The GST regime is still a work in progress

gst regime


“Chaos was the law of nature; Order was the dream of man.”

― Henry Adams, The Education of Henry Adams

These words from Henry Adams, aptly represent where we stand after a year under the GST regime. The order of GST is settling in and still looks to hold the promise of transforming the country’s business landscape, by providing ease of doing business and promoting the Make in India dream. However, it has also been marked with chaos, uncertainty, confusion and a need for more transparency. In this article (with excerpts from an interview by Financial Express with Amit Parmar – SVP GST platform, Vayana Network), we look back at what we have really achieved over the last one year versus what the government promised, and what still needs to be done to make the GST regime really deliver on that promise.

The first year of implementation has been a mixed bag.

The first year of GST implementation has been a mixed bag. On the positives, the government was sensitive on the need to avoid inflation and introduced multiple rate slabs. This, although derided, helped avoid an inflationary trend, as observed in most countries that implemented GST. The government also leveraged communication channels for building awareness and addressing transitionary woes.

Negatives include significant and frequent amendments which led to confusion in the industry. The transition was particularly painful for the services sector. The requirement of registration in every state added to compliance overheads. Changes to return reporting rules in Jun’17 led to significant changes to be undertaken by GSTN and that did not leave enough time for building a robust IT backbone. Dilution of key returns, invoice matching requirement, reverse charge mechanism and delayed introduction of Eway bill implied inadequate measures to curb tax evasion.

GST has helped in ease of doing business, but needs to do more

By subsuming multiple taxes and tax registrations under a single tax, GST has helped in ease of doing business. However, government will need to now work towards addressing issues on expediting refunds, making the GSTN efficient and robust, and bringing uniformity in tax rulings across states etc.

Inflation has been closely monitored but there is still room to reduce it

The government has tried to keep the GST rates close to earlier tax rates, by introducing over 5 rate slabs. There were incidences of an inflationary trend in certain sectors such as food services, which were not under the tax net earlier. However, the government has intervened and remained watchful on such issues enforcing anti-profiteering rules. However, there is room to further reduce inflation by bringing transactions like petroleum, land purchase, power under GST.

GST has provided a level playing field for compliant tax payers

GST has helped formalize certain sectors which have traditionally had higher proportion of a shadow economy. The ability of claiming ITC has also made it a level playing field for compliant taxpayers improving their competitiveness. However, a significant scope for curbing a shadow economy still remains and can get addressed through implementing measures to curb tax evasion such as E-way Bill, invoice matching and analytics.

GST is yet to positively impact and boost the Make in India dream.

GST has not yet led to any visible effects that have boosted Make in India. Substantial measures on up skilling workforce, contract enforcement through judiciary, policies for attracting FDI are needed to boost Make in India.

Frequent changes to rules and processes are confusing for taxpayers

Customers are generally more confused due to frequent changes to rules and processes. However, there is also a wealth of information being provided by GSPs and ASPs that customers can refer to for clarification.

Consumer states have benefited through higher tax collection

Unlike the excise regime, where majority taxes were collected by states that manufactured goods, GST has enabled populous but relatively weaker states which drive significant demand for goods and services, to be able to collect the taxes. Under GST, consumer states such as UP, West Bengal etc. have benefited through a higher share in tax collection.

From the stand point of a GSP, we believe the government should take measures that help GSPs and ASPs to bring greater adoption of APIs in GST compliance. Today, a diluted process of GSTR1 and GSTR3B coupled with offline tools have led to GSPs and ASPs playing a fringe role in GST compliance with majority of taxpayers not having a better compliance experience. By ensuring a stable API platform from GSTN and taking measures to promote the application ecosystem, GSTN can better manage the load on its system.

The immediate goal of the government should be improving compliance levels as this will lead to improved tax collections. This will require an in-depth study of which measures will help improve compliance discipline. The government could also do to keep communication channels open and give regular updates on the achievement of the GST objectives.

As per GST 1-Year report card published recently by the Financial Express, “The GST was not just a grand mid-night event in India, it was a transformation which was felt. From initial confusion, chaos, protests and teething troubles, the GST regime has largely stabilised in last one year, but not as much as the government claims, say several experts.”

Leave us your comments below on the first year under the GST regime.