The year 2017, went through a major and long-awaited reform of GST (Goods and Service Tax). In India, the concept of GST was first visualized in the year 1999 but it took 17 years to get cleared from parliament. On 8 August 2016, the Constitutional Amendment Bill for the rollout of GST was passed by the Parliament, followed by ratification of the bill by more than 15 states and enactment of the bill in early September of 2016. And finally implemented from 1st July 2017 after multiple amendments in the original conception.
GST (Goods and Service Tax) was aimed to replace all indirect taxes on a product or service by a simple and only tax. The single GST (Goods and Service Taxes) replaced several former taxes and levies which included: central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi. The Tax is levied on all transactions under dual GST model.
Under this model, both Center and State governments are administrating the Tax revenue. There are two components CGST (Center) and SGST (State). There are 4 tax slab 5%, 12%, 18% and 28% which are classified on basis of the recommendation of the GST panel. GST is decided and enabled as per HSN code to maintain uniformity in transactions across the nation. HSN (Harmonized System of Nomenclature) is an 8-digit code for identifying the applicable rate of GST on different products as per CGST rules. Petroleum and alcoholic products are not covered under GST.
It had mixed response from the market when implemented. Many traders had opposed this mentioning the technical issues and time taking process. Also ideally it would have reduced the cost of many items as the proposed GST was lower than the existing indirect taxes, but it did not happen the way it was expected to be. Only a few companies passed the benefits to the end customers but the majority of the companies increased the base price to maintain same old cost. We have seen much communication from our finance minister Arun Jaitley in this regard.
Implementation of GST wasn’t as smooth as claimed by the Government. Technical glitches on the website were among the major issues. We will try to highlight few more challenges which made GST a nightmare for many.
Challenges of GST which made it a nightmare
- Confusion of rates: However Government released communications after every decision making but still it wasn’t easy for regular traders to understand all the communications. Not to be surprised, if you have paid 18% GST in all AC and Non-AC restaurants. The effective rate of GST for AC restaurant is 18% while it is 12% for Non-AC. But this confusion was there for many non-AC restaurants. Similar things happened in Textile & apparel business. The issue of understanding had made them rely totally on CA and few CA had increased their rates.
- Unorganised Sector went through a reform: This may be an intentional move of Government to bring all unorganized sector under a proper tax system. But for small traders, those were not registered in VAT even, were asked to own GST number by their clients. This made a chaos for them. As they were never part of a tax system, it was all a new and tough task for them. However Government had exempted the GST registration for small traders with certain turnover limit (currently it is INR 20L), but their client demanded GST number so that they can show on their input bills. The clients were trying to avoid any future complication by dealing with Non – GST trader, even though such purchases could be entered in books without GST details, subject to some limits.
- Time-Consuming process: GST was implemented with the compulsion of monthly and quarterly return filings which was the cumbersome process for many. 3 returns a month and then too many forms, it was just a time consuming and a complex process for many traders. Important to note that all traders were not fully dependent on CA (Chartered Accountants) but this made them wasting time in visiting CAs. Later Government relaxed the norms.
- Change is not easy: Human behaviors are such that even a small change is not easily acceptable. So there was a natural repulsion for the GST and this made them cry on even small petty issues, which could be ignored easily.
- Politics just made it tougher: UPA (United Progressive Alliance) Government led by Manmohan Singh, had tried to implement GST in their time only but then opposition (BJP+) had raised their concerns and did not allow the bill to get cleared in parliament. And after years when NDA (National Democratic Alliance) could get it done when it faced opposition as well. The negatives of the current form of GST was highlighted and sometimes it was much hyped by the opposition. Local level politics also created a stir in the matter.
Goods and Service Tax was also termed as “Gabbar Singh Tax” by then INC’s Vice President Rahul Gandhi during recent Gujarat Elections. Rahul Gandhi is now president of INC (Indian National Congress). It was represented that GST has ruined livelihoods of many traders. But BJP won the election and the major support was from urban areas.
GST has made many good things about the Indian economy.
- A transparent system: GST has brought transparency in the system by replacing various taxes with one tax. With the increased transparency, corruption is reduced. Under the GST, the whole supply chain is being taxed at every stage with credit of taxes paid at the previous stage is available for set off at the next stage of supply. It also now easy for Government to identify tax components.
- Easy Tax Paying: Earlier there were many windows for tax payment and it was a tough process for manufacturers. Now with GST, there is single payment window.
- Service is under GST: for a contracting company where service and supply both are involved, it was tough to face both tax department and to justify their work. Now with GST, it is much simpler and even in case of dispute, it is the matter of the same department where resolution is easy.
- Price reduction: This might be our first point in terms of benefits of GST but as mentioned earlier, there are many companies who did not pass the benefits to end client. But there is also a list of companies who passed benefits to the end clients, and this was really a support to the general public.
GST indeed played an important role in the Indian economy and was a highlight for the year 2017. With the simplification of tax system it will be beneficial for the long term but in short term, it has given pain to many. Also, Government needs to take care that traders should not be played by CAs.