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The Structurally Flawed GST
The inherent flaws in the design of India’s goods and services tax are identified, which make its implementation inefficient. Can an ad valorem GST levied at the final stage of production solve the problem?
The goods and services tax (GST) has been in operation in India since 1 July 2017. More than a year later it is still a work in progress with changes being announced almost daily. By 1 May 2018, more than 400 notifications and orders had been issued leading to confusion not only among the public but also the experts (Pampapathi 2018). The policymakers seem to be groping in the dark even though they put up a brave front.
That the GST is a very complex tax has been known for long. The Indirect Taxation Enquiry Committee Report (1978) first suggested it in the form of a “comprehensive value added tax (VAT).” But soon it realised that a tax regime with such complexity is infeasible to be implemented in India. It thus suggested a VAT at manufacturing stage (MANVAT) on a restricted number of manufactured products. Even this could not be implemented. Each of the subsequent committees on the indirect tax reforms in India had simultaneously toyed with the suggestion of implementation of the VAT because of its pecuniary advantages, and also recognised the practical difficulties in implementing it in such a diverse economy (Kumar 2019).
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