From 2017 to 2021 - GST completes four years

The story: The Goods and Services Tax (GST) regime was launched with much anticipation on 01st of July 2017, on a pan-India basis. The states of India

 From 2017 to 2021 - GST completes four years

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• The story: The Goods and Services Tax (GST) regime was launched with much anticipation on 01st of July 2017, on a pan-India basis. The states of India surrendered significant taxation powers, to be part of the grand dream called "One Nation, One Tax". Four years have gone by. There were multiple challenges in the new regime, and many difficulties have remained unresolved till date.
• Experience: From the taxpayers’ perspective, overall GST was a mixed experience. The organised and large industry players easily adapted to the new GST world, due to their bench strength, but the MSMEs are grappling with it and losing market share in the process. The pandemic has only worsened their plight.

1. Former FM Arun Jaitley, in the Parliament’s Central Hall on the midnight of 30 June 2017 had said “The goods and service tax may be a destination tax, but for India it will begin an altogether new journey…”.
2. GST surely came as a huge tax reforms of independent India, launched after nearly 15 years of deliberations.

• Automation: GST by design reduced the cascading effect of taxation, and created an automated indirect tax ecosystem. From electronic compliances, generation of e-invoices to tracking movement of goods through e-waybill, everything is run online.

1. The e-invoicing system is aimed at ending the menace of fake invoicing, and also usher the taxpayers into a fully automated compliance regime wherein the computation of tax liabilities and matching of input tax credit would become simple (it was promised from day 1, but has't fully happened even now)
2. This is not an easy task as many countries have realised. India has served as an example by trying to implement a complex tax transformation project at such scale, though not fully succeeding in it.
3. The teething issues from the time of GST implementation, ranging from the IT portal not working properly to many data mismatches, have troubled taxpayers a lot. The GST Council (apex decision-making body) has worked with IT vendor (Infosys) to resolve these issues, and has achieved some success.

• Initiatives to speed things up: Many steps were taken - (i) linking the customs portal with GST portal for credit availment on imports, (ii) making available proper means for matching input tax credit, (iii) increased automation of the refund procedure to seamless operation of the Invoice Registry Portal, and so on.
• Federal body: The defining feature of the GST regime was the constitution of the GST Council to ensure Centre-State partnership in the decision-making process. Sadly, over time, GST Council has witnessed huge friction over multiple issues, many of which have remained unresolved. The spirit of cooperative federalism with which states had surrendered their taxation powers has not been reciprocrated fully by the Centre, which sought to delink itself by claiming the pandemic being an "Act of God", when it was time to pay the long-pending compensation cess dues (to states), in 2020. Since 2017, over more than 40 meetings, the Council has tried to -

1. make corrections to the law,
2. issue clarifications on complex issues,
3. rationalize GST rates and
4. introduce relaxations for dealing with the Covid-19 pandemic.

• The statute underwent a lot of tinkering in the past four years, some of which left the stakeholders in a state of confusion and dismay while others have brought in much needed relief and clarity.
• Core issues: The fundamental principles on which the GST law was built viz. seamless flow of input credits and ease of compliance has been impaired by IT glitches, difficulty in input tax matching and introduction of a few draconian provisions in law.

1. The benefits were eclipsed by the frequent issues faced by businesses.
2. The 15th Finance Commission, in its report highlighted several areas of concern in the GST regime relating to multiplicity of tax rates, shortfall in GST collections vis-à-vis the forecast, high volatility in GST collections, inconsistency in filing of returns, dependence of States on the compensation from Centre and so on.

• Pandemic: A core promise made was that each state would get a growth of 14% per annum in its tax collections (once GST was launched), for five years from 2017. That was severely impacted due to the pandemic, leading to delays in payments, and consequent legal case (Kerala at the S.C.).

1. The situation was impacted deeply due to the pandemic-led economic contraction and newer demands came up (to extend the 14% promise for 5 more years)
2. Oil prices sky-rocketed across India since 109, and demands are being made to include petroleum and related products within the GST net.

• Suggestions for improvement: There is significant litigations pending to be decided and huge amounts of refund claims being disputed, so it's vital to finally constitute the GST Appellate Tribunal, as not all taxpayers can approach the High Courts. Streamlining of anti-profiteering measures and simplification of compliance procedures also needs to be revisited to ensure that the cost efficiency and reduction in prices envisaged under GST law finally reaches the common man.
• Average collections: The heartening fact is that since November 2020, the monthly collections have crossed Rs.1.25 lakh crore, on average, compared to the Rs.1 lakh crore prior to that. Key reasons include the matching of two critical databases viz., the income tax database (with CBDT) and the GST database. That has plugged significant tax leakage at MSME level.
• Summary: India has taken a big leap of faith in the GST, but serious friction has arisen between many opposition-ruled states and the Union, which controls the debate in the GST Council via the Finance Minister. As F.M. Amit Mitra of West Bengal, one of the key movers behind the 2017 adoption of GST, hinted recently "the whole spirit of cooperative federalism has now degenerated significantly as one-sided decisions are being pushed, and political decisions too are being taken by bureaucrats".

 

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