The promise of our goods and services tax is unfulfilled

livemint.com:

The goods and services tax (GST) was a major reform that took years to implement. It is now six years old. The great promise of GST is tax collection buoyancy, thanks to inbuilt incentives of compliance, and less scope of leakage.

An important feature is that the tax burden is applicable only on the value-added in the economic chain. You first pay tax on the full value realized, but get credit on all taxes paid on inputs. Hence, you would rather deal with suppliers who can produce proof of having paid their share of taxes.

These are the interlocking incentives between suppliers and customers in the entire chain that ensure greater compliance. GST, thus, eliminates the older inefficient structure of taxes paid on taxes. It also makes the tax burden fairer across the economy.

It has removed inter-state barriers to commerce. A study commissioned by the 13th Finance Commission and conducted by the National Council of Applied Economic Research (NCAER) in 2009 estimated that the annual rate of growth in gross domestic product (GDP) would rise by 2-2.5 percentage points on a sustained basis because of GST. This was because the tax burden would get equitably distributed across the value chain, particularly between manufacturing and services.

Reduced costs would increase profits, efficiency and productivity, and Indian exports were expected to go up by 10-14% year after year. Good news on all fronts, be it growth, the fisc or exports. Has this promise been fulfilled? The answer, unfortunately, is an unambiguous ‘no.’ Buoyancy of indirect taxes has not gone up if you exclude the high contribution from imports.