Accounts Committee (PAC) of Parliament recommended in its 19th report, an updated "GST 2.0" be introduced

An overview of the GST (Goods and Services Tax)

A comprehensive, multi-tiered, destination-based tax on the supply of goods and services throughout India is called the Goods and Services Tax (GST). After the 101st Constitutional Amendment Act, 2016 was passed, it took effect on July 1, 2017, replacing a number of indirect taxes, such as excise duty, service tax, and VAT. The GST Council, which consists of representatives from the federal and state governments, is in charge of overseeing the GST. Please visit https://www.nextias.com/ca/current-affairs/23-09-2024/7-years-of-goods-and-services-tax for comprehensive details on the main aspects of GST.

Reforms Are Needed: Concerns Seen in the PAC Report

Reduction in Indirect Tax Income: Before the COVID-19 pandemic started, indirect tax revenue dropped by almost 2% between FY18 and FY20.

States with large tax collections, like Maharashtra, Tamil Nadu, and Karnataka, believe that their contributions are not sufficiently reflected in the revenue redistribution. It is difficult for states with weak tax collection capacities—especially those in the Northeast and economically underdeveloped regions—to make enough money under the GST framework.

Impact on Fiscal Federalism: States' autonomy in taxation is limited by the Central Government's authority over GST rates, exemptions, and procedural rules.

States' Compensation Fund: The federal tax structure's efficacy has been hampered and states' compensation for revenue losses has been postponed for more than six years due to the States' Compensation Fund's lack of audit or finalization.

Centralizing Tendencies: States with high revenue generation have expressed concern about declining indirect tax collections and diminished fiscal autonomy. States with a robust manufacturing sector suffer from the destination-based nature of the GST.

Complicated Registration Procedures: It has been determined that difficulties with biometric Aadhaar authentication and other registration barriers stand in the way of achieving the objective of "One Nation, One Tax."

Revenue Leakages: The report highlights concerns regarding fraudulent input tax credit claims and tax evasion, which compromise the equitable distribution of revenue.

Suggestions for Reform

GST 2.0: In response to states' requests for a larger share of GST revenues, the report calls for a comprehensive review with the goal of developing a "GST 2.0" that would target a range of 70% to 80%, up from the current 50%.

Authorities could: - Implement biometric verification to prevent fraudulent invoicing with the introduction of GST 2.0. Use real-time transaction monitoring to spot anomalies. Increase the severity of fines and legal consequences for tax evaders.

Timely Audits and Updates: In order to ensure timely audits and updates on unresolved cases, the PAC has recommended the creation of a formal framework in partnership with the Comptroller and Auditor General (CAG).

Process simplification: To reduce compliance burdens and increase efficiency, especially for MSMEs, it is imperative to simplify GST procedures and enhance the GST portal's user experience.

Reintroducing GST Compensation: It is advised that compensation support be extended for a further three to five years, especially for states that are experiencing financial difficulties.

Better GST Portal: To cut down on mistakes and delays, the PAC highlights the necessity of providing taxpayers with clear instructions and support throughout the filing process.

Improving Tax Compliance: Tougher regulations ought to be put in place to stop fraud and guarantee that tax income is distributed fairly.

GST Revenue Devolution Formula: To ensure equity based on financial capability and needs, a new framework for the progressive distribution of GST revenue should be created.

Periodic Review of GST Rates: To keep GST rates consistent and in line with the state of the economy, a systematic review procedure should be put in place.

Technology Use: To reduce revenue leaks, it has been suggested to implement an e-invoicing system and AI-driven monitoring tools.

Conclusion

The PAC's conclusions emphasize the need for systemic changes and equitable distribution within the GST framework. By addressing these issues, India can create a more just and efficient tax structure that promotes fiscal federalism and economic expansion. To achieve these goals, cooperation between the federal and state governments will be crucial.