Six months later: taking stock
The implementation of the goods and services tax (GST) from 1 July 2017 was a landmark event in the economic history of India as it brought about a paradigm shift in the indirect tax regime of the country. Many have termed it a “game changer” and others a transformative economic reform. Six months is too short a period to evaluate any mega reform as it takes time for the gains to emerge and percolate down. Nevertheless, it is a good time for stocktaking and evaluating what has been achieved and what further needs to be done to reap maximum benefits in the long run.
There is a general unanimity among all economists and stakeholders that the introduction of GST has been a success despite some initial hiccups. In my view, five significant gains that have accrued to the country are:
Firstly, GST has economically united the country through the underlying notion of “One Nation, One Tax, One Market”. Many argue that we are still far away from the concept of “One tax” due to the presence of four GST rates. It needs to be appreciated that barring a few high-income countries, most, including developed countries, generally have two-three tax rates. What India has been able to achieve is uniform indirect tax regime throughout the country by subsuming more than a dozen central and state indirect taxes. This will reduce the compliance burden of the taxpayers in a big way.
Secondly, barring a few exceptions like Canada and Brazil, in most countries GST has been implemented as a central tax and taxes collected are subsequently devolved to the states. However, keeping in view India’s federal structure, we have been successful in rolling out GST incorporating bold concepts of dual GST and integrated GST (IGST). Dual GST has ensured that the states have constitutional power to levy GST along with the centre and IGST has ensured that GST truly remains a destination-based consumption tax.
Thirdly, in the pre-GST era, value-added tax administrations of the states operated at varied levels of efficiency and effectiveness. Post-GST, all have moved on to a uniform information technology (IT)-enabled environment wherein all taxpayers, small or big, have to transact through a single portal being managed by the Goods and Services Tax Network (GSTN). The GSTN system virtually eliminates interaction of the taxpayer with the tax authorities as all processes including registration, filing of returns and tax payments have been enabled online. The shift is a quantum leap for many states.
Fourthly, it has been possible to largely do away with interstate commercial tax barriers. Now there is no scope for tax arbitration between the states as tax rates are uniform throughout the country. This has resulted in faster movement of trucks, reduced logistic costs and led to huge energy savings.
Fifthly, the GST Council has emerged as a unique institution capable of taking quick decisions through consensus in the true spirit of cooperative federalism.
Mega economic reforms take time to stabilize, but yield long-term benefits. Such reforms stay as a work in progress for some time and the council, GSTN and the tax administrators both at the centre and the states have their task cut out for them for some time. The five key tasks for further smoothening the new tax regime are:
Firstly, GSTN has to put all the resources at its command to make its IT system more robust and user-friendly. It needs to implement remaining modules, make more offline utilities and ensure that GST Suvidha Providers develop required packages to cater to the needs of various segments of taxpayers. The group of ministers under the chairmanship of Sushil Modi, deputy chief minister of Bihar, has done commendable work by identifying the milestones, prioritizing them and closely monitoring them.
Secondly, focus has to now shift to plugging loopholes and ensuring better compliance. The GST Council, in its 24th meeting on 9 December, took a welcome decision to introduce interstate e-way bills with effect from 1 February. Flexibility has been provided to the states to implement intra-state e-way bills by 1 June. The e-way bill system is already being implemented successfully in Karnataka and is being scaled up to make it pan-India. The gradual approach adopted for e-way bills should make its roll-out smooth.
Thirdly, the launch of GST did result in initial problems for the exporting community due to blockage of their working capital. The GST Council was quick to constitute a committee under the chairmanship of revenue secretary Hasmukh Adhia to look into the problems of the exporters. The committee recommended a number of short-term measures which have been implemented and immediate concerns of the exporters have been addressed. As a long-term solution, the council also decided to introduce an e-wallet scheme for exporters. The introduction of the e-wallet scheme will ensure that the chain of free flow of input tax credit is not broken and there is an in-built self-policing mechanism.
Fourthly, the council has shown resilience in responding to the needs of the common man as well as trade and industry by rationalizing the rates of many goods and services and removing ambiguities. There is always scope for further rationalization and issuing clarifications with a view to minimizing classification disputes and bringing about a common understanding in the field. The fitment committee will have to continue to work in that direction.
Fifthly, the ultimate success of any tax regime lies in making it as simple as possible both for the taxpayers and tax administrators. The GST Council has constituted a committee under the chairmanship of A.B. Pandey, chairman of GSTN and chief executive of the Unique Identification Authority of India, to simplify filing of returns without compromising on the basic tenets of the GST regime. In addition, a law review committee consisting of senior officials of the centre and the states is in the process of recommending changes in the GST laws so as to make the regime simple, taxpayer-friendly, and to address the concerns of medium and small enterprises. The reports of the committees are to be discussed in the forthcoming meeting of the GST Council on 18 January, and taxpayers can expect further simplification and improvements.
What has been achieved in a short span of six months is indeed transformative and path-breaking. As the new tax regime stabilizes, one can expect a larger tax base, buoyancy in GST revenues, more exports and foreign direct investment, improvement in ease of doing business, and a boost to “Make in India”.
Arun Goyal is an Indian Administrative Service officer and is currently working as special secretary in the GST Council. The views expressed are personal.