One Year of GST Rollout – A learning / Nightmare or Success?
When the clock ticked 00.00 hours on the night of 30th June 2017, India has rolled out one of the major reforms, tax reform to be specific for rationalization of taxes known as “Goods and Service Tax” by subsuming about 40 plus different taxes (including various cess) into a single tax. Though it is dubbed to tax reform, in reality, it is a business process reform and for the trade and industry, it was more or less like a knee-jerk reaction as they were not sure of the rollout of the same as it is being discussed for decades. Those who have braced for the rollout of GST were transacting without any hassles and others were running to figure out the things and how to fix them.
The rollout of GST has also brought a new dimension in the Indian Politics known as cooperative federalism as there was census among the states in all the 27 GST council meetings. Our country has diversified requirements and in this process, the states have given up something and gained something. Say for example Punjab which is basically an agrarian state has given up the taxation on food items even though it has an impact on the state’s economy and others states gained like where they are consuming states like UP, Kerala etc.,
No reform will be successful in a day or in a year and the impact can be accessed in medium to long term but in the short term. It is only a year of the rollout of GST and we cannot conclude that it is a failure or a success. If we see the registration of taxpayers in the Country prior to GST and post-rollout it has galloped from 64 lac taxpayers to 1.14 crore taxpayers that mean an addition of 50% of taxpayers which is a good sign. As advocated by KAUTILYA in his Arthasastra that tax rates should not be a burden on the taxpayers or the citizens but the tax base should be increased to have more revenue, and from there the Government should pick up the clue and reduce the tax rates once the tax base has increased. This will be possible over a period of two to five years.
One good thing in the GST is, the Government is listening to the trade and industry and addressing them at regular intervals, it shows the will of the Government and also the state finance ministers to address the need of the hour. As a result of it, till now we had about 300 notifications, circulars and orders being released. Apart from that lot of FAQ’s and industry-specific issues are also addressed. All these seem to be good from the trade and industry perspective but from a common man’s perspective it is lacking, maybe that could be the reason that GST is not being appreciated. The items taxed at 18% or 28% is not a higher tax compared to the previous regimes where we had 12.5% Central Excise and about 14% of Value Added Tax, the end consumer was seeing on the taxes levied by the retailer and not the excise duty is paid by the retailer indirectly he/she was paying. This is the misconception even after one year of the rollout of the people are having, this has to be addressed so that the common man is aware of the same. In this context, the Government should follow the Australian Model where it has done a lot of education programs and also ensured that the pre-GST price and the post GST prices are displayed.
Another major benefit of the GST is the removal of the check posts at each and every state’s entry and exit points, this has reduced the travel time of the goods and also the unaccounted expenses for the trade and industry. This helps in better planning and also inventory management to minimize the holding costs of the inventory and also in the re-warehousing. As on date only a few companies have really exploited these provisions and able to add value to the shares holders. Indirectly this should also result in the reduction of the prices but the same is not being seen as the increase in the fuel prices has negated it, that means there is no overall impact and ensured that inflation is under control.
Change cannot happen without any disruptions, the same is with the rollout of the GST, we have banked heavily on technology and sometimes it has really disappointed us and sometimes it has made our life simple without the complexity and preserving the mother nature. The technology backbone of the GST is the GSTN portal and we had real nightmares in the filing of returns in the initial months but now it is history. The reasons for the same could be many as all the taxpayers flocking to file the returns on the last day and causing heavy load on the servers and resulting in frequent crashes. We Indians always tend to do things at the last minute and one reason could be this also. Another reason is the stability of the portal on the programming side as many of the taxpayers were not able to file the Transition returns and this has resulted in non-filing of the monthly returns also, the changes being announced are so fast in nature the same could not be understood, developed with proper testing by the technology geeks, proper time also should be given for them to handle it. If we see the return formats are given during the mid of May 2017 and the rollout is on 1st July 2017, it will be a next to impossible task for any developer to have a piece of code with such complexity in the return formats to be bug-free.
Tax rates, many complain it is complex and we have multiple rates unlike the other countries where they have only one single rate like Singapore or Malaysia previously, the same will not work in India as we cannot tax the Atta and the Audi car at the same tax rate, so different tax rates are required and over a period of time when the dust settles the number of slabs should be reduced.
The return filing process is envisaged on a theoretical note and we went for the matching on the day one itself. The Government also its own reasons for this approach due to the black sheep in the system. Though it is a good concept, India is a large country and many of the small and medium business is still not organized, this has resulted in pain for them to race against time and fix the issues but at the same time they have been given a golden opportunity to address their way of doing business and approach to taxation. The nation should have adopted the Malaysian Model of GST return filing, where they also have a matching and reporting of all the transactions but in a different manner. There the taxpayers were required to file a simple GST return on a monthly basis similar to our GSTR – 3B known as GSTR – 3 and an audit file is also submitted where it has all the ledger details along with the purchase and sales day book. The matching is done at the backend and if there are any discrepancies the same are communicated to the taxpayers. A similar sort of approach should be adopted in India for eliminating the back sheep but at the same time providing the trade and industry the ease of reporting.
There are few items which are outside the purview of the GST like the petroleum products, electricity, health services, etc., they are also required to be brought into the GST ambit. The simple business reason is even though the output of the said are exempted, the inputs are taxed and not eligible for availing input tax credit and this is resulting in higher prices to be paid by the end consumer.
E-waybills is another import feature of GST where it is required for movement of goods in a motorized vehicle if the value if above Rs 50,000 in case of interstate transfer and in case of intrastate we have to refer to each state requirements separately similar to VAT, in this process the idea of One Nation, One Tax is diluted a bit. Yes, there may be different business reasons or constraints for the State Governments but we need to have uniformity else over a period of time we cannot rule of having different Cess on specific products, etc., Generation of the e-waybill is online and there is no requirement to take the paper formats along with goods, this has resulted in heavy reduction in the consumption of paper which in turn save the trees being felled for the manufacturing paper.
The first year of rollout of GST is a mixed bag and now we need to try towards the stabilization and simplification so that the tax base is improved and we can say we are ahead of the African Nations where the Tax GDP ratio is about 16.6% which is very low compared to the emerging countries where it is about 21% and as per OECD it is 34%. So, wait and see the number in the coming years and then only we can conclude it is a success or failure or in the improvising mode ………
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