GST has been billed as the country’s most ambitious economic reform in decades. It aims to make tax administration more efficient, bring in transparency, and remove red tape. As the tax enters its second year, Sourcing Hardware spoke to various stakeholders. Leaders across the industry are of the opinion that despite the initial hiccups, the system is up and running, and that in its second year the focus of the GST Council, besides ironing out rough edges, should be on greater compliance and easier procedures…
By Gyanendra Kumar Kashyap & Mrinmoy Bhattacharjee
“There is always scope for improvement. Key areas of future action will include simplifying and rationalising the rate structure and bringing more products into the GST. I am confident that once revenue stabilises and the GST settles, the GST Council will look into these carefully and act judiciously,”
Arun Jaitley, Union Finance Minister, in a piece ‘The GST Experience’ Jaitley’s words are indicative of the government’s thinking as GST enters the second year. It is worth mentioning that GST was rolled on 1 July, 2017 and its introduction marked the end of decades of power struggle to build a consensus across party lines, and has thus revealed a new template for co-operative federalism.
The skepticism of naysayers found quick acceptance in the initial days, thanks to the frequency of change in rules/clarifications/notifications/FAQs etc, coupled with complexities in return filing, and to say the least, the technical snags on the GST network. In fact the IT system was the greatest let down. Further the revenue collection in the initial few months added to the anxieties. As per available data, GST collections in July 2017 was over Rs 95,000 crore, while in August the figure was over Rs 91,000 crore. In September, it was over Rs 92,150 crore, in October it was Rs 83,000 crore, in November it was Rs 80,808 crore and in December it stood at Rs 86,703 crore. But with Rs 1 lakh crore in April 2018, those anxieties have been finally put to rest.
Hits & Misses
Widening of tax base: there has been a 50% increase in number of indirect taxpayers
Inflation under control: the mutli-slab tax structure has ensured that incidence of tax doesn’t rise and kept inflation under check
Single national market: the dismantling of check posts has created a seamless market
One commodity, one tax: consumers in any part of the country pay the same tax
Poor IT system: this has been the greatest letdown
Cumbersome registration process: multiple registration requirements have complicated things for industry
Compliance is still low: though it is at around 60%, a simplified filing system will help the cause
Refund woes: especially for the export oriented sector, this system needs serious interventions and not just interim relief
New cesses: GST initially subsumed cesses; but the introduction of compensation cess, etc takes it back to what it sought to eradicate, ie multiplicity of taxes and cesses
While a few teething troubles continue to exist, the new tax has taken firm roots and is altering the economic landscape positively, and the GST Council has been working in a systematic way to iron out major concerns. “GST has created a seamless market flooded with new opportunities and growth triggers. It has improved our ability to identify and establish business relationships with only genuine vendors and suppliers, as now the complete value chain can be tracked. Consequently our relationship with vendors, suppliers, channel partners as well as the retailers has also improved,” shared Nitin Aggarwal, CEO of Prayag Polymers. Amit Ruparel, managing director of Ruparel Realty, remarked, “Implementation of GST has brought a radical change in the real estate sector and has helped to bring in a lot of transparency in the sector. Initially, the market witnessed a sluggish trend, but now it is slowly moving towards recovery.”
The Economic Survey, 2017-18, indicates that there has been a 50% increase in the number of indirect taxpayers, besides a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises and want to avail ITC – deduction for taxes already paid. In the second year too, it is expected that the tax base will broaden further and that the compliance level, which is currently around 65%, would increase significantly. The caveat, though, is the robustness of the IT back-bone of the GST network. “The biggest advantage is that GST has brought in total accountability by tracing every supplier who can be held accountable and responsible in future,” says Ravish Kapoor, director, Elan Group.
GST Feedback & Action Room
The war room analysed grievances, feedback received from various stakeholders, etc and suggested remedial actions – rejiging of slab rates, deferring of dates, etc
The Council has found solutions based on consensus, to issues under its consideration and has provided a template for co-operative federalism
Revenue collection too has been stabilising. Collections were Rs 94,016 crore, Rs 95,610 crore and Rs 96,483 crore for the months of May, June and July 2018 respectively. However, the numbers are still below the Rs 1.04 lakh crore necessary to achieve the Centre’s budget target for GST collection of Rs 7.44 lakh crore. It is expected that with the base broadening and compliance increasing, meeting the target would just be a matter of time.
In its second year the GST regime must be purposefully rationalised, is the common refrain coming from the stakeholders we spoke to. Discussions are underway that GST may witness addition of more items under its ambit. Currently, alcohol, real estate and petroleum products such as natural gas, aviation turbine fuel (ATF), crude oil, petrol, diesel among others are taxed in accordance with the pre-GST tax system. In fact, deliberations regarding the inclusion of natural gas and ATF under GST have already begun. Further, there is also scope for reducing the number of items from the 28% percent tax slab. Besides the e-way or electronic-way bill that was rolled out on April 1 this year, which aims to plug revenue leakages, the government is also banking on the implementation of some more anti-evasion measures such as the new single return filing system and reverse charge mechanism to boost revenues, increasing compliance and preventing leakages.
While it has been made amply clear that there cannot be a single GST rate, having six GST rates – 0%, 3%, 5%, 12%, 18% and 28% – has only compounded the confusion of taxpayers, many of whom are still facing problems complying with GST. But with a number of items being brought under a lower slab rate, there is hope that going forward the 12% and 18% slabs may be merged. If not a single rate, there is certainly room for collapsing at least two of the current rates, feel many trade experts. An issue that will be addressed is the GST refund mechanism, especially for the exporters who have been finding it difficult to get their refunds on time. “More than `10,000 crore could be stuck due to software challenges. There are exporters who have been waiting for last 12 months for their refunds, and there are exporters who are unable to file claims due to non-modification of the software,” said Dr Ajay Sahai, director general and CEO of Federation of Indian Exporters Organistaion (FIEO) in a press statement.
Further, a unique component envisaged in India’s GST regime – matching of invoices for granting tax credits – has been kept on hold for fear of adding to taxpayers’ pains. Also, the reverse charge mechanism has been deferred till September 2019. Going forward, as the IT backbone gets in place, these two mechanisms could come into effect in one form or the other. In its second year, the GST Council is expected to pursue a time-bound approach to execute plans already announced to ease taxpayers’ woes, such as an e-wallet for exporters and a simpler return form. “From a realty developer’s point of view, compliance to file the returns thrice a month is a concern. This makes the filing of returns both tedious and difficult for businesses with less number of accounting professionals. We also look forward to a structured legal mechanism to deal with protection against defaulters,” shared Ruparel.
GST, for all its hits and misses in the first year, is indeed a remarkable achievement and must be cherished. The mere implementation of an economic reform in a country like India shows not only political will and deft, but is a case study for arriving at a rare political consensus. Haseeb Drabu, the former finance minister of Jammu & Kashmir and one of the most indefatigable champions of GST, has rightly expressed in a column in the national daily Mint, “There is still a long way to go before ‘one-nation-one-tax’ is achieved in letter and spirit. But there is no denying that one tax, one commodity is already a reality.”