India is approaching the first anniversary of the launch of the Goods and Services Tax, which began with a symbolic ringing of the bell as a midnight session of the Indian Parliament on July 1, 2017. This is a good time to look at what has been achieved and what could have been done better.
The earlier indirect tax regime had tolerated, and in some ways, encouraged the cascading effect of levying taxes on taxes. Under GST, the grant of seamless credit across India has eliminated the cascading effect of taxes and ushered an era of reduction in the cost of production of commodities and transparency in the quantum of taxes paid by the supplier of goods and services. To this extent, we have achieved one nation and one tax. This calls for a celebration.
The fundamental prerequisite for the implementation of GST was that the states and the centre had to pool in their constitutional powers to tax and share the responsibility to oversee and govern implementation of GST in India. This called for a constitutional amendment and one of the most important outcomes of this was the creation of the GST Council, an apt demonstration of co-operative federalism. The GST Council, having representation from all states, union territories, and the centre, has done an admirable job thus far. The Council met about 27 times and arrived at all decisions unanimously.
“It is commendable on the part of GST Council to arrive at the decisions on a consistent basis despite the differences in political philosophy between the political parties in different states.”
Some of the major decisions taken by the GST Council can be summarized as – reduction in the rate of taxes, extension of due dates in filing returns, postponement of reverse charge applicable on procurement from unregistered persons, postponement of requirement of an E-Way Bill when the system was not ready, increase in the threshold limits for composition scheme, quarterly return filing for small taxpayers, restoration of export incentives, relaxation in respect of compliances relating to refunds, etc.
When the government announced the implementation date for GST, it seemed that the industry was not ready to accept and adopt GST, and was caught by surprise when the government refused to extend the date of implementation any further. Even though industry was not completely ready for the implementation, one must give credit to the government for its commendable efforts to demonstrate a strong will to go ahead with a leap of faith in this landmark change with an unmoving hard stop date. The Government and tax department conducted several workshops and issued GST – FAQs, handbooks, advisories and updates to reduce the information gap. For the first time, tax administration used social media to clarify issues for the taxpayers.
Despite all of this, we saw considerable difficulties faced by taxpayers, resulting in frustration while filing returns and claiming refunds. The government had to undertake the unenviable task of setting up the IT infrastructure and getting it right, all while it is running.
This was somewhat similar to changing the wheel of the car while it is running.
Similarly, the introduction of the E-Way Bill system is a commendable step. The implementation of this system is an extremely important anti-evasion measure and will have a positive impact on tax buoyancy.
Having said all of this, there is merit in the general criticism that GST in India is complicated because of multiple tax rates, selective denial of input tax credits, multiple returns filing in different states, etc. The government can equally justify the difference in applicable GST rates for socio-economic and political reasons. After all, taxation is the mainstay of government revenue and used as an important tool in achieving the socio-economic objectives of the government in power.
The GST law has also introduced the concept of anti-profiteering to ensure that the benefits of GST are passed on to consumers, which has been a weak link in Indian tax administration. This was left to the market forces in the past as to what constitutes profiteering and what is legitimate profiting.
However, there is complete lack of clarity still, as to whether the benefit of tax reduction is to be passed on product-wise or entity-wise.
The anti-profiteering provision is being taken seriously by industry, as the law has given adequate machinery to the taxman for penalising defaulters.
One of the important features of any tax administration is certainty in tax laws and tax payment. The GST law introduced a mechanism for taxpayers to get advance rulings, to avoid future disputes with the department. The government has to look into this aspect seriously because, in many cases, there is an enormous delay in giving advance rulings and many of the advance rulings may not stand the test of scrutiny by High Courts and Supreme Court.
Overall, the Indian taxpayers and the government have both traversed a difficult and long terrain for GST in the last one year and one hopes that the journey might get easier in the coming years. Although it may take a few years before the country can truly begin to enjoy the full benefits of GST, it would be a journey which would be worthwhile for the Indian economy.