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It’s been a little over six months now since the historic roll-out of the Goods and Services Tax, and its implementation has been as tremulous as its journey into existence has been. It was in February 1986, when the then Finance Minister Vishwanath Pratap Singh proposed a major overhaul of the excise taxation structure in the year’s budget, after which PM Vajpayee constituted a committee to design a GST model. However, it was FM Chidambaram who had announced April 1, 2010, as the deadline for GST implementation, if only it could pass through the Parliamentary Standing Committees and if only the UPA could sustain itself in 2014. 

Symbolically, changes in GST structure in the past six months look far greater than those in the past seventeen years because of political and financial ramification. Although few changes have been for good, on the larger side, changes haven’t been perceived well by the business community due to existing complexities and the lack of clarity in the new indirect tax system.

GST in India, for the huge market it has, is unique. Even after the biggest reform within the GST in November 2017, close to 50 items still come under the 28% tax slab, which is the maximum rate when compared to other emerging markets like China and Brazil, where most commodities fall under the 17% and 10% category. Even among the most developed economies of the EU; France, UK and Germany also have their highest slabs within the range of 18%-20%. Other than the level of rates, the multi-tier tax structure and complex rules make execution a herculean task. India’s competitor in the Asian market, China has maintained the GST applications over goods and the conditioned provision of repairs, processing and replacement assisted services. Deviation from the established designs of GST makes the Indian GST unparalleled.

The idea of GST was sold as the big tax reform, and a reform for the complex, old-age multiple tax regime with ‘One Nation, One Tax’, but to the contrary of the idea businessmen got, from India’s version of the GST was completely different from the actual structure of the Canadian GST as it was announced with five categories; 0% (exempted category), 5%, 12%, 18% and 28%. Soon after the declaration in 2016, FM Arun Jaitley had guarded multiple tax slab idea citing large variety of the income levels. However, small and micro manufacturing units find it difficult to make sense of it. Basic problem being, a tax levied is input-based and not-industry based. A producer is buying different raw material at 5%, 12%, 18% and 28%, at the time, and selling the final product at one of these rates. A lot of resources have to be appropriated towards computation of the tax, let alone the intricacies involved in paying the tax. It’s not true that the government isn’t working to clear out the discrepancies. Both FM Jaitley and Chief Economic Advisor’s Committee have assured that the GST would eventually evolve into just one or two slab tax regime.  

Although the economy was in deep disorder due the disruptive 12-month period after demonetization and confusion over the GST, numbers show that the markets are reviving. According to the Central Statistics Office (CSO), the index of industrial production (IIP), which tracks factory output rose to 8.4 percent in November 2017[1]. The sudden increase in IIP comes from the fact that the industrial production was deliberately slowed down by the owners ahead of the rollout of the GST to minimize tax complication while shifting to the new system, which was mirrored in the growth figures in the April-June quarter, when the GDP dropped to 5.7%, lowest in the Modi-regime.

The main intent of the GST was to amputate the practice of compound taxation and thus reducing the final tax incidence for the consumer. However, the ambiguity over GST affected the CPI (Consumer Price Index) as the CPI inflation moved from 1.54 % in June to 3.36% in August 2017 and it hasn’t dropped since then. The latest numbers have ascertained the CPI at 5.21% in December from 4.88% in November 2017[2]. The numbers were pushed up due to the rising prices of vegetables, as they rose nearly 30% over November last year, and housing, which has seen inflation at 8.25% in December from 7.36% in November last year[3]. Having said that, these changes were observed with the implementation of VAT (Value Added Tax) also when the inflation shot up from 4.3% in 2005 to 6.4% in 2007. It was observed by the Comptroller and Auditor General of India in the year 2010 that the benefit to the consumers was eaten up by the dealers and manufacturers. As more data is published, it is undeniable that the fourth quarter of the FY 2017-18 will also be commanded by the concerns of inflation, which are being tackled by the government through the transfer of items from high tax slabs to lower tax slabs.

There were many reasons to believe a drop in public exchequer due to the overhaul of the indirect tax system, and the numbers concur with the forecasts, so far. In November, the GST revenue stood at Rs 80,808 crore, down from over Rs 83,000 crore in the previous month. Even in October, the tax collections were not in expected line. The GST for October had slipped by almost 10% to Rs 83,346 crore as compared to Rs 92,150 crore in September. While the revenue under the GST was close to Rs 95,000 crore, the collection in August came down to Rs 91,000 crore and is expected to drop further as the government continues to shift products from higher tax slabs to lower tax slabs. [4]

If the number of amendments is considered, they translate to almost one change every four days. These numbers prove the lack of communication between the decision-making authorities and the market players, which primarily is happening due to the absence of any representative from the business community in the GST council, which is stuffed with politicians. Another aspect of the GST is its IT backbone, the GSTN (GST Network) which hasn’t stood up to simply the process of uploading tax returns. The government had to postpone the deadlines several times due to the failure of the portal, for which Infosys Technologies took the blame, citing ‘rapid changes in the policy and integration issues with related IT ecosystem.’ Another thing the government must look at is the number of filings to be done per GSTIN. Currently, it's 37 returns which gets time-consuming and is inefficient. There’s no debate that GST, at least in principle is exactly what the Indian economy needed, only if pillars of the GST such as the online tax filing portal, the composition of the council, the multiple tax slab structure, the dubiety over sharing of un-utilised money in the GST Compensation Fund and various other matters of contention are ironed out by the authorities.

 

[1] Press Release by Ministry of Statistics and Programme Implementation, Quick Estimate of IIP for November, 2017, January 12th, 2018, accessed on January 17th, 2017, http://www.mospi.gov.in/sites/default/files/press_release/iip_PR_12jan18.pdf

[2] Press Release by Ministry of Statistics and Programme Implementation, Press Release on New CPI for December, 2017, Page 1, January 12th, 2018, accessed on January 17th, 2017, http://www.mospi.gov.in/sites/default/files/press_release/CPI_PR_12jan18f.pdf

[3] Press Release by Ministry of Statistics and Programme Implementation, Press Release on New CPI for December, 2017, Page 3, January 12th, 2018, accessed on January 17th, 2017, http://www.mospi.gov.in/sites/default/files/press_release/CPI_PR_12jan18f.pdf

[4] Report by The Economic Times, GST collections dip, December 27th, 2017, accessed on January 17th, 2018, https://economictimes.indiatimes.com/news/economy/policy/gst-collections-dip-further-in-december-to-rs-80808-crore/articleshow/62254455.cms

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Written By Parth Gupta

Economics Undergrad (Batch 2019) | Panjab University, Chandigarh

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