600 Days Of GST
On July 1, 2017, Goods and Service Tax (GST) was introduced in the Indian Economy, which was a replacement to existing indirect taxes like excise duty, Service Tax, VAT, etc. It was levied all over India on the supply of goods and services. We need to analyze the 600-day journey of the biggest change in indirect taxes.
GST has unified the common market and triggered “One Nation, One Tax” with its invent. GST has pushed the economy one step closer to a common market i.e. free movement of capital and services. A consumer in Kanyakumari now pays the same tax on an item as one in Jammu & Kashmir. As many as 17 taxes and multiple cesses were subsumed into GST, aligning India with global regimes. Central taxes such as excise duty, services tax, countervailing duty and state taxes — including value added tax, Octroi and purchase tax — were all rolled into one. It also ensured a single law for the whole country with uniform procedures and rules, which reduces compliance burden under various laws and business complexity.
Doing business has become easier as the hassle-free movement of the goods enables smoother transport thereby plugging in the logistical inefficiencies. The introduction of GST Network and E-Way bills has solidified the country's supply chain and put in place a structure that facilitates transparency. Now a dealer can track their shipments whether it is intrastate or interstate. A recent ICRA survey of 50 transport companies found turnaround time in road transport reduced 18-20% since the implementation of GST. Besides, implementation of the e-way bill on consignments of Rs 50,000 and above was gradually freeing them from unnecessary checking by state government raid parties. GST has enabled businesses to integrate their tax operations (unlike in the previous regime, where industries used to strategically locate their offices in areas offering most favorable tax structures) and cut down on compliance costs to the extent of hiring local consultants, having local tax teams, etc. It has also contributed majorly in reducing trade barriers within India. The e-way bill came as a respite to pharma and FMCG sectors, securing an end to check-post compliances. E-way bills have helped unearthed several scams and have put a restraint on the menace of fake bills. Ministry of Finance presented a data to Lok Sabha, which shows that Overall, 1,100 cases of violation were recorded across States involving tax evasion of about ₹27.8 crore(figures till Nov, 2018). Tamil Nadu saw 43 cases of violation but reported the highest tax evasion, at ₹13.3 crore. State of Gujarat recoded highest violations at 191 cases involving tax evasion of ₹1.76 crore.
Seamless flow of credits and increased credit pool has also helped industries to a considerable extent. This has eliminated cascading of taxes and also incentivizes the dealer to avail more benefits upon revealing his transactions. This adds transparency and acts as a self-policing mechanism, as the economic incentive for avoiding tax has come down. India is expected to have an incremental GDP of INR 21 Lacs crores in FY 2018-2019 over 2017-2018, main contributor of this seems to formalization of Indian economy due to GST and demonitization.
MSME sector of the economy has been deliberated as the chief development driver of the Indian economy for years. Implementation of GST has impacted it both ways. GST has imposed a burden of lower threshold on MSME’s significantly hurting their working capital. However, this new law reduced the time and money required for Interstate movement due to free flow of goods. It has allowed flexibility in transfer of goods across states and has broadened their reach to potential customers across India. Now the impact on MSME would depend on the manner in which each unit is able to comprehend and embrance the changes brought in by GST regime.
The impact of the GST on the direct tax is already visible. Those who have to disclose business turnover are now having to disclose their income for the purposes of the income tax. The direct tax collection have, therefore, picked up since July, 2017.Direct Tax collection during FY 2017-2018, stands at Rs. 1.90 lakh crore which is 19.1% higher than the net collections for the corresponding period of last year.
When we look at the GST performance in the first nine months from July, 2017 to March, 2018, and add the entire amount collected - the CGST, SGST, IGST and the composition cess, we will get the sum total of the GST collection. In the very first nine months, the total amount collected is Rs.8.2 lakh crore– Rs.11 lakh crores if annualised, yielding a revenue growth of 11.9% i.e. a tax buoyancy of 1.22. The GST will strengthen the country’s tax base for the medium term, adding up to an additional GDP.Total collection of GST till Feb 2019 is Rs. 17.89 thousand crores. The number of indirect taxpayers in the country witnessed growth of 50 per cent to 9.8 million unique GST registrants, as of December 2017.
With the simplification in methodology came some complications. The biggest barrier was the compliance process, as information technology glitches took more than anticipated time to be resolved. Despite a lot of expectations, industries had to face many hurdles, including problems in the filing of transition returns, transitional credits, and refunds directly affecting the working capital for businesses. The filing system that was put in place, in the beginning, was quickly abandoned as businesses struggled with compliance. A new return filing process is promulgated to be made effective from the second half of 2019.
Refunds under GST were another area of concern where taxpayers, especially exporters faced a lot of challenges in filing their refund claim application due to technical difficulties. The exporter’s community raised their concerns and the government, organised multiple ‘special refund fortnight drive’, wherein the central and state GST officers were instructed to expedite the clearance of pending applications for GST refunds. Such initiatives helped pushed the cash stapped exporters to a relief mode.
GST brought with it a plethora of challenges for various industries, even though it has ushered in growth, simplicity, and transparency. The government has taken various initiatives and measures to address the concerns of the industry. GST may not be the most perfect single tax system, but it is continuously evolving.
