India's biggest tax reform the Goods and Services Tax (GST), has completed three quarters post its implementation even as traders are struggling to come to terms with the new regime.
The economy, at the time of roll-out of GST, was reeling under tremendous stress emanated out of the demonetisation. The sudden change in the tax regime was stressful to traders and chaos prevailed all over.
Not only was the chaos arising from the issues in the GST Network and the complicated taxation, but it also set the government worrying due to falling revenues from the new tax regime and the country was staring at a fiscal slippage.
Till now, the government has collected Rs 6,25,501 crore in revenues from the GST, as per the latest data released by the Finance Ministry.
The Economic Survey 2017-18 said that the pre-GST revenue collection by Centre and states was Rs 9.7 lakh crore, while the estimated annualised GST revenue collection is expected at Rs 10.9 lakh crore. However, with latest data available on GST trickling down, the number seems to be dwindling down by 2%. As per the calculation, the annualised GST collection would be pegged at Rs 10.7 lakh crore.
It seems that government was aware of the fact that there would be a dip in indirect tax collection post GST. Indirect tax collections (Central Excise, service tax and Customs) in FY17 came in at Rs 8.63 lakh crore, 22% more than the actual revenue receipts in 2015-16. Despite a robust growth of 22% last year, the government set a target of Rs 9.27 lakh crore from the indirect tax collection, targeting a small jump of 7.2%.
Dwindling monthly collections
However, what has been more worrying is the dwindling monthly revenue coming from the GST. In August 2017, the collections stood at Rs 93,590 crore, followed by Rs 93,029 crore, Rs 95,132 crore, Rs 85,931 crore, Rs 83,716 crore, Rs 88,929 crore, Rs 85,174 crore in subsequent months leading up to February 2018.
When GST revenues plunged in November 2017, the government tried to fix the onus on the rationalisation of the tax rates that has taken place earlier that month. However, with revenue again dipping next month, the government alleged tax evasion by traders. According to the goverment, traders were suppressing their revenues to come under the composition scheme. This was the reason government expedited the implementation of e-way bill.
Also, the formation of the GST Council puts government in a peculiar position of semi-federalism, which can be catastrophic. While the central government is responsible for the fiscal position of the country, yet most indirect taxes, which are an important component of revenue receipts, are under purview of GST Council.
On the implementation side, there were many glitches in the IT infrastructure put in place by GST Network and maintained by Bengaluru-based IT major Infosys. Such was the impact of these glitches that GST Council decided to constitute a Group of Ministers (GoM) headed by Bihar Deputy Chief Minister Sushil Kumar Modi to address the issues. The GoM, which held its first meeting in early September 2017, kept on pushing its deadlines to sort out the glitches. Initially 48 glitches were identified and the GoM set a deadline of October to sort out the issues. However, it wasn't before January of 2018, that most of these issues were completely resolved. The issues ranged from non-availability of the forms to crashing of the network.
"After nine months of GST, the GST Council has been able to resolve only a few of the multiple issues that beset this poorly implemented tax. Unless a drastic change is not made in the coming financial year, GST officers will do anything to garner additional revenue which will only increase litigation," says Mohan Lavi, Bengaluru-based tax expert.
Not only have the glitches and dipping revenue been an issue after the roll-out of GST, the country has seen a mass resentment against the GST. The GST came in five different tax slabs, some going as high as 40%, initially. These rates were perceived very high by many economists as well as traders. Many traders, at the time of implementation, complained about not being equipped about the system. Many also complained about the increased compliance cost associated with the GST filings.
There are three monthly returns that every taxpayer, other than compounding taxpayer and Input Service Distributor (ISD) has to file every month. This excludes submission of half yearly and annual returns. Previously, service tax returns were to be filed once every six months in a financial year.
In case of VAT, excluding the annual return, if the turnover of the trader is less than Rs 25 lakh per annum, he was expected to furnish his return every quarter, while if the turnover of business is more than Rs 25 lakh per annum, assessor was supposed to file the return every month.
Also GST seems to have failed on the motto that it was sold with -- one nation, one tax. While customs duty still prevails in the country, alcohol and certain other products, which are high revenue generators for the government continue to come under purview of "erstwhile" tax regime.
Though, the transition has not been as smooth, as government tried to sell, yet a few initial glitches are expected, when you are having tax reform of such magnitude. As we are embarking on a new financial year, the GST Council's task on indirect tax has been cut out -- to ensure that the complications with the system are further reduced.