GST the biggest tax reform in India founded on the notion of “one nation, one market, one tax” is finally here. The moment that the Indian government was waiting for a decade has finally arrived. The single biggest indirect tax regime has kicked into force, dismantling all the inter-state barriers with respect to trade. The GST rollout, with a single stroke, has converted India into a unified market of 1.3 billion citizens. Fundamentally, the $2.4-trillion economy is attempting to transform itself by doing away with the internal tariff barriers and subsuming central, state and local taxes into a unified GST. The rollout has renewed the hope of India’s fiscal reform program regaining momentum and widening the economy. Then again, there are fears of disruption, embedded in what’s perceived as a rushed transition which may not assist the interests of the country. Will the hopes triumph over uncertainty would be determined by how our government works towards making GST a “good and simple tax”. The idea behind implementing GST across the country in 29 states and 7 Union Territories is that it would offer a win-win situation for everyone. Manufacturers and traders would benefit from fewer tax filings, transparent rules, and easy bookkeeping ; consumers would be paying less for the goods and services, and the government would generate more revenues as revenue leaks would be plugged. Ground realities, as we all know, vary.
The Short-Term Impact
From the viewpoint of the consumer, they would now have pay more tax for most of the goods and services they consume. The majority of everyday consumables now draw the same or a slightly higher rate of tax. Furthermore, the GST implementation has a cost of compliance attached to it. It seems that this cost of compliance will be prohibitive and high for the small scale manufacturers and traders, who have also protested against the same. They may end up pricing their goods at higher rates.
-What the Future Looks Like
Talking about the long-term benefits, it is expected that GST would not just mean a lower rate of taxes, but also minimum tax slabs. Countries where the Goods and Service Tax has helped in reforming the economy, apply only 2 or 3 rates – one being the mean rate, a lower rate for essential commodities, and a higher tax rate for the luxurious commodities. Currently, in India, we have 5 slabs, with as many as 3 rates – an integrated rate, a central rate, and a state rate. In addition to these, cess is also levied. The fear of losing out on revenue has kept the government from gambling on fewer or lower rates. This is very unlikely to see a shift anytime soon; though the government has said that rates may be revisited once the RNR (Revenue Review Rate) is reached. The impact of GST on macroeconomic indicators is likely to be very positive in the medium-term. Inflation would be reduced as the cascading (tax on tax) effect of taxes would be eliminated. The revenue from the taxes for the government is very likely to increase with an extended tax net, and the fiscal deficit is expected to remain under the checks. Moreover, exports would grow, while FDI (Foreign Direct Investment) would also increase. The industry leaders believe that the country would climb several ladders in the ease of doing business with the implementation of the most important tax reform ever in the history of the country.
As per economic survey:-
•Upon implementation of GST, indirect tax base has increased by 50%, 34 lakhs new businesses added to tax base.
•Highest registration in Maharashtra, next is UP, Tamil Nadu and Gujarat.
•But large increase in registrations in west Bengal.
Though turnover is below Rs 20 lakhs, there are 17 Lakhs who have obtained voluntary registrations.
•In pre-GST era, revenue collection of Centre and state was Rs 9.7 Lakhs crore p.a.
•It was expected to be Rs.10.9 lakh cr p.a.
•In the first year of GST implementation, revenue grew by 11.09%
In October,18, 67.45 Lakhs filed GST returns and revenue pm crossed Rs 1,00,710 crore as taxes.
•As a result this is going to increase the demand for professionals in future also.
Increase in tax base: After its implementation on 1 July 2017, over 38 lakh taxpayers migrated into the GST regime. This number had further increased to more than 64 lakh in September 2017. Also, with an addition of new GST registrations of over 58 lakh, this number has increased by almost 90 percent and we had total (new plus migrated) 1.23 crore active GST registrations, as on 31 March 2020. This growth indicates a significant increase in tax base and a change in taxpayers’ compliance behaviour.
Revenue collections: While the first nine months of FY 18 saw a revenue collection of ~INR 7.4 lakh crore, FY 19 witnessed healthy growth with the government collecting ~INR 11.7 lakh crore. On the other hand, in the backdrop of rate reduction/ rationalisation over several products, the collections during FY 20 were below estimates and marginally grew at ~4 percent over FY 19 to reach INR 12.2 lakh crore.
Introduction of e-way bill system: Barring the initial technical glitches, the e-way bill system has been largely streamlined. The total number of e-way bills (inter-state as well as intra-state) generated during FY 19 were ~56 crore; and with ~13% growth, this number increased to ~63 crore during FY 20.
Rate rationalisation: The government continued to focus on rationalising GST rates. Although the overall rate structure remained same, a significant progress has been made in bringing down GST rates for various products. On 1 July 2017, ~19 percent items were under the 28 percent GST rate bracket; currently only 3 percent are subject to 28 percent GST. Now about 50 percent items are under the 18 percent bracket, ~21 percent face 12 percent, and ~25 percent are subject to 5 percent GST.
Legislative amendments and clarifications: From its original shape and form, as on 1 July 2017, the GST law has undergone significant changes. With almost 700 notifications, 145 circulars, and over 30 orders, significant changes have been made to address taxpayers’ demand, to carry out procedural simplifications and curb tax evasion.
After the implementation of GST, it has been found out that the export industry started getting revenue and capital issue within the first month of its implementation. The export industry faced tough times till recently, due to non-availability of refunds.
To remedy this situation, the Ministry of Finance organised two “Special Drive Refund Fortnight”. The first such drive led to sanction of an amount of Rs 5350 crores of refund, in March 2018 while the second saw a sanction of Rs 7500 crores. With some technical glitches due to the input tax credit and exports happening in different months, many exporters have not been able to file the refund of ITC. The process being partly electronic and partly manual which made it more cumbersome and also added to the transaction cost. Total GST refund of over Rs 20,000 crores is pending with the government, as per the Federation of Indian Export Organisations.
The industry segment which benefited most of the GST rollout was the logistics sector. With check-posts removed, truckers were able to deliver goods faster leading to quicker turnaround time.
As per a CRISIL Research, trucks are plying an average 25 km more every day or around 325 km per day. But that is still 20 percent lesser than the 400 km per day estimated before implementation of GST. In the United States, a truck runs 800 km per day on an average.
For the transportation and logistics sector, GST is expected to have a long-term positive impact with consolidation of warehouses, which will help in improved load availability and drop in vehicle transit time.
On priority, it is up to the government to address the capacity building amongst the lesser-endowed participants, such as the small-scale manufacturers and traders. Ways have to be found for lowering the overall compliance cost, and necessary changes may have to be made for the good of the masses. GST will become good and simple, only when the entire country works as a whole towards making it successful.
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