Page 123 - CW E-Magazine (8-7-2025)

Point of View

Eight years on GST is a success, but reforms are

very much needed

July 1 marked the eighth anniversary of the coming into force of the Goods and Services Tax (GST), which was primarily aimed
at replacing a plethora of taxes (excise duty, service tax, VAT, CST, etc.) by multiple agencies and so create a unified market from
a taxation perspective. It also aimed to simplify compliance, avoid the compounding effect of taxes (tax on tax) and so improve
competitiveness of Indian manufacturing and services. Eight years on, GST can be deemed a success. It came through after
arduous negotiations between the Centre and the States, which meant politics was never far away. Proponents became opponents,
and vice versa, but it is to the credit of the polity that wiser council ultimately prevailed, and the tax was rolled out with a built-in
process for consensus in keeping with India’s federal structure.

The dual model of the tax – Central GST (CGST) and State GST (SGST) for intra-State transactions; and an Integrated
GST (IGST) for inter-State trade – addressed some of the revenue loss feared by States, particularly those that had a strong
manufacturing base or a services sector and were reluctant to lose out on the substantial taxes collected hitherto under
various heads.

The Input Tax Credit (ITC) – simply put, the GST paid on inputs consumed in the course of business – is integral to the GST system
and without doubt the biggest benefit of the tax measure. Being a ‘digital tax’ – the e-invoices, tax returns and related details are filled
through a web portal – it is a significant step in combating tax evasion.

One metric of GST’s success is the steady rise in collections (aside of the pandemic years). GST revenues have risen from
Rs. 14.83 lakh-crore in FY22 to Rs. 18.08 lakh-crore in FY23, Rs. 20.18 lakh-crore in FY24, and Rs. 22.08 lakh-crore in FY25 – thanks to
a steady rise both in compliance and economic activity.

Significantly, it has raised the level of competitiveness for all manufacturing, including in the chemical industry, where value chains
are long and multiple chemical transformations are carried out not always within a company.

But eight years on GST 2.0 requires significant improvements – in the tax rates applicable, in the compliance requirements that
are still onerous (though an improvement from the past), and, importantly, the scope of products under its ambit.

Tax rates & simplification of procedures
GST rates are currently distributed across four primary slabs: 5%, 12%, 18% and 28%. Special rates apply in select cases – 3%
on gold, silver and jewellery; 1.5% on cut & polished diamonds; and 0.25% on rough diamonds. Furthermore, a GST Compensation
Cess is levied on goods like tobacco products and aerated drinks. PwC, a consultancy, has mooted a transition from the current
four-tier tariff structure to a three-tier one, which would reduce interpretational disputes, improve tax certainty and simplify
compliance. This is also in line with the stated aims of the government to reduce ceiling slabs, streamline exemption lists, and
rationalise high-rate items.

But tinkering with slab rates needs to be done carefully after evaluating the impacts they will have on the complete value chain. In
the agrochemicals industry, for example, there have been pleas from a section of the industry to lower the GST on finished agrochemicals
from the present 18% to 5%, ostensibly to benefit farmers in the form of lower prices (which, unsurprisingly, finds resonance in
government). But, as the Crop Care Federation of India, a lobby group speaking for indigenous manufacturers, has pointed out, this
will leave its members with sizeable tax credits on inputs (which are mostly chemicals on which 18% GST is levied) that they would
be unable to set-off against the taxes paid on sales of their goods.

Though a scheme for small taxpayers with a turnover below a prescribed level, allows them to pay a fixed percentage of their
turnover as GST and so benefit from simplified compliance requirements, further simplifications are needed. One of the key reforms
undertaken in recent years has been setting up of the GST Appellate Tribunal (GSTAT) to handle disputes, but it is yet to appoint
members and commence operations.

Chemical Weekly July 8, 2025 123

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