GST @ 4 YEARS - PAIN BHI, GAIN BHI

[Dr. Sanjiv Agarwal]

GST in India is today exactly four years old. It was launched in a glittering ceremony in the Parliament on the midnight of 30^th June – 1^st July in 2017. While GST was a much pampered and hyped about tax law, as one of the biggest tax reforms in the history of independent India, all the stakeholders had some good and some bad experiences in this period. Migrating 17 different taxes of centre and states and 13 cesses into one tax law was indeed a good idea.

1^st July, 2021 marks the fourth anniversary of a historic tax reform, the GST, which was introduced on this day in the year 2017. In the last four years, our tax base has almost doubled from 66.25 lakhs to 1.28 crores. For eight months in a row, GST revenues have crossed ? 1 lakh crore mark and we have seen record GST revenue collection of ₹ 1.41 lakh crores in April 2021. The capacity of GST Network has been suitably upgraded so that technical glitches and system overload are a thing of the past ensuring a smooth filing experience to taxpayers. Its positive externalities such as a unified market, removal of cascading and improved competitiveness of goods and services has helped spur economic growth taking India further on the path to prosperity. CBIC has recognized more than 54,000 GST taxpayers for their contribution to the nation building on the eve of four years of implementation of GST.

GST was introduced as a 'good and simple tax' on the theme of 'one nation, one market, one tax' which could actually not happen. The GST was introduced in a much distorted form and has suffered multiple tax slabs, multiple exemptions and multiple disputes - ranging from registration to classification to returns to tax credits. Presently, GST is badly hit by multiple returns and multiple dates to remember. While it may have eased the life of revenue collectors but that of taxpayers and professionals is much challenging owing to technical glitches and operational inefficiencies at GSTN level. Though there have been reforms in GST but they are neither as per expectations nor the objectives of GST. Seamless credit and refunds are still a distant dream. 44 GST Council meetings and few hundred Notifications and Circulars also could not offer a hassle free GST regime. The silver lining is that the GST Council and Central Government have been proactive to suggestions, reforms and desired changes. However, too many and too frequent changes have also added to chaos.

The timing itself was not so perfect and it appears as if it was imposed upon in a hurry. Had its implementation been delayed by six months or so, it would have given enough elbow room to its back bone, GST Network (GSTN) to improve upon and test its functionalities. GSTN even today is in improve – trial – test mode causing lot of hardships to itself and all other stakeholders.  GSTN has become the most criticized organ of GST eco-system, though it is the nucleus of GST frame work. Role of GSTN, its capacity and competency should be reviewed. GSTN should be made more and more taxpayers & professional friendly which facilitates compliances on its own.

The theory of ‘one nation, one market, one tax’ could not do well on the ground. Some distortions in the concept of GST itself, some faulty drafting of law and a lot of bureaucratic tinkering by way of multiple and frequent notifications snatched the simplicity and made GST a ‘not so good and simple tax’.

GST – AT A GLANCE

Number of assessees registered in pre-GST and post-GST era	66.25 lakh (Pre-GST) 128 lakh (Post-GST)
Revenue collection per month in last seven months	1 lakh crore plus per month (highest collection ₹ 141384 lakh crore in April, 2021)
Number of taxes subsumed	17
Number of cesses subsumed	13
Weighted average (effective) GST rate	15.3%
Number of returns filed in 4 years	66 crore
Late fees collected in 4 years	13000 crore

According, to Finance Minister, GST is one of the best institution of independent India that absolutely emphasizes the federal spirit. There are differences of opinion but overall, GST Council is an exemplar of federalism. The Government also feels that one of the reasons behind the higher collection was, of course, the improvement in compliances. Many businesses now see the merit in being a part of the GST. After the difficult period in 2019, due to technical glitches, compliance is beginning to improve.

Another reason is that with the use of technology, it has been able to spot evasion and fake bills, refunds and credits. When the Finance Ministry discussed this with the Central Board of Indirect Taxes and Customs (CBIC), and did a deep dive data analysis, it was found that a lot of loopholes exist which was astonishing, the way the system was being gamed with the help of data. Government also took exercise of plugging these loopholes, identifying shell companies, those with large bills claiming refunds... It was not a roving expedition, it went with precise data and that led to efficiency in collections.

This improvement coincides with the wider implementation of e-invoicing. E-invoicing has been a great blessing. Since India started using e-invoices, around 61 crore have been generated with a day’s highest of 37.42 lakh on March 31, 2021, when the recovery in the economy was at its best. As much as 40 per cent of the e-invoices relate to road movement. Post the introduction of GST, with the removal of tolls and tax collections on roads, the turnaround time for road traffic has come down by 20 per cent. Now, with e-invoicing increasing rapidly, it has further improved efficiencies.

