A year on, GST strengthens Indian tax base

I congratulate the people of India on the special occasion of GST completing one year. A vibrant example of cooperative federalism and 'Team India' spirit, GST has brought a positive change in the Indian economy: a tweet by Prime Minister Narendra Modi

July 5, 2018

On June 30, 2018, India celebrated one year of introduction of Goods and Services Tax (GST), a unified nation-wide single tax regime, replacing 17 indirect taxes and a host of cesses

Several implementation issues were faced in the initial months resulting in compliance related problems among taxpayers. However, these issues are in the process of being addressed

The introduction of GST has led to a significant widening of India’s tax base, both in terms of number of tax returns filed, as well as increase in tax collections, this boosting the economy

While the GST regime is still evolving, Government of India is mulling several measures in the coming months, to further streamline the processes and maximize benefits to taxpayers

Congratulating India on Goods and Services Tax’s (GST) first anniversary on June 30 2018, Prime Minister Narendra Modi expressed satisfaction that “GST has brought growth, simplicity and transparency”. The new and improved tax structure is boosting formalisation of the national financial system, while aiding productivity, furthering ‘Ease of Doing Business’, benefitting small and medium enterprises. The Prime Minister also released a poster listing the achievements of the ‘One Nation, One Tax, One Market’.

Touted as the biggest economic reform since Independence, GST was launched on July 1, 2017, in a historic midnight ceremony held in the Central Hall of Parliament. Since being first mooted decades back, GST finally became a reality amid high expectations as well as skepticism. The roll-out of GST had its share of initial problems, which is to be expected for a reform of such magnitude and scale. India, with the world’s second-largest population, features the world’s fastest growing major economy.

Effective remedy for challenges

GST rollout witnessed serious implementation issues in the first few months, ranging from confusion about applicability of GST on certain goods and services, understanding of compliance requirements, to glitches in the IT portal, and delays in processing of tax refunds. The informal and unorganized sector was perhaps the worst affected due to limited in-house capabilities and resources to adopt the new system.

However, the central and state governments, working together with the GST Council, introduced a number of amendments to GST, eased compliances and pushed forward the deadline for filing returns, to enable taxpayers to get accustomed to the new regime. The GST Council, chaired by Union Finance Minister and comprising the finance ministers of all states, is the key constitutional body for making recommendations related to GST policy and implementation. The Council has held 27 meetings till date.

Now, one year on, India’s GST regime has evolved, in terms of streamlining of compliance, increased transparency, among other amendments. In November 2017, the GST Council trimmed the list of items in the top 28% GST bracket to just 50 from 228, to boost public spending and revive investor sentiment. Since then, the 28% GST category of goods is being phased out, leaving behind mostly luxury items.

GST to strengthen economy

The main objective of GST to replace multiple indirect taxes with one single tax, seems to have been largely achieved, eliminating the cascading effect of multiple taxes. One of the most significant impacts of GST has been the widening of the tax net. Finance Minister Arun Jaitley has shared that a total of 68.6 million income tax returns were filed in fiscal 2018, which included 10.6 million new assesses.

Implemented properly and with further streamlining, analysts forecast that in the longer term, GST alone could contribute to an additional 2 per cent to Indian Gross Domestic Product (GDP)

Further, the advance tax deposit during the first quarter of 2018-19, that April to June 2018, saw an increase of 44 per cent in the personal income tax category and 17 per cent in the corporate tax category. With GST collections reaching US$14.5 billion in April 2018, the Union Finance Ministry is confident that the average monthly collections in financial year 2018-19 could touch US$16 billion.

The Index of Industrial Production (IIP), an indicator for national industrial activity, registered cumulative growth of 4.3 per cent during the period April to March, 2017-18 over corresponding period of previous year, indicating that industrial activity has accelerated post GST introduction. Nevertheless, Government is conscious that GST is still evolving and compliance related processes need to be refined further.

Amendments to GST structure

The government is committed to taking necessary steps to address the concerns that have arisen. Some of the measures likely to take shape in the coming months are:

  1. Rationalization of tax rates and slabs, as the tax collection goes up.
  2. Operationalisation of input credit matching functionality, an important component of the GST regime, kept on hold for easing the transition phase.
  3. A road map for bringing excluded products — petroleum, real estate, electricity, alcohol — into the GST net.
  4. Setting up a national Authority for Advance Ruling (AAR) to ensure uniformity in the interpretation of law and passing the rulings.
  5. Introduction of a new mechanism of filing returns to simplify the process further for taxpayers.

While the transition has been tough and painstaking, the Finance Minister believes that India has been able to implement the major tax reform GST in the least disruptive manner. Mr Jaitley, in his tweet, lauded the participation of state Finance Ministers in the GST Council for “creating history in the matter of federal governance.”The resultant economic strength will echo into the nation’s foreign engagements.

There is no doubt that the Indian economy will benefit from GST. Implemented properly and with further streamlining, analysts forecast that in the longer term, GST alone could contribute to an additional 2 per cent to Indian Gross Domestic Product (GDP). Having a unified tax policy is expected to add to India’s attractiveness as an investment destination and further improve the ease of doing business.