One Year of GST is an important topic likely to be featured in the UPSC exam in some form or the other. Read the following article and leave your comments in the section below.
Anchor: Teena Jha
Importance of this Episode:
- The Modi Government’s flagship tax reform, the goods and services tax completed one full year of its implementation on the 1st of July, 2018. On the first anniversary of the GST regime, Prime Minister Narendra Modi hailed the tax as a tool that has brought growth, simplicity and transparency.
- The finance ministry described it as a fitting tribute to the spirit of cooperative federalism.
- Companies have also given the GST regime a thumbs-up. The new taxation structure, subsumes more than a dozen state taxes, thereby making it easier to file tax returns and improve the ease of doing business.
- But in the past year, there have been multiple issues regarding GST compliance. However, a majority of them have been resolved, and early day jitters have given way to acceptance that the single tax system is working.
- This edition of In Depth will look back at the GST journey so far; its successes; failures and the way ahead.
- The GST completed one year of implementation with several hits and a few misses. The introduction of the GST marked the introduction of the single largest indirect tax reform.
- When it was introduced on the 1st of July, 2017, the basic idea was to remove the multiple tax system in India. Before GST, business in India paid a range of taxes to the centre and the states. This arrangement had advantages and disadvantages. For example: it generated revenues for state governments and allowed them a degree of financial autonomy.
- On the other hand, it created confusion among companies, slowed movement of goods from one state to another, while allowing tax evasion due to weak supervision. GST changed all that. All central and state taxes were replaced by a single country-wide tax, levied on all goods and services and India became a unified common market.
- But after the implementation of the GST, the Small and Medium Enterprises faced troubles in understanding and adopting the necessary requirement to comply with the new system of indirect taxation. For example: filing 3 returns in a month, registration rules and complex refund rules were some of the compliance issues that worried businesses. However, with time, the Government addressed various issues proactively.
- With GST, we have one rate for one product throughout the country. That was the main purpose of the GST, and that has certainly been achieved. Secondly, instead of having varying rates of taxation, we now have 4 slabs. All items have been clubbed and placed under 4 slabs- either 5%, 12%, 18% or 28% although we do have some items at 3% and 0% as well.
- Over the years, the GST Council has shown a willingness to look at problems and resolve them. There is still evidence that small industries, small shopkeepers are still facing problems and we have seen reports of the difficulties that they have been having. Thus, there is still a lot of work ahead, and in particular, a lot of work on simplification of the GST. The outgoing Chief Economic Advisor, Arvind Subramanian, has recommended to get rid of the 28% GST rate, and keep a few products with cesses in the luxury brand segments and try and centralise around the 18% rate.
- India is not the only country with problems in GST compliance. Many countries that follow a single tax system have had their share of problems, but comparatively, India has been able to overcome difficulties at a rapid pace. Before GST, long queues of trucks and containers could be seen at every state border. Check posts at borders had become centres of corruption. There was no strict system to check tax evasion. Goods and Services were costlier due to multiple levies, the number of registered businesses were very few, which resulted in loss of revenue for the government. In the last one year, registrations have crossed 10 million, which means that more businesses are signing up for GST.
- According to the Central Board of Direct Taxes (CBDT), more people are filing income tax returns after the implementation of GST.
- Post GST total registrations increased from around 65 lakh to a whopping 110 lakh. Further, the idea of starting a business has become easier; transactions have become transparent and from returns to refunds- everything is online.
- The last one year has also seen inflation under control. But sectors like real estate have been adversely impacted post GST.
- The introduction of GST has led to digitization, making the adoption of technology necessary for all, and thus, increasing transparency. The government says that the GST has significantly helped in curbing corruption. Besides this, the E-way bill has ensured easy movement across the state borders and helping in increasing productivity. GST is also the biggest tax reform in India post-independence. Further, its efficient implementation was a big challenge before the government. Modelled on the idea of “One Nation, One Tax”, the GST put an end to over a dozen indirect taxes, while making all small, medium and big business digital.
