“The only constant in life is change”
- Herclitus
Proclaimed to be one of the two greatest changes in the Indian economy in the last few years, GST has been surrounded by a lot of speculation since its announcement has been made. 1st of July 2018, has marked one year of it’s inception in the Indian Economy. Heralded as India’s greatest tax reform, GST has aimed and continues to aim to free Indians from multiple taxes, setting the base for a unified common market — One Nation, One Tax, One Market.The key principles adopted for designing GST were - Widening of the tax base, elimination of the cascading effect, transparency and simplicity, and automation of compliance. But have these principles paved their way into the Indian Economy?
As on 1st April 2018, the collections had crossed Rs.1 trillion. The registered taxpayers stood at 8.71 million and the total returns filed amount to 6.04 million. Though these statistics are healthy, they are often associated with certain costs and challenges. GST has changed indirect taxation regime in India, but debate still exists as to the strengths and the short comings.
While monthly receipts have increased after a problematic rollout, they are still not strong enough to meet the government’s annual tax target. GST brought in an average Rs 975.4 billion a month in revenue, government data reported in the three months to June show, compared with a target of nearly Rs 1.1 trillion. The government needs the revenue to keep its budget deficit in check as Modi starts to spend extensively on welfare programs from health to farming before general elections next year. Tax to GDP ratio is the ratio India’s tax revenue in relation to it’s Gross Domestic Product. This ratio has touched its highest level of 11.6% last fiscal year, according to a report by the Centre for Monitoring Indian Economy Pvt., a Mumbai-based business information company. This is seen rising further to 12.1% this year. The implementation of GST has put an end to the cascading which has resulted in an outburst of Indian competitiveness in the global market. Businesses have been collecting more tax, being more compliant and thus contributing their fair share to the rising GDP, thereby ultimately curbing tax evasion.
Consumers are benefitted from lower rates of tax on essential products as well as from anti-profiteering clause implemented by the government which provides that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices.
The automated compliance that involved transaction level reporting were propounded as the fulcrum of transparency in GST. The GST Network, despite the initial hurdles, has been one of the best examples of the potential of the government to invest and build world class IT solution, capable of processing over three billion transactions per month.
After one year of GST, Businesses have not experienced “ease of doing business” though some have adjusted to it. A business has to file 37 returns in a year for each state, so though 17 taxes were replaced by one tax, simplification did not follow.
The small scale businesses under the composition scheme cannot give Input tax credit and their customers should pay the tax on behalf of the small scale businesses by Reverse Charge Mechanism. These businesses are not even permitted to make inter-state sales hence confining the market for those located at borders of the state.
On considering the overall impact on various sectors of Indian economy, there has been a positive impact on Healthcare and Pharmaceutical industry-due to reduced prices of medicines, Telecom industry-lowered costs through consolidating warehouses and efficient management of inventory, warehousing and logistics industry-lowering costs as GST removed necessity of setting up state specific entities also the removal of inter-state check-posts because of GST has resulted in significant reduction in idle time for trucks therefore improving their turn-around time and efficiencies by about 18-20%.The FMCG sector in India, being the pioneer economic platform in India, has it’s products now taxed under the slab rate of 18% , compared to the earlier 20%, thereby benefitting the consumers.One of the major noticeable positive impacts can be seen in the exports. Exports can now be made under a Letter of Undertaking, without the business having to pay GST on the exported goods or services. Thereby eliminating blockage of working capital. Further, refunds have been made a 7 day process, resulting in a drastic change as compared with the previous regime.
Gold has now become an even further expensive investment, due to the roll out of GST. Earlier, the IT industry was paying 15 percent service tax as opposed to 18 percent after the imposition of GST, leading to an immediate increase in the cost of implementation. But, it will definitely have a positive impact in the long-term.After the GST rollout, India successfully jumped 19 positions (35th from 54th) in the Logistics Performance Index (LPI). The implementation of e-way bills was also a bold move. After a wobbly start, the second innings of e-way bill system implementation has been successful. Physical check posts have been removed from the states, thereby reducing the transit time and increasing the revenue per vehicle.
CA and CS professionals have seen the roll out of GST as a boon in disguise. It has provided them with massive opportunities to provide support services to the businesses to flawlessly transition into the new regime.
Despite the notable positive impacts, the upcoming elections pose a different threat.. The number of goods and services attracting the highest rate of GST were pruned before state elections last year, and with polls due in some more states this year and for parliament in early 2019, more such tweaks can’t be ruled out. That may hurt revenue.
While introduction of GST promised predictability and stability by replacing about a dozen federal and state levies to make India a single market, there’s room for improvement.
Dan Millmansaid “The secret of change is to focus all your energy not on fighting the old, but on building the new”. To summarize, we must say that initially, GST may offer roadblocks for business operations. However, in the long run, it impacts on the Indian economy is positive. GST is a welcome move by the Central Government for economic growth of India.
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Author
Vaishnavi Miriyala
Vaishnavi Miriyala is an article trainee at K Vijayaraghavan & Associates LLP. She is an avid reader holding varied interest in the field of finance and accounting and loves to be updated on the latest happenings in the finance sector.
