Towards a good and simple tax

Despite making gains, next-generation reforms are required to expand and streamline the GST

- M GOVINDA RAO

The implementation of the goods and services Tax (GST), which replaced 14 indirect taxes of the Union and state governments, is surely a landmark reform. There has been a steady increase in revenues, with a record collection of ₹2.1 trillion in April 2024, 15.5 per cent higher than the previous year.

The collections in the first quarter of this financial year are ₹5.57 trillion, compared to ₹5.05 trillion in the corresponding period of the previous year, recording a growth of 10.2 per cent, which is much higher than the estimated nominal growth of gross domestic product (GDP). This is due not only to the impressive growth performance of the economy but also to better compliance with the tax owing to improvements in tax administration, particularly the firming up of the technology platform. Considering the continued high growth of the economy expected in the medium term, along with better administration and enforcement of the tax, GST collections are likely to remain buoyant.

Despite the gains, the tax structure still falls short of the desired goal, and considerable additional reform measures are required to minimise distortions, reduce the compliance cost, and make the tax a "money machine". Much remains to be done to make it simple, efficient, and conform to international best practices, and that should be addressed by the next generation of reforms as has happened in many countries.