However, there are still many challenges that are waiting to be addressed. Here is a look at the issues and the measures taken by the Government to resolve them.
Issues and the measures taken by the Government
- When the Goods and Services Tax was rolled out on the 1St of July last year, there was much scepticism about its impact. Officials to entrepreneurs to common people, everyone had their doubts. But in the first year of its implementation, GST has proven its benefits to the business community, notwithstanding some challenges- the biggest one being compliance. To simplify the compliance process, the government is coming out with a new single GST return form, since multiple registrations are posing problems for traders- these traders have to face multiple assessments, and have to register separately in different states.
- Over the year, the GST council has showed a willingness to look at problems and resolve them.
- While merging multiple taxes and cesses under the GST has spelt relief for both the business community and the common people, it has also led the imposition of an additional cess in many states. The GST compensation cess is an additional cess that is levied on certain notified goods, in addition to the GST applicable on it. It was meant to compensate states that are heavy on manufacturing and faced revenue loss due to GST. This additional cess was levied on luxury goods, automobiles, and many other goods. Importers are also facing issues with refunds, due to complications in the data matching law, the exporters refund mechanism is proving difficult, especially for smaller entities. The government, however, is making efforts to address the issue.
- In the one year since the implementation of the GST, it is believed that we have achieved a fair amount of success. The four tax rate structure we have is still too many. This has to be brought down to 2 or 3. What needs to definitely go are the cesses which are being imposed on various items above the highest slab of 28%
- Several goods are still outside the ambit of the GST. These goods include electricity, liquor, petroleum products and real estate. Natural gas and aviation fuel are likely to be brought under the GST net; more states, however, are protesting against bringing petrol, diesel and kerosene under the ambit of the GST for the fear of losing a major chunk on the tax revenue.
- When we launched the GST on 1st July, 2017; we brought in a complicated system into a market economy which was not that complicated. This is because a lot of our small shopkeepers, etc. operated on a cash basis. They did not have complicated accounting systems, and we brought in a system which was very complicated that included things like invoice matching- everything had to be done on the internet. One had to file one’s returns only online. This system was too sophisticated for an unsophisticated market system.
- The government is currently analysing several data sets in detail to resolve issues of the GST. The E-way bill has been designed to obtain invoicing information- this will enable the government to identify the areas and analyse the data to prevent any loss in revenue. The government is also working on addressing the inconsistencies in the amount filed as GST returns and the amount mentioned on the E-way bill portal.
- The Government implemented the E-way bill system for the easier movement of goods from one place to the other. It is believed that the items such as petroleum, and electricity should also be brought under the GST fold. Today the rates for these vary from state to state. These items continue to have the cascading effect, i.e. tax over tax is being paid. The GST has given a big boost to the ease of doing business in the country. The GST has also benefitted both small and big business by providing a single tax system across the country.
- The Goods and services tax became one of the most discussed issues in the country after it was implemented. While several parties supported it, some expressed reservations against it. But despite the apprehensions, the bill was passed.
Let’s understand the provisions made in the GST law for its implementation.
Tax reform has been our priority for the last two decades. But the UPA government couldn’t get the Goods and Services Tax passed in Parliament. The NDA government managed to pass the long-delayed 122nd Constitutional Amendment Bill, 2014 on the GST in 2016. This marked the much-awaited rollout of the landmark tax reform.
The Parliament passed 4 bills to implement GST. These bills were:
- Central GST Bill, 2017
- Integrated GST Bill, 2017
- GST (Compensation to States) Bill, 2017
- Union Territory GST Bill, 2017
- These bills that were first passed by the Lok Sabha got the Rajya Sabha’s nod with the government successfully stitching together a political consensus.
- The GST Constitutional (One Hundred & First Amendment) Act, 2016 contains provisions that are necessary to implement the GST regime. The act replaces all indirect taxes levied on Goods and Services by the Central and the State Governments. It is aimed at being comprehensive for most goods and services. Before this amendment, the power to levy taxes was split between the Centre and the States. The Amendment Act contains 20 amendments. To make the effort more comprehensive, the law also created a GST council.
