India: Post the Implementation of GST

After 70 years of independence, India saw its biggest and most important tax reform in 2017 – the Goods and Services Tax. Pioneered as ‘one nation one tax’, GST brought with it hopes of overall reduction in the prices of goods and services through free-flowing credit system as well as barrier-free movement of goods across India.

Pursuant to the roll out, Government has left no stone unturned to upkeep its hymn of ‘Good and Simple tax’,be itissuance of series of notifications, clarifications, press releases, flyers, and FAQs or extensive use of social media to ensure real-time responses.

Despite some teething issues in managing compliances, implementation of GST is seen as being optimistic. GST has not been just a tax reform alone; it has been a major socio-economic reform, by ushering in a revolutionized national market of goods & services, and leading to a transparent and simple administration system.

Impact on Gross Domestic Product (GDP)
On a macroeconomic front, it is expected that in the long run,tax to GDP ratio will improve both for centre and states. Earlier this year, GST collection for March had hit a record high of Rs.1.06 lakh crores. Regardless of the fact that there has been substantial reduction in tax rates, this upsurge trend is fairly remarkable.There is no iota of doubt that if the same trend continues, it will improve fiscal health of Centre& States, and provide them with the ability to improve state capacity in delivery of basic services, infrastructure, and others. According to recent forecast by World Bank, India’s GDP is expected to grow at 7.3 per cent in the fiscal year 2018-19, and 7.5 per cent in the following two years.

Impact on Cost Price Index (CPI)
Before GST rollout, several predictions were made with regards to minimal direct impact on the consumer price index (CPI) basket, since most of the tax rates for the items in the CPI basket are being taxed at a lower rate under the GST as compared to the erstwhile levy. Also, in the monetary policy report furnished by the Reserve Bank of India (RBI), GST was termed as non-inflationary. The report suggested that more than 50 percent of the CPI basket wasn’t under GST. However, there has been no clear evidence that the GST has reduced inflation. The Consumer Price Index (CPI), which was at a low of 2.4 percent in July 2017 moved up to 5.2 percent in December 2017, only to dip to 4.3 percent in March 2018 and then move up again to 4.6 percent in April 2018. On a related note, with the commitment to ensure that the benefit of lower prices of goods & services under GST is enjoyed by all the consumers, watchdog framework of National Anti-profiteering Authority (NAA) was set up.

Technological Challenges
Technology, which has been an integral part of GST implementation, has however not lived-up to the expectations. Since implementation, compliance has been a discomfort across all the levels.The first few months of return filing under GST saw the breakdown of the GSTN portal.

As an alternate remedy, GST Council allowed an interim measure, a summary return in Form GSTR-3B, to enable taxpayers to report their tax liabilities and avail tax credits, which is in operation till date. Persistent extension of due date in relation to filing of monthly returns or annual returns has not been surprising. However, this IT ecosystem also saw the rise of different types of players –Application Service Providers (ASPs), GST Suvidha Providers (GSPs), E-waybill solutions, Compliance tools, and others with an aim achieve better data-based compliance under the GST regime.

According to recent forecast by World Bank, India’s GDP is expected to grow at 7.3 per cent in the fiscal year 2018-19, and 7.5 per cent in the following two years.

Pro-Active Measures
Since the success of a nationwide destination-based consumption tax depends on its acceptability across all sections of business, Government have been steering positively with an intent to reduce burden of taxes and compliances. Be it rationalization of taxes by reducing the number of goods under the 28 percent tax bracket from more than 200 goods to almost 50 goods or relief measures for micro, small and medium enterprises (MSME Sector) by way of increase in registration threshold limit to Rs.40 lakhs or increasing composition scheme limit to Rs.1.5 crore; GST has been acting as catalyst for the Government to achieve its stated agenda of improving ‘ease of doing business’ in India.

Though there are numerous issues that are yet to be addressed, the fact that some of the intricate ones have been resolved gives rise to confidence that even these will be sorted-out.

Conclusion
To summarise,implementation of the GST is truly an extraordinary achievement for India. Though,it may be pre-mature to pass final verdict on its success, if we examine the impact of GST from the standpoint of various stakeholders – government, industry and consumers – it is certainly directionally positive. It is now time for the Government to stabilize the system, expand the tax base, remove ambiguity, and simplify compliance procedures to make GST a real success for both the Government and the economy. All the early-day apprehensions have given way to general acceptance that this may not be the most perfect single tax system, but it’s working. But in upcoming years, GST will live-up to the Government’s description of it as a ‘Good Simple Tax’ and our expectation that it would emerge as a game-changer for Indian economy.