The GST or the goods and services tax was launched on 1st of July, 2017. It has completed one year. The new taxation system was launched in an environment filled with resistance, distrust, confusion, and doubts. The GST was a big reform in the tax code of India and hence, after a year of its implementation, an analysis of its failures and successes is much warranted.
The Modi government had set quite a number of targets when planning for the overhaul of the taxation system. We have to find out whether the government has actually achieved some or all of its targets or, as pointed out by many critics, it just hurriedly pushed through an alleged tax reform without carrying out detailed planning.
Presented below are some of the letdowns and triumphs of the GST over the past one year.
GST in India – The Failures
- Ill-preparedness of the Tax department’s computer/IT systems: The lack of preparedness of the IT system is regarded by many as the biggest disappointment of GST execution. It resulted in increased delays, lots of uncertainty, and postponements. There was delay in the uploading of the invoice, there were holdups in getting refunds as the IT system did not have several important elements, and there was no filing method for roper return.
- Excessive number of changes: After its implementation, the GST law has already undergone a vast number of changes in just one year. The changing tax rates over the past year has not just been disconcerting and confusing for the tax payers, but it has also unsettled the GST Network which the new tax regime’s IT backbone.
- The government has passed over 390 notifications and issued more than 98 FAQs and circulars since the launch. There has been subdivision of new rate lists; there have been drastic cuts in the categories under the 28 percent tax bucket; and different services and products have continuously been moved from one tax slab to another. There have been several changes to the system of filing refunds, the varied associated forms, and the due dates. There are rumors that many more alterations to the GST may occur in the future and it is alleged that several of such future changes will be against the very nature and architecture of the new tax code.
- There have been reports about the central finance ministry mulling over introduction of incentives, and special cesses, etc., which is against the basic design of the GST and what it was initially conceptualized to do, i.e., avoid numerous kinds of confusing taxes. It is also reported that the government is also in discussion on changes to the tax rate structure. And there continues to be problems like tax payers still being unable to finalize their return forms within one year; the launch of e-way bill only very recently; and lack of information whether or not annual returns will be included in the e-way bill. The absence of such vital facets of the tax system prevents any proper way to examine and analyze any revenue.
- Excessive number of tax rates: A single tax rate GST cannot be possible in India. This fact has been reiterated and confirmed by Shri. Arun Jaitley, the Finance Minister of India, as well as by nearly all financial and economic commentators and experts. However, the GST launched and implemented by the Modi government has six tax rates, i.e., 0 percent, 3 percent, 5 percent, 12 percent, 18 percent, and 28 percent, which are a tad too many. The excessive number of tax rates has only led to increased confusion and complication amongst tax payers, several of whom are still experiencing issues in fulfilling the requirements of the new taxation system.
- The system for filing returns has still not been set up: Even after one year of the launch and implementation of the GST, the mechanism for filing returns is yet to be set up. The basis of the GST, i.e., the matching system, which is vital to its success, has also not been set up as yet. ITC credits are provisionally being handed out by the government and many are afraid that several of the ITC claims may be fabricated or forged.
- As per reports, the final system of return filing, which will also comprise of the invoice matching system, will become a reality only in 2019.
- Refunds continue to be in chaos: The refunds mechanism of the GST continues to be the weak link in the entire system of the GST. It has especially been really problematic for exporters to receive their refunds in a timely fashion. Most of this can be attributed to the issues in the software of the GST Network.
- It is postulated that software problems may have resulted in over INR 9,800 crores to be stuck. It has been reported that there are many exporters who cannot file their refund claims because of non-upgradation of the GSTN software, while many other exporters have not received their refunds even twelve months after filing their claims.
- As per the GST law, it is mandatory to provisionally grant 90 percent of the tax refunds claimed within 7 days of form submission, and to grant the entire 100 percent in 2 months. It is postulated that the GST system does not function according to what is present in the law.
The successes of GST in India
- Increased tax compliance: In spite of numerous problems in the GST (like unfamiliarity of tax payers with the new system and varied technological snags in its IT system), over the past year, there has been a gradual rise in the total number of returns that were filed on the due date. The average rate of tax compliance on due date reached over 64 percent in the month of April 2018; it was around 56 percent in September 2017.
- Expansion of the tax base: The older tax system had around 63 lakh registered tax payers. This increased by more than 39 percent to over 1.11 crore registered tax payers under the GST in the past one year. This means that 63 lakh tax payers migrated from the old system to the GST and nearly 49 lakh new tax payers registered with the GST. Such a huge broadening of the tax base is a really great achievement.
- Steady rise in overall tax collection: The first year of GST has seen a steady rise in the monthly tax collections. As per government data, in December 2017 the monthly tax collection was under INR 85,000 crores. Since then, it has slowly increased and the average tax collections every month is around INR 90,000 crores.
- In the first 9 months of the GST, the average monthly collections were INR 89,000 crores. In April, the monthly tax collection rose to INR 94,000 crores. It is believed that the overall monthly tax collections will only rise after the e-way bill is set up and the IT system of the GST eventually finalizes to a robust setup.
- It may however be noted that the tax collections are still under the mark of INR 1.04 lakh crores that is essential to accomplish the budget goal of the central government for collection of GST of INR 7.44 lakh crores.