The historical regime of Goods & Service Tax (GST) was implemented on 1st July 2017 across the country. It has been dubbed as the most significant tax reform and exhibited as One Nation One tax. The initial stage was very traumatic both for the trade as well as for the government. However, with the passage of time, it has stabilized a lot but yet there are a number of issues that demands addressing. As GST steps into its third year, industry groups and tax consultants points out the imperative need of easing the complexities that surrounds the procedures with respect to registration & return filling, for the purpose of building on the gains of the last couple of years. Till 30th September 2019, 37 GST council meetings were conducted for resolving various issues such as the amendments required in law, the tax rate, procedures, simplifications etc. In this article, we will briefly analyse the last two years of GST regime and also highlight the recommendations made in the last Council meeting.
The pre-GST regime
In a federal framework of governance, States and the Centre were eligible of imposing indirect tax on goods and services. Each States had multiple laws which permitted them levy tax at various junctures. There were two major challenges – first, getting the States to concede as a few of them thought they would loose their fiscal autonomy of taxing and second, to create a consensus inside the Parliament. The critical element that helped the Government in persuading the states was to buffer them with an annual increase rate of 14% from the tax base of 2015-2016 over a five year period.
With the implementation of GST, 17 different laws were merged together to develop a single taxation era. The pre-GST taxation rate was a standard rate of 14.5% VAT, 12.5% excise beside CST & the cascading repercussions of tax on tax. The total tax thus paid by a consumer stood at 31%. An assesse had to submit various returns, give considerations to inspectors and also be the victim of inefficiency.
With the arrival of GST, this scenario got completely revamped. Presently, only one tax operate, returns can be filled online, no tax on entrance and most importantly today there are no huge queues of trucks & any inter-state barriers. Below are the five indicators depicting the GST evolution story over the last two years.
- Registered Taxpayers – When GST was rolled out, the total number of taxpayers registered was around 65 lakh which currently is more than 1.13 crore – almost a 84% hike within two years. This depicts a remarkable tax base widening as well as formalisation of the country’s economy post-GST.
- Monthly Collection – ?92,200 crore was collected in July 2017 – first month collection. However, the collections dropped down to ?83,700 crore in the month of November of the same year. It was the lowest monthly collection recorded. The collections started becoming robust collection of July 2018 being ? The average monthly collection of 2018-19 stood as ?97100cr. The collection of May 2019 was ?1.03 lakh crore but due to present slump in demand that the economy is facing, the September 2019 collection dropped down to ?91,916cr – lowest collected in 19 months. In comparison to September 2018, the revenue declined by 2.67 per cent in September 2019.
- Compliances – At the initial stage sluggishness was observed but with GST timeline, the number of registered taxpayers also increased. The number of registered taxpayers who filled the GSTR 3B returns for the first month (July 2017) was only 38lakh. The figure increased to 72.5 lakh by April 2019. On 1st April 2018, E-way bill – an anti-evasion mechanism was implemented. According to the reports, 5.49cr e-way bills were generated in March 2019 in comparison to 2.8cr in April 2018.
- Rate Rationalisation – At the time of commencement, more than 200 types of goods were kept in the radius of 28% slab. Over the time, the rates were rationalised and slabs were changed. Presently there are eight types of goods on which 28% GST is charged. For example, at the beginning 18% GST was charged on restaurant service but it has been reduced to 5% now. Rate of GST on affordable housing projects have been reduced to 1% from 8% whereas non-affordable housing projects have been reduced to 5% from 12%.
- Number of Returns – At the time of implementation, three returns had to be filled in each month – for purchases, for sales, a composite return and additionally one annual return. Thus, a total of 37 returns had to be filed in a year. This was a too much burden for the businesses. Upon several complaints, the Council eliminated the purchase return. Presently, two types of return are required to be filed – GSTR1 for sales & GSTR 3B for composite return.
This went the story of GST is the past two years. But, how has the GST helped the industry? Let’s look.
What the industry got?
GST has been loved by the industrial sector for harmonising taxes, eliminating the cascading effect of tax, broadening the leeway of input tax credit & for achieving a homogeneous rate of taxation for products & services throughout the nation. Tangible utilities include hassle free quicker refunds, reduced interaction with tax authorities, elimination of checkposts etc. It had also helped the manufacturers and suppliers to a great extent as they now can easily manufacture and supply their goods to any part of India without the headache of tax or input tax credit. Thus, it had also helped the customers as they can source anything from any supplier from across the country.
Gains for industry include eradication or dismantling of frameworks developed under pre-GST regime for purpose of taxation, improved supply-chain coherence, direct access to customers, and a robust transparent movement trail of goods. On the other hand, the industry has expressed unhappiness because of enormous proliferation in required compliances, frequent server problem in GST portal & loss of man-hours to deal in technical glitches. Additionally, frequent alteration of law has also been a headache for the industry.
After twenty seven months of GST being rolled out, the council is facing several challenges from the small traders discontentment to critical systematic issues such as sluggish rate of growth in collections under GST, exposure to nation-wide invoices racket, and also the failure to find a consensus on justification of rates& including items like electricity & petroleum products under the ambit of GST. Some recent challenges are briefed below:-
- Due to stunted collection of revenue, states are being forced to appeal the 15th Finance Commission for extending the tenure of compensation beyond FY2022. Revenue collection in August 2019 had dropped by 13.7% compared to April 2019. The slump in consumer demand in the month before the festive season has obviously amplified the effect.
