One year of GST roll-out: Several hits, few misses

July 1, 2018, will mark the first anniversary of India's biggest ever tax reform since independence. It took more than a decade to implement the Goods and Services Tax (GST) after the Atal Bihari Vajpayee government initiated the process of tax reform by setting up a task force under Vijay Kelkar.

The GST has been showcased as a major achievement of Modi government and it's time to take a look at assessing the impact and effectiveness of this landmark reform.

Increase in revenue collection, enhancement of tax base, checking tax evasion and bringing uniformity in indirect taxation were among the various objectives of GST highlighted by the government.

What do results say?

Revenue collection has seen buoyancy and crossing Rs 1 trillion in April this year. Though we can't expect a trend but tax collection will improve in the current fiscal due to implementation of anti-evasion measures such as e-way bill and TDS/TCS provisions which are expected to be operationalised in the coming months.

The input credit matching functionality is also expected to get operationalised in the current year, which will also give a boost to revenue collection. More than 4.5 million new taxpayers have been added under GST and nearly 70 per cent of the eligible assesses filed their returns for the month of March 2018. This is a sign of better compliance as compared to the pervious tax regime.

"One nation, one tax" was the theme for GST launch and this objective has been largely achieved. GST has eliminated the cascading effect of taxation under earlier regime (except for tax on petroleum products which are not under GST).

Now, assesses are answerable to one authority and face-to-face interaction has been reduced. It is a well-known fact that chances of corruption are less if face-to-face interactions between taxpayer and tax authorities are reduced. The government has also proposed to set up an Authority for Advance Ruling (AAR) on a national basis so that there is uniformity in the interpretation of law and passing the rulings.

The Index of Industrial Production (IIP) is considered as an indicator for industrial activity. The average growth rate of IIP was 5 per cent during July, 2017-January, 2018 which was higher as compared to that of 3.9 per cent in July, 2016-January, 2017 (source- PIB release dated 23 March 2018). Industrial activity has accelerated post GST introduction.

GST is still evolving and government has taken necessary steps to address the concerns that have arisen. Necessary notifications, circulars and FAQs were issued to clarify the legal positions and remove the procedural hurdles. GST rate was also reduced from 28 per cent to 18 per cent and 5 per cent for a lot of consumer goods. Applicability of various provisions (like TCS/TDS, reverse charge, form of tax returns etc) were deferred for smooth transition.

GST is often criticised for having multiple slabs but this is the usual practice across the globe. For practical reasons also there has to be differentiation between goods which are meant for common use and luxury items.

It is because of the multi-tier tax structure that despite the GST roll-out, inflation is still under control. Some of the credit goes to anti-profiteering provisions also which forced corporates to take precautionary measures.

Given the fact that the law is new and the scale of implementation is quite large, there were some teething problems in the beginning. Implementation issues impacted the business in initial months and increased the compliance cost.

However, most problems were related to IT platforms and there were no issues which were related to the tax structure per se. One of the major issues which arose was related to uploading the periodic returns, generating the e-way bills etc.

These were duly acknowledged by the government and related compliances were eased and postponed to facilitate the smooth transition. The government has said that it will come up with a new mechanism of return filing which will do away all the complexities and make the process simpler for taxpayers.

There was another issue relating to processing of refund applications for exporters. Initially, there were some issues in this area which resulted in the blockage of working capital for exporters but later the government took over the initiative and the refund situation improved. As per the details shared, almost 90 per cent of the refund applications have been processed.

To summarise this, by and large government has been able to achieve the objectives behind the GST roll-out and it took all necessary steps to ensure its smooth roll-out.

Operational issues faced by assesses are related to IT platforms and the government seems to be serious about fixing the hiccups.

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