GST in India-Most awaited baby delivered & turned One …

Long years ago, we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance. It is fitting that at this solemn moment we take the pledge of dedication to the service of India and her people and to the still larger cause of humanity. (* Excerpts from the speech “Tryst with Destiny"- a speech delivered by Jawaharlal Nehru, the first Prime Minister of independent India, to the Indian Constituent Assembly in The Parliament, on the eve of India's Independence, towards midnight on 14 August 1947).

“Tryst with Destiny” speech delivered on the aspects that transcend India's history. It is considered to be one of the greatest speeches of the 20th century and to be a landmark oration that captures the essence of the triumphant culmination of independence struggle and liberation from evil clutches.

In the light of the same national spirit as an attempt to curb the evil impacts of multiple indirect tax regimes and to bring in the deserved liberation from them “GST - One Nation, One Tax”: India's most dynamic tax reform is introduced in the parliament of India during post mid night hours of 30th June 2017 and a comprehensive 2 tier GST was introduced in India from 1 July 2017.

The idea of moving toward GST was first mooted by the then Union Finance Minister in his Budget for 2006-07. The talks of ushering in GST took concrete shape with the introduction of the Constitution (122nd Amendment) Bill, 2014. The Bill was passed by the Parliament on 8 August 2016. This was followed by the ratification of the Bill by more than 15 states. On 12 April 2017, the Central Government enacted four GST bills.

In a short span of time, all the states approved their State GST (SGST) laws. Union territories with legislatures, i.e., Delhi and Puducherry, have adopted the SGST Act and the other 5 union territories without legislatures have adopted the UTGST Act.

The GST Council, a recommendatory body consisting of representatives of Central as well as state governments, has met on several occasions and taken important decisions relating to tax rate structure, exemptions, rules, composition scheme etc. Over the period, the Council has recommended a reduction in the tax rates of various goods and services. It is also considering the various issues faced by trade and industry and endeavoring to simplify the new tax regime and ease compliance.

As on 1st July 2018 exactly one year after GST implementation, there are as many as 39 GST acts (1 CGST Act, 1 IGST Act, 29 SGST Acts, 7 UT GST Acts and 1 GST-Compensation to States Act, 2 Sets of GST Rules, Central government issued Notifications (334), Circulars (53) and Orders (14) are existing to refer and abide with.

On the compliance front, all registered persons must file monthly returns in Form GSTR-3B (containing a summary of outward and inward supplies) by the 20th of the succeeding month. Additionally, an invoice-wise return of outward supplies needs to be submitted in Form GSTR-1. The Government has deferred the requirement of filing Form GSTR-2 (containing details of inward supplies) and GSTR-3 (a consolidated statement of inward and outward supplies) till such time the nominated Committee reviews and comes out with a simplified mechanism for the invoice-matching process.

Further steps triggered in the context of E-Way bill implementation, accelerated refunds processes and deputation of strong vigilance on anti-profiteering control measures can be considered as a testimony of steadfast commitment in delivering the components of promised tax reform.

As Goods and Services Tax (GST) completes one full year of implementation, it is good enough time for us to reflect on the facts to evaluate whether GST started delivering or at least to understand it’s there or not on the right direction to achieve the mission it is designated for. Unbiased introspection of the SIMPLE aspects of “why did the nation needed GST”? and “what is that GST started delivering? would give us reasonable hint on “Whether GST in India is “a boon or a bane”.

