Recently, the Goods and Service Tax (GST) has completed one year of its implementation. GST was launched on 1st July 2017
GST- A Brief Overview
- GST is a single tax on the supply of goods and services
- It is considered to be a destination based tax as it is applied on goods and services at the place where final/actual consumption happens
- GST is applied to all goods other than crude petroleum, motor spirit, diesel, aviation turbine fuel and natural gas and alcohol for human consumption
- There are four slabs for taxes for both goods and services- 5%, 12%, 18% and 28%. Although GST aimed at levying a uniform tax rate on all products and services, four different tax slabs were introduced because daily necessities could not be subject to the same rate as luxury items.
- ‘Dual’ GST Model:
- Central GST (CGST) levied by Centre
- State GST (SGST) levied by State
- Integrated GST (IGST) –levied by Central Government on inter-State supply of goods and services.
- UTGST – Union territory GST, collected by union territory government
GST Implementation- A Timeline of major Events
1st July 2017: GST launched from Central hall of Parliament. The government also launched a GST Network portal
- GST Council cuts tax rates on 27 items;
- Allowed duty-free import of goods for export production under two pre-GST era schemes;
- small taxpayers with up to Rs1.5 crore sales allowed to file detailed tax returns and pay taxes on a quarterly basis
- Composition scheme threshold raised to Rs1 crore from Rs75 lakh for most states
- Small tax payers up to Rs1.5 crore of sales exempted from paying GST on advances received.
- GST Council announced across-the-board tax cuts.
- Close to 180 items moved from the 28% to 18% tax slab.
- Chairman of GST Council committed to eventual reduction in GST slabs by converging 12% and 18% slabs and retaining only sin goods in 28% slabs
November 2017: The Union Cabinet approved setting up of National Anti-Profiteering Authority (NAA)
- The NAA is mandated to ensure that the benefits of GST rate reduction are passed on to consumers.
- The anti-profiteering mechanism has been contemplated under Section 171 of the Central Goods and Services Tax Act (CGST Act, 2017
December 2017: GST Council decides to make e-way bills compulsory for inter-state movement of goods from 1 February 2018 and intra-state before June 1st
- An e-Way Bill is an electronic permit for shipping goods. It is required to be generated for every inter-state movement of goods beyond 10 kilometres and the threshold limit of Rs. 50,000
January 2018: Rates changed for 21 more items. 40 services exempt from GST
April 2018: E way bill system made mandatory in all the states
May 2018: GST Council cleared design of a new simple return. Approved proposal of converting GSTN-SPV (Goods and Service Tax Network – special purpose Vehicle) into a fully owned government company
What has it achieved so far?
- Tax collection:
- GST collections fell for two consecutive months from over Rs 92,000 crore in September 2017 to Rs 83,346 crore in October and Rs 80,808 crore in November.
- Post the introduction of the e-way bill system, collections rose. The GST revenue for the 2017-18 fiscal was Rs 7.41 lakh crore.
- In May 2018 the Finance Ministry said that the government had earned a revenue of Rs 1 lakh crore from GST for the month of April
- People filing tax returns: Increased from 5.43 crore in FY16-17 to 6.84 crore in FY17-18
- Formalization of economy: Formalization of economy seems to have gathered pace. Rise in the Employees’ Provident Fund Organisation subscriber base provides evidence for the fact
4. Registration of business: Increase in number of businesses registered. This implies that the tax base has expanded with GST. Registration under old indirect tax regime was 6.4 million. Registration of businesses increased to 11.2 million under GST
5. Facilitated transport of goods between states with the introduction of E-Way Bill system
- Compliance and Regulatory Issues:
- The IT functioning of the Goods and Service Tax Network (GSTN)has not been satisfactory
- Filing of returns and registration to GSTN have been two major issues which has had adverse effect on business and has not resulted in ‘ease of doing business’
- Businessmen have to file multiple returns per month apart from an annual return makes the process more complex for businesses.
- There has been a wide range of compliance issues which has affected businesses especially small and medium scale businesses
- Tax slab classification and Product Rationalization:
- The structure of the tax rate has led to complexity. With different tax slab categories, it has become difficult to classify goods and has further added to confusion among consumers
- The World Bank in its biennial India Development Update report observed that India GST is one of the most complex in the world
- Input data credit and refund claim:
- The process of claiming input tax credit and claiming refund has been abysmally poor due to technical issues in the GSTN system
- In May 2018, the Federation of Indian Export Organisations (FIEO) highlighted that refund claims of over Rs 20,000 crore were pending.
- This has created blockage of capital for exporters
- However, recently the government conducted a special drive to award refund claims to clear pending logs.
- Under anti-profiteering, businesses are required to pass on the benefits of reduction in tax rates and increase in input tax credit to any supply of goods and services.
- However, benefits have not been passed onto the consumers to a large extent
- Many goods and services are outside the ambit of GST such as electricity, alcohol, petroleum goods and real estate which further adds to the complexity and confusion over GST. Further, exemptions of these goods and services indicate that the cascading effect continues and the consumers are not benefitted.
- Though there have been efforts to bring petroleum goods under GST, no consensus has been reached due to objection from states
- The E-Way Bill system had also faced a setback due to various technological issues
- Expansion of Tax base:
- To effectively deliver the promise of ‘one nation one tax economy’, product such petroleum goods should be brought under GST. This will not only expand the tax base but will further remove the cascading effect and benefit the citizens
- Converging of tax slabs:
- Eventually the tax slabs should be converged to remove complexity in the GST tax structure
- Compliance related requirements; return filing processes should be simplified.
- GSTN should be revamped to do away with technological glitches.
- There is need to focus on strengthening Advance Ruling process to ensure minimum litigation under GST regime
- Government should focus on improving the tax administration. Process of issuance of notification should be streamlined and released in time to give industries adequate time to implement changes. Measures should be taken to ensure consistency in approach by tax officers across jurisdiction
- The government should align with global principles to do away with the complexity in tax structure and facilitate the ease of doing business.
- Citizen awareness is required to ensure the confusion over GST is removed