Goods and Services Tax (GST) and its Impact on the Indian Economy: A Critical Evaluation of Fiscal Transformation

On July 1, 2017, the Goods and Services Tax (GST) was implemented in India, which, to put it mildly, was a momentous step as regards India’s indirect tax regime. Introduced as the most ambitious tax reform since independence, GST was to subsume a host of indirect taxes imposed by both Centre and States in the creation of a unified national market. This paper treads the multidimensional ground of the impact of GST on the Indian economy which includes aspects of tax compliances, retail inflation, informal sector, ease of doing business and economic growth in general. Though challenges including compliance burdens, IT infrastructure issues and confusion among small traders came in the way, over time the GST regime has become more mature, and has improved the level of tax transparency and efficacy. Streamlining of the tax structure on account of abolition of cascading taxes and moving towards a destination based tax system has made it business friendly and easy to understand. In addition, the effect of incorporation in GST in federal fiscal relations and revenue allocation has also been of vital significance in ascertaining its long term sustainability. In this research we critically review the current available literature and then formulate some key research questions and then an evidence based analysis of the effectiveness of GST. Using the qualitative assessment and secondary data evaluation, it evaluates the macroeconomic implications of GST and determines what needs still require reforms. For instance, to encourage the MSMEs some suggestions are rationalization of tax slabs, better technology support, and timely refunds, etc. The paper concludes that although GST is a revolutionary hold in economic integration and transparency, more reforms have to be done and stakeholders need to engage fully for GST to be maximally utilized.