2015-16, at around Rs 70,000 crore.
  • The average growth rate of 9.7% per year: This is an average growth rate of 9.7 per cent over the almost 4-year period post-2015-16 and a compounded growth rate of 8.55 per cent.
    • Though less than 14% but not insignificant: This compounded growth rate is not insignificant even though it is just about 0.61 times the very ambitious 14 per cent rate of growth promised to the states before GST rollout.
  • Perception of infectiveness due to ambitious 14% promise: The average growth rate of the collection in 18 non-special category states (accounting for the bulk of the revenue) during the 3-year period immediately preceding GST stood at around 8.9 per cent.
    • Thus, if the perception about the effectiveness of GST has not been very encouraging, it is only in the context of the very ambitious 14 per cent compounded annual growth rate promised to the states.

Reasons for tepid growth in GST collections

  • The overall economic situation in the country: The revenue performance of GST during the current fiscal year is not out of sync with the overall economic situation in the country.
    • The growth rate in tax yield at 4.69 %: Accordingly, during the 10-month period ending January 2020, the growth rate in tax yield was 4.69 per cent.
    • The relatively tepid growth was primarily due to a negative growth of 4.03 per cent in September-October 2019.
    • After the dip in September-October 2019, GST collections rebounded and this is a reminder that one need not write GST off in a hurry.
  • Complacency in the states due to 14% promise: Complacency in the states on account of assured 14 per cent growth cannot be ruled out.
    • States were jolted with the delay in compensation for August-September 2019 and resorted to vigorous monitoring of compliance and action against toxic and unverified credits, circular trading and tax evasion which had resulted in unmatched credit claims of around Rs 50,000 crore.

Two suggestions as corrective measures

  • The GST Council deliberated on the recent trends in revenue collection and was cognizant of the need for corrective measures. Two options were suggested. One was the “big bang” approach-
  • Big Bang approach: It involves an overhaul of-
    • The legal framework.
    • Processes and systems and-
    • Re-writing GST almost de novo.
  • A steady-state approach: A “steady-state” approach involved-
    • Incremental reforms.
    • Solving problems as they arise.
    • Plugging loopholes.
    • Improving the compliance environment through increased monitoring with better tools.
  • The Council chose the second approach and the signs are already showing.

The steps taken-

  • Red flag reports: The GSTN has developed red flag reports based on GSTR-1, auto-generated GSTR-2A, GSTR-3B and the national e-way bill system.
    • These reports identify non-filers so that action can be taken against active taxpayers who defaulted in filing returns.
    • Till November 2019, around 6 lakh dealers had defaulted in furnishing one or more returns from July 2017 involving estimated tax liabilities of around Rs 25,000 crore.
    • Increase in the filing: An SOP has been developed for proceeding against such return defaulters and this has helped increase the percentage of filing which has contributed to revenue.
  • Making Aadhaar mandatory: To further the ease of doing business, it was decided to grant registration without physical verification and a system of deemed registration was put in place.
    • Spot verification has unearthed non-existent dealers and led to the cancellation of around 1 million entities.
    • It has now been decided to mandate Aadhaar authentication for taking new registration and thereafter the existing registered taxpayer population would have to undergo Aadhaar authentication in a phased manner.
  • Use of analytical tools: Advanced analytic tools are being used to unravel complex networks of firms created just for generating credit and these analyses are being strengthened through machine learning and AI.
    • An all-India offence/enforcement database is being built.
  • System of data exchange with other agencies: In order to identify dealers posing a “hazard” to revenue and do a 360-degree profile of risky taxpayers, a system of regular data exchange with banks, CBDT, ED, RoC and other agencies is being put in place.
    • Fraudsters will find it almost impossible to game the system.
    • The new return system set to roll from April 1 is expected to curb incidences of unmatched turnovers and utilisation of un-validated.
  • System of e-invoicing: In order to validate and improve the quality and fidelity of invoice reporting and return filing, a system of e-invoicing is proposed to be implemented in a phased manner beginning April 1.
    • This will begin with taxpayers with turnovers exceeding Rs 500 crore and will auto-populate e-way bill generation and filing of Anx-1 in the new return system apart from validating credit flow from taxpayers.


These measures will effect qualitative improvement to the compliance eco-system which will not only lead to an improvement in the collection but will also make life easier for taxpayers and tax authorities alike.

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