July 1, 2018 marked the first anniversary of India’s biggest ever tax reform since Independence. It took more than a decade to implement Goods and Service Tax (GST) after the Vajpayee government had initiated the process of tax reform by setting up a task force under Vijay Kelkar. GST is showcased as a major achievement of Modi government and it’s time to take a look to assess the impact and effectiveness of this landmark reform.
Amongst various objectives of GST, increase in revenue collection, enhancement of tax base, checking the tax evasion and bringing uniformity in the indirect taxation were highlighted by the government. Revenue collection has seen buoyancy and it has crossed Rs 1 trillion in April this year. Though we can’t expect a trend, but tax collection will be improved in the current fiscal due to implementation of anti-evasion measures like E-Way bill and TDS/TCS provisions which are expected to be operationalised in coming months.
We expect the input credit matching functionality will also get operationalised in the current year which will also give a boost to revenue collection. More than 4.5 million new taxpayers are added under GST and nearly 70 per cent of the eligible assesses filed their return for the month of March 2018. This is a sign of better compliance as compared to earlier tax regime.
“One nation, one tax” was the theme for GST launch and this objective has been largely achieved. GST has eliminated the cascading effect of taxation under earlier regime (except for tax on petroleum products which are not under GST). Now assesses are answerable to one authority and face-to-face interaction has been reduced. It is a well-known fact that chances of corruption are less if face-to-face interaction between tax payer and tax authorities is reduced. Government has also promulgated to setup Authority for Advance Ruling (AAR) on a national basis so that there is uniformity in the interpretation of law and passing the rulings.
Index of Industrial Production (IIP) is considered as an indicator for industrial activity. The average growth rate of IIP was 5 per cent during July, 2017-January, 2018 which was higher as compared to that of 3.9 per cent in July, 2016-January, 2017 (source- PIB release dated 23 March 2018). Industrial activity has accelerated post GST introduction.
“GST has made doing business and trade very easy. The market size for every trader has grown. Now whole country is his market… With structural reforms like demonetisation, the implementation of the Goods and Services Tax and the enforcement of the Insolvency and Bankruptcy Code, we had two challenging quarters. Those who predicted a 2 per cent decline in GDP growth have been conclusively proved wrong. We must remember that the economy and the markets reward structural reforms, fiscal prudence, and macro-economic stability. They punish fiscal indiscipline and irresponsibility. The transformation from UPA’s ‘policy paralysis’ to the NDA’s ‘fastest growing economy” conclusively demonstrates this”- Arun Jaitley, Union Minister
GST is still evolving and government has taken necessary steps to address the concerns. Necessary notification, circulars and FAQs were issued to clarify the legal positions and remove the procedural hurdles. GST rate was also reduced from 28 per cent to 18 per cent and 5 per cent for a lot of consumer goods. Applicability of various provisions (like TCS/TDS, reverse charge, form of tax returns etc.) were deferred for smooth transition.
• By and large government is able to achieve the objectives behind GST rollout and it took necessary steps for ensuring smooth rollout GST is often criticised for having multiple slabs, but this is the usual practice across the globe. For practical reasons also there has to be differentiation between goods, which are meant for common use and luxury items. It is the beauty of the multi-tier tax structure that despite GST rollout, inflation is still under control. Some of the credit goes to anti-profiteering provisions also which forced corporates to take precautionary measures.
Given the fact that the law is new and the scale of implementation is quite large, there were some teething problems in the beginning. Implementation issues impacted the business in initial months and increased the compliance cost. However most of the problems were related to IT platform and there were no issues which were related to tax structure per se. Major issues which arose were relating to uploading the periodic returns, generating the E-Way bills etc. These were duly acknowledged by the government and related compliances were eased and postponed to facilitate the smooth transition. Government has said that it will come with the new mechanism of return filing which will do away all the complexities and make the process simpler for tax payers.
There was another issue relating to processing of refund applications for exporters. Initially, there were some issues in this area which resulted into blockage of working capital for exporters but later on government took the initiative and refund situation improved. As per the details shared, almost 90 per cent of the refund applications have been processed.
To summarise this, by and large government is able to achieve the objectives behind GST rollout and it took necessary steps for ensuring smooth rollout. Operational issues faced by assesses are relating to IT platform and government seems to be serious towards fixing it.
(The writer is Chartered Accountant and Anti Money-Laundering specialist)
