Goods & Services Tax, the most revolutionary tax reform in India was introduced on 1st July 2017 and has now completed one year. It’s time to look back and review the developments.
Twenty three centuries ago, our noted economist Chanakya in his famous book Arthashashtra had prescribed that ‘the ruler should act like a bee, which collects honey (TAX) from the flower without causing pain to the plant’. Benjamin Franklin curt when he said that in the modern world nothing is certain except death and taxes!
Chanakya further wrote that tax should be easy to calculate, convenient to pay, inexpensive to administer and equitable in its burden! Over the period of last one year, GST is perhaps much discussed but less understood and there have been several jokes around it.
We were late to join the GST bandwagon. Nearly 140 countries have already implemented GST, and France was the first country to introduce the reform during 1954. The idea of GST was first mooted by our former P.M. Sri A.B.Vajpayee in 2002.
GST is an indirect tax that replaces a majority of the indirect taxes levied by both the Centre and states. An indirect tax is a tax where the taxpayer can pass on the tax burden to the consumer. About 17 various taxes are subsumed by GST and presently intra-state sales/services (sales within a state) are levied with CGST (central) and SGST (state). Interstate sales/services are levied with IGST (central).
GST is a destination-based tax. If a car is manufactured in Tamil Nadu and sold in Bihar, Bihar gets the benefit of GST and not Tamil Nadu!
Seamless flow of tax credits:
So manufacturer, dealer and the retailer pay only GSTs of Rs.16, Rs.4 and Rs.4 respectively after availing Input Tax Credits. Thus GST also eliminates cascading effect (avoiding tax at multiple stages) of taxes, resulting in reduction of prices for the consumer.
Adjustment of Input Tax Credit (ITC) and refunds needed submission of the following basic monthly returns from the traders.
The above returns are to be filed online in the newly formed GST Network (GSTN) which is designed and monitored by Infosys. However, seamless input tax credit, refunds and compliance are easier said than done! Traders and tax authorities have faced teething problems during last one year. Tax authorities have now taken time of six months to simplify and limit the number of returns to just one.
GST Council headed by the Central Finance Minister and consisting of representatives of all States/UTs of the Union is now the supreme authority to monitor/amend and administer the entire system. During last one year it has met 27 times bringing in the much needed amendments and changes.
GST Tax structure:
GST now consists of the above major slabs. Most of the 141 essential items like food grains are kept at 0%. 93% of the items are between 5% and 18%, leaving only 49 luxury items at 28%.
Key items like electricity, alcohol for human consumption, petroleum goods and real estate are outside the ambit of GST. Bringing them under GST control may need more time.
GST ups & downs:
Last one year has been a period of roller-coaster ride to the ambitiously introduced GST. First let us count the gains.
- Monthly tax revenues have stabilized and are beginning to go up. During April 2018, it even crossed 1 lakh crores of rupees. Most of the states have registered about 13% rise in tax collections when compared to the pre-GST regime.
- Tax base has expanded with GST (up to 112 lakh registered businessmen), virtually doubling the numbers when compared to last year.
- About 62.5 lakh (56%) businessmen have filed GST returns during May 2018, indicating great improvement in compliance, although this is one area which should improve.
- Number of income tax returns filed has further increased up to 6.84 crores when compared to 5.43 crores of the previous year. GST is ensuring better collections under direct taxes too.
- India has registered a big jump among competing countries on the ladder of ease of doing business to 100 from 130, after introduction of GST.
- GDP growth rate of the country has also found its rhythm back to around 7%, after withstanding the twin shocks of demonetization and GST.
- Inflation is under control, despite oil price shocks. 0% slab on essential items has helped greatly.
- Movement of trucks inter-state has become smoother with the removal of border check-posts, as now entire country has come under a single tax rate system. This has substantially reduced inspector raj, corruption, fuel and labour cost. With saved time, trucks can now perform more trips.
- Corporates have added about 50 lakh more workers during last 1 year under their formal pay-roll and EPFO. This has led to input tax credits and refunds to the employers under GST. This can be viewed as creation of more jobs!
It’s time to improve!
1. Reduce the number of slabs
There are as many as 7 slabs (0% to 28%) including exempted goods, which needs reduction. 12% and 18% slabs could be merged to have one slab. Items like Cement must be brought down from 28% slab! Better compliance and collection of taxes will enable authorities in reducing GST slabs and rates.
2. GST returns simplification
Small businessmen numbering about 5 crores hardly understand GST and its system. They don’t have money to employ tax consultants, buy computers and software. GST Network should be made simpler, faster and easiest to access. Just by generation of invoice in the system at the time of sale, all needed returns should get auto-populated resulting in release of Input Tax Credits and refunds. Good to know that steps are already initiated towards this end.
Once the system and returns are simplified, all the pending returns and pending taxes from small businessmen should be waived, so that a stricter new beginning could be made.
However, right now businessmen with annual turnover below Rs.20 lakhs are exempt from the ambit of GST. Also for those whose annual turnover is below 1.50 crores can opt for a special composite scheme who can submit just one return in a quarter.
3. Do away with multiple registrations
Multiple registration requirements should go. In many cases still registration is required in all states. Multiple returns, audits and assessments will ruin the time, energy and money of our businessmen.
4. Tax refund woes
Exporters are experiencing great difficulty in obtaining tax refunds. Reportedly 25,000 crores of rupees of refund are held up causing squeeze of working capital to them. This problem should be immediately looked into besides easing of the system for future.
5. Benefits not reaching consumers
The benefits of GST does not seem to have reached the consumers. For example although even AC restaurant GST is now reduced to just 5% from 18%, rates have not come down for the consumer. Probably they have increased the rates neutralizing the good effect of GST reduction. Anti-profiteering agency constituted for this purpose must monitor these aspects.
6. Increased service tax
Tax on services has gone up from 15% to 18%. Services like Banking and Insurance have become costlier. There is a need to look into this problem.
Obviously achievements under GST have outnumbered certain lacunae, which are being addressed by our authorities. There is every reason to believe that our GST system will settle further bring in much more than the anticipated benefits.
In the meanwhile there is a disturbing news from Malaysia that it has rolled back GST, which was introduced in 2015. The nation chose to straight-away introduce the single slab GST at 6%, which lead to inflationary pressures. A rival party promising roll back of GST has won the election and hence this change.
In India we are witnessing an era wherein our political parties go more by populist measures, ignoring what is good for the country in the long run. Let us hope nothing happens in India which may undo all the good work so far done under GST.
This article has been written by Prof. Lakshminarayana, Faculty, Manipal Global Academy of BFSI. The article has been sourced from blogbusterln.blogspot.