- Emergence of input tax credit frauds has forced to implement stringent norms for verification, thereby refunds are being delayed.
- Delays in refunds are forcing human interventions which are a potential threat for corruption. Additionally, due to delay, the working capitals of small firms are rapidly shrinking.
- Failure to find consensus on critical issues such as rationalising rate slabs and including excluded items like electricity & petroleum products under the ambit of GST.
- The introduction of Kerala calamity cess has become a major concern. There is trepidation that some other State may also go along with the suit & introduce cess for a welfare scheme.
At this juncture when the Council was surrounded by several challenges, it came the time for 37th GST Council Meeting. This meeting was held in Goa on 20th September 2019. It was chaired by the Union Finance Minister – Smt. Nirmala Sitharaman. Let’s have an insight into the highlights of the conference.
Highlights of 37th GST Council Meeting
The 37th GST Council Meeting deduced several decisions such as relaxations in annual return filing, deferment of new GST returns, rationalization of rates, alteration of composition scheme, new exemptions under GST and made a few announcements as summarised below:-
- Waiver of prerequisites for filling GSTR-9A for composition taxpayers for financial year 2017-18 & FY 2018-19. GSTR 9is the annual return that has to be by taxpayers registered under GST. Details of the outward and inward supplies under different tax heads i.e. CGST, SGST & IGST during the previous year are filed by GSTR 9.
- There is no more any compulsion on small taxpayers to file GSTR-9 for the FY 2017-18 and FY 2018-19.
- Constituting a committee for finding out ways of simplifying procedures of annual returns & reconciliation of statements. From April 2020, a revamped system of filling GST returns shall be implemented.
- Making Aadhaar Card mandatory for registration and examining the possibility of making it compulsory for claiming refunds.
- Extension of last date for filing appeals with Appellate Tribunal as the Tribunals are yet to be operational.
- With respect of tackling the menace of fraudulent refunds & fake invoices, in principle decision to prescribe rational restrictions on risky existing and new taxpayers.
- Appropriate amendments in UTGST Act, CGST Act & SGST Act in respect of establishing UTs of J&K and Ladakh.
- Exemptions given on Fish meal & Parts of agriculture machinery for limited period.
- Manufactures of aerated water will not be permitted to take the benefit of composition scheme.
- Exemptions granted to services of warehousing or storage of pulses, cereals, nuts, fruits, vegetables, copra, spices, sugarcane, jiggery, cotton, flax, jute, indigo, betel leaves, unmanufactured tobacco, rice, tea, coffee and tendu leaves.
- GST would be exempted on goods or services supplied to subsidiaries related to FIFA U-17 Women’s Football World Cup in India.
- Exemption of GST on supply to FAO (Food & Agriculture Organization) for some specified Indian projects.
- Exemption granted to the BSB (Bangla Shasya Bima) – a crop insurance scheme under the government of West Bengal.
- GST rates of following goods have been altered: Marine Fuel (5%), Wet Grinders consisting of stone as grinders (5%), Woven and non-woven bags & sacks of polypropylene and polythene strips (12%), Railway coaches, wagons, rolling stock etc. (12%), Caffeinated beverages (28%), Precious Stones except diamond (0.25%), Almond milk (18%), Slide Fasteners (12%), Dried tamarind (exempted), Cess on Petrol Motor Vehicles having capacity of carrying 10-13 passengers (1%), Cess on diesel motor vehicles have carrying capacity of 10-13 passengers (3%).
The Goods & Service Tax has become one of the most complex tax frameworks due to faults in design & frequent tinkering. The variance between goods & services exhibits itself in GST in various segments.
The Advanced Ruling Mechanism was a failure as most rulings were in favour of revenue & in a very few issues, against provisions of statute. The composition of the AAR (Authority of Advanced Ruling) is an important issue as it comprises of officers from tax department and not members from judiciary. The Council for GST has played an outstanding part in cooperative federalism since 37 council meetings were held so far, where numerous resolutions were passed unanimously inspite of political contradictions.
Such unanimity is rare even in flat federation meetings. This is only the third year running but CGST act was amended 32 times, CGST rules were amended 31 times, 87 notifications on CGST rate, 179 notifications on non-rate CGST, 90 notifications on IGST rate & 19 on non-rate, 101 Board Circularsnand10 difficulty orders removal. Does all these suggests that GST in a simple law?
GST is obviously one of the path-breaking and most ambitious economic reforms undertaken in the history of India. A disruptive reform having such magnitude of complexities was never attempted in the country before. Those handful of countries who have attempted such reform do not complexities like India in terms of federal structure, size & population along with the asymmetry among its constituent parts and stupendous amount of diversity. It is no wonder why almost three decades went in implementing this transformational reform in our political democracy.
There is hardly any tax mechanism which can claim itself flawless. It is apparent that there are shortcomings and drawbacks in GST system but that needs to be addressed systematically and efficiently so that the pains are not able to neutralize the profits. After all, all such turbulences & disruptions might be the baby steps in reaching the threshold when its fruits outweigh its cost. It is therefore a big challenge to leverage its benefits in order to transform our country’s economic landscape by establishing a resourceful potential of our entrepreneurs & business free.