- The GST council is a key decision-making body for all GST related matters
- The GST council comprises of Union Finance Minister & representative from each State Government
- In acting as a nodal agency of sorts, the Council can recommend many things for example: the list of taxes that will be subsumed by the GST; the Goods and Services that would be exempt from the levy of tax; the rates at which tax shall be levied and so forth.
Special rules were made for the supply of goods and services. Under this, basically, a tax can either be a) Origin based or b) Destination based
- Origin based tax or production tax is levied where goods and services are produced. Destination based tax or consumption tax are levied where goods and services are consumed. Several states had raised objections to the implementation of the GST, forcing the centre to agree to a formula for compensating them in case of a loss of revenue. The 14th Finance Commission had advised the centre to provide 100% compensation to the states for their revenue loss after the implementation of the GST for the first 3 years.
- It is believed that there is much greater transparency now that the GST is in force. Now, all taxes are collected on the bill. There is no separate excise duty- in the older days, the excise duty would be included in the price and on top of that, the shopkeeper would add the sales tax. Now, the excise duty is no longer included in the price and it is part of the GST system. So, there is much better transparency and clarity in terms of how much you are actually paying.
Under the GST system, even the taxpayers can be rated under the GST compliance rating. This will be irrespective of nature, size or turnover of the business. This rating score is updated at fixed intervals to be made public.
The E-way Bill
- An important part of the GST is the E-way bill. The E-way bill in the country is important when goods worth more than Rs. 50,000/- are transported from one place to another.
What is the E-way Bill and what are its uses?
- The E-way bill or the electronic bill has been the point of discussion ever since the implementation of the GST. In common parlance, it can be seen as a token that can be generated online to regulate the movement of goods. Further characteristics include that it is accepted across the country and helps the transit of specific consignments or movement of goods from one place to another, either inter-state or intra-state. It becomes in a way, a proof of the goods sent, the tax applicable on these goods and the commercial permission to move goods from one place to another. The E-way bill will imply that these are the goods for which GST has been deposited/registered. The intention is that it will stop all the queuing up of trucks at the borders between states which used to happen. Now that we have a uniform tax rate, there is no reason why one has to see as to what a person is carrying across a state boundary, as long as we know that it is a good for which tax has been paid.
The E-way bill is also necessary for the transit of those items that do not come under the GST.
Details in an E-way bill:
- In this bill, information about a supplier, transporters and recipient information is also given. If the value of goods is more than Rs. 50,000/- then the sender has to enter the information on the GSTN portal.
Details in an E-way bill:
- The bill will contain information from the seller about the contents that are sold. The buyer in return will have to specify the details on the GSTN portal the goods he has purchased or has rejected. If no answer is given, then it will be assumed that No good has been purchased. The problem of the E-way bill is that there are a lot of people who are outside the realms of the GST- for example: handicraft producers, and they might start difficulties in getting their goods across. This is because the truckers might say, “If you don’t’ have an E-way bill, then I will not carry it”. To send an item from one state to another, it is necessary for suppliers to generate an E-bill. After the bill is generated, the duration of its use is fixed.
- If the transit of goods is within 100 kilometers, the bill is valid for only a day. For a validity of 3 days, the distance is between 100-300 kilometers. For a validity of 5 days, the distance is 300-500 kilometers. For 10 days, it is 500-1000 kilometers. For over a 1000 kilometers, the E-way bill is valid for 15 days.
- During the transit, if the vehicle meets an accident, then the goods have to be transferred to another vehicle. Thus, a new bill is generated with new vehicle information.
- The E-way bill has complete information of GST applicable on goods.
- Tax officials will know whether the GST has been paid on the goods or not
- The entire system will help in curbing cases of tax evasion
- The government claims that through the E-way bill, all the issues related to freight from one state to another will also be resolved.
You can also see our video lecture on GST:
BYJU’S covers all the important discussions featured on RSTV programs like In Depth, The Big Picture and India’s World in the Gist of RSTV segment. Aspirants can read the gist of these discussions and get useful points to use in their IAS exam answers.