Any reform of this scale, in a large and diverse country such as ours, can only be highly challenging. According to Government, the GST Council has shown immense sagacity and wisdom in redressing legitimate concerns of taxpayers and citizens by course correction whenever needed. This has manifested itself not just in measures to ease the compliance burden on taxpayers, especially MSMEs, but also reducing the tax burden on the common man. The relief measures announced in the middle of a pandemic which has wreaked havoc in the world and adversely affected the global economy are testimony to this. Two Covid relief packages which, inter-alia, involved late fee waiver, interest rate reduction, relaxation of timelines and conducting refund drive for increasing liquidity in the hands of the taxpayer were implemented. Further, GST rates on vaccines, essential medicines and products/services used for prevention and treatment of Covid were also reduced. In addition, the Quarterly Return and Monthly Payment Scheme (QRMP), e-invoicing and auto-population of returns have substantially reduced the compliance burden on taxpayers making their life simpler and better.

GST has undoubtly enhanced compliance culture, made indirect tax collections more stable and consistent even in Covid times, broadened the indirect tax base upto 128 lakh and made tax evasion tough with an online transparent net work. But it remains a question for debate as to whether GST could attain its objective of a ‘good and simple tax’ ?

Government claims that GST reduced the rate at which people have to pay tax. The revenue neutral rate as recommended by RNR Committee was 15.3% whereas weighted GST rate at present is 11.6% only.

Over these years, there has been a reduction in the tax rates, simplification of procedures and a growing economy has also led to an exponential increase in the tax base. GST revenues have steadily grown and have been above the 1 lakh crore mark for eight consecutive months in a row. On the eve of completion of 4 years of the GST, Government has also decided to honour the tax payers who have been a part of the GST success story.

For eight months in a row, GST revenues have crossed ₹ 1 lakh crore mark and we have seen record GST revenue collection of ₹ 1.41 lakh crores in April 2021. The capacity of GST Network has been suitably upgraded so that technical glitches and system overload are a thing of the past ensuring a smooth filing experience to taxpayers.

GSTN, the technical backbone of GST system can be said to be largely responsible for compliance levels as well as operational inefficiencies leading to litigation. Multiple returns and multiple rates/dates make compliances difficult. Compliance level can go up with simplified system. Advance rulings is yet another grey area of controversial rulings leading to interpretational failure.

At the same time, country is facing the Covid-2019 pandemic related challenges adversely impacting the economy and tax revenue since March, 2020.

Today with too much of interpretational legal, procedural and technical issues on hand, the disagreement and litigation between taxpayers and revenue has escalated with hundreds of writ petitions, appeals and advance rulings etc pending for adjudication. The Appellate Tribunal in GST (GSTAT) and National Appellate Authority are yet to be setup and made functional.

PAIN BHI, GAIN BHI

GST	GAINS	PAINS
Multiple taxes and cesses	Overcome discriminatory taxes, undue preferences, trade and non - trade barriers, entry tax, octroi and check posts.	Though many taxes are still into existence
Valuation	Open market valuation	Complexities in transaction value
Tax rates	Uniform rates all over India	Still four rate slabs
Registration	E-registration	Multiple registrations burdensome
Input tax credit	Better than earlier regime filing	Still cumbersome and restrictive
Returns	Ease of return filing	Frequency and multiplicity of returns
Exports	Easy  refunds for exporters /SEZ	Procedural issues
Imports	Protection from cheaper imports	Increase in compliance
Compliance	Systematic and online	High compliance cost
Tax structure	Efficient	Biased multiple rates create disputes
E-commerce	Boost to e-commerce sector	TCS
E-way bill	Ease of tracking	Enhanced compliance, detention & seizure
E-invoice	Ease of tracking	Enhanced compliance, fake invoices
Anti – profiteering	Beneficial to consumers	Difficult to establish the case
GSTN portal	Online compliances & functionalities	Technical glitches

Today what GST we have can be said to be neither stabilized nor settled but GST is at cross roads today. It continues to be in a state of work-in-progress, even after four years. Actually, it does not even look like a five year plan but is being constructed under multi-supervision model. It has fared reasonably well at different fronts- be it policy, administration, technology or adjudication / litigation.

While the tax base has doubled to over 1.28 crore now, yet lot needs to be done in terms of further broadening of tax base, increasing tax to GDP ratio to atleast OECD average of over 30%, making tax system (GSTN) efficient and revisit the compensation cess issue and make good shortfall promised. We need to make GST a game changer to realize an impossible miracle.