On the right path of easing ease of biz
To strengthen compliance and reduce conflicts, reforming the Goods and Services Tax (GST) administration is essential. The GST Council will introduce initiatives to rectify persistent tax structure issues. India's energy sector remains excluded fr...
By ET Bureau |
BCCL
Reforming GST administration, as Nirmala Sitharaman said on Monday, is a necessary follow-up to last year's rate rationalisation. That the GST Council will take up a series of measures to ease compliance and reduce disputes when it meets on Thursday, while welcome, indicates imperfections arising from design compromises. These tackle legacy issues from the complex GST structure that existed prior to 2025. But India is headed in the right direction, with fewer GST rates freeing up the bandwidth needed to administer the tax. This incremental reform is a significant achievement, but skirts key structural issues with the improved GST version we have today.
GST's main attraction is that it reduces cascading of taxes that drive up prices. Yet, energy remains outside GST's ambit, which tends to make India's economic growth more inflationary than necessary. Again, India's energy intensity of growth is rising, and this perpetuates trade distortion. India's transition to an export-driven high-growth low-inflation economy requires a hard look at why energy remains outside GST. The property market draws a significant share of India's household savings, and GST as it applies now tends to introduce distortions. There is scope to integrate housing transparently into the input tax credit chain. The effects of a streamlined GST administration in the property market will be felt across the economy due to extensive linkages.
It's not just about how efficient GST is. Policymakers need to look at why states are losing agency in raising their tax revenue. The GST revenue-sharing formula must accommodate the structural decline in states to strengthen fiscal autonomy. There is also a case for directing a part of the GST collection to municipal bodies to push sustainable urbanisation that generates more economic growth. Alongside creeping reforms, the council would do well to apply itself to some of the core restructuring GST needs to keep delivering economic efficiency. Throw in a big-ticket item occasionally.
GST's main attraction is that it reduces cascading of taxes that drive up prices. Yet, energy remains outside GST's ambit, which tends to make India's economic growth more inflationary than necessary. Again, India's energy intensity of growth is rising, and this perpetuates trade distortion. India's transition to an export-driven high-growth low-inflation economy requires a hard look at why energy remains outside GST. The property market draws a significant share of India's household savings, and GST as it applies now tends to introduce distortions. There is scope to integrate housing transparently into the input tax credit chain. The effects of a streamlined GST administration in the property market will be felt across the economy due to extensive linkages.
It's not just about how efficient GST is. Policymakers need to look at why states are losing agency in raising their tax revenue. The GST revenue-sharing formula must accommodate the structural decline in states to strengthen fiscal autonomy. There is also a case for directing a part of the GST collection to municipal bodies to push sustainable urbanisation that generates more economic growth. Alongside creeping reforms, the council would do well to apply itself to some of the core restructuring GST needs to keep delivering economic efficiency. Throw in a big-ticket item occasionally.
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