Let’s have a SIMPLE check on what was expected and what is delivered……

Simpler tax structures: Expectation at the time of implementation is that GST abolishes the complex tax regimes and multiple tax rate structures however the turned-out reality is a 2-tier tax structure with more than one tax regimes/ rates. Considering “Bad is better than worst” the implemented structure is relatively simplified. As we could feel from the cognitive gestures, it may be further simplified during future phases which can turn on “people paying more taxes” scenario to “more people paying taxes”

Incremental trends in revenue: Initial hiccups may have triggered doubts on the GST capability in the context of revenue generation. Simplification of the indirect taxation system is expected to have a positive effect on GDP and revenue, primarily owing to ease of doing business and may attract new assesses also. The result is eventually showing up now. GST revenue collection in June at Rs 95,610 crore was higher than the average monthly collection of Rs 89,885 crore during 2017-18. The collection in May amounted to Rs 94,016 crore and it is no wonder if it crosses1 lakh crores in June again and consolidates at the expected revenue as per the destined targets.

Measurable transparency: - GST is expected to bring down the scale of India’s parallel, underground economy that functions below the radar. Unearthing of habitual evaders in many ways using efficient ITC monitoring mechanism, E way bill implementation, Simple and tougher vigilance framework would be reasonably capable to bring in multifaceted controls and expected to be facilitating upgraded trend on measurable transparency.

Pricing Edge: It is expected that due to reduced cost because of availability of GST credit on items hitherto not available, the price of services/goods will also come down which will benefit the consumers What is GST expected to do? Well, it will eliminate all other taxes of indirect taxes and this will effectively mean that tax amount paid by end users (consumers) will reduce. As in Economics, lower will the prices, more will be demand for that product, results in more consumption of goods/Services, which will be benefited to companies. If Indian market will be competitive in pricing, then more and more foreign players will try to enter the market, which results in more numbers of exporters and benefits. At the judgmental appraisal point of GST impact on pricing it’s been found some of the industries like goods transportation, FMCG, food & electronics companies are positively impacted while Construction, E commerce, Pharmaceutical, hospitality industries are adversely impacted in the context of pricing.

Lowered Costs /Compliance burdens: Expectation is that efforts in maintaining effective compliance and cost burdens would be relatively lower. It is turned out to be a myth as working capital requirements for manufactures would becoming soar too because both companies and distributors will have to pay GST at the time of dispatch of stock even if supplied to own warehouses, and subsequently claim credit on the input tax so paid. Therefore, it is pinching small and medium enterprises (SMEs) the most.

For smooth transition, a slew of accounting and tax firms have been operating as licensed GST Suvidha Providers. They are expected to support businesses to comply better with GST processes and depending on the kind of product or service for which assistance is required, charges will be levied. “The charges range from Rs5000-50,000 depending on the kind of service and for small companies incurring such expenditure may hurt their margins. It is a million-dollar question to get answer on “why can’t the required capabilities are developed on the GST portal itself?”.

Exponential growth in economic activities- GST is capable to bring in new avenues of opportunities for different supply chain management processes which were previously based on the tax saving objectives and not on supply chain optimization. There is in an indicative raise in trading activity which will in turn increase the tax base and hence will give more revenue and further triggers cascading economic activities.

Any gigantic achievement is not expected to be achieved over the night, as so the complex tax reforms. They would only emerge after consistent efforts, coordination and never the less depends on extended trust on the implementing mechanism.

GST implementation in India would achieve the intended results, if the implementing machinery (the benefactor) should carefully craft & facilitate wise implementation till reasonable consolidation phase and last but not the least the beneficiaries like Industry, trade and the government’s performance appraiser (“the common man”) should devote extended trust and abide with implementation mechanism.

Let’s hope to experience the improved phases of GST -the emerging tax regime, in the days to come and largely a tax non-compliant society turning out to be reasonably compliant is as good as the dream comes true. Time tested belief systems says, “good intentions, efficient execution, consistent focus on improvements would certainly deliver effective and amazing results”

K V Chakrapani (Chakri)

[email protected]

Mobile-91-9666691677

*Author is a finance/tax professional, who got exposure to global indirect tax compliances by virtue of profession, # Author of the M3@Magnificent Motivation Mantra, and a vivid observer of “common man’s reactive pulse” to societal reforms.

SIMPLE introspection on the eve of first birthday, the 1st July 2018