Impact of GST in last one year : An analysis

Goods and Services Tax (GST) - a unified, broad-gauged and transforming tax framework the genesis of which was laid down in the budget speech of 28th February 2006 by the then Finance Minister that took on its never-ending flight in Indian eco-mart from the midnight of 01.07.2017.
In simple terms, when introduced, this tax structure which stayed for more than eleven years in legislature's womb appeared to be an ambitious tax reform subsuming around eleven taxes of state and central state level viz octroi, entertainment tax, state VAT, CST, service tax, entry tax and many more. Not only this, the new tax reform went ahead taking apart various state level check posts and unifying not just the entire national market but the entire nation itself when the nominated ministers from each of the states and union territories sit across a single table (GST Council Meet) taking indirect tax-related decisions in light of regional peculiarities for the entire country.

With France being the first country, today around 160 countries have to implement GST and India is one of them. In India GST introduction majorly aimed at

• creating common tax base,
• harmonized tax laws across the country,
• mitigating cascading of taxes by free flow of input tax credit at all levels of supply chains,
• eliminating rate arbitrage between the neighboring states,
• reducing corruption by extensive use of IT and a reduced human interface between taxpayer and tax administration and thereby
• improving ease of doing business,
• promoting make in India campaign and
• generating more employment opportunities and many more.

However, when the impact of GST implementation on various goods and services sectors is critically examined in light of above-intended objects, the observations are as follows:

Impact of GST on Manufacturing Sector

• Reduced cost of production- as there is a comparatively easier flow of input tax credit. However, Petroleum products being kept out of the purview of GST, tax paid on the same is not available as credit.
• A smooth and hassle-free flow of goods within the country - Introduction of e-way bills has remarkably reduced Truck Turnaround Time (TAT) by removing multiple checkpoints and permits at state border checkpoints. Initial hiccups of generating e-way have settled quite a lot now.
• Streamlining of supply chains - So far, manufacturers used to set up a local warehouse to save cost incurred due to the state-based indirect tax system. Also, by consolidating warehouses or by building larger warehouse facilities, the organizations can save on IT costs incurred by deployed ERPs at many small warehouses. This has considerably reduced the cost of the overall supply chain.
• Relief from Inspector Raj - Previously, separate tax assessment authorities took care of varied taxes which made the entire procedure chaotic and time-consuming, leaving manufacturers vulnerable to deal with never ending tax queries.

Impact of GST on Service Sector

• Simplified taxation: In the previous system of taxation, the works contract was complex, and this took a toll on many people. Here, the transfer of goods is a part of the service contract\thus taxed as ‘supply of service. Similarly, GST brought with itself unambiguous provisions for various industries e.g for software industry on selling software online.

• Unified tax provisions across the country including Jammu and Kashmir unlike in Service Tax era have brought all the regions on equal footing.

• The cascading effect of the VAT regime where the end consumer paid a tax on tax and nonavailability of tax credit of state taxes (VAT) against central taxes like service tax and vice versa which increased cost has reduced. This has favorably impacted the tourism and hospitality industry.

However, GST has adversely affected interstate incentive tours impeding industry's growth. Similarly, the Duty-Free Shop business has got a hit due to ambiguous GST provisions with respect to it. Further, where the average rate of service tax was 15%, now it is 18% under GST for most of the services taking a toll on the budget of the common man.

Hence, it is apparent from above that GST is a mixed bag of better and easier rules and regulations, and increased costs and compliances.

Although, there still remains a big scope for improvement, for instance,

• inefficient volume handling capacity of the GST Portal,
• delayed reflection of updated data as well as payments,
• the absence of an effective mechanism to resolve issues,
• inability to make corrections after submission of returns in case of errors, etc
are some major anticipated improvements in GSTN portal. Nonavailability of CGST, SGST charged by another state as Input Tax Credit are equivalent to an eclipse on the free flow of credit, as was initially intended.

Further, suspension of invoice matching mechanism by deferment of GSTR 2 and GSTR 3 which is now being taken up the state governments by sending notices (ASMT 10) is another example of how the government has found a jugaad to the technical and practical shortcoming of GSTN and GST provisions.

However, like one cannot undermine the importance of figures in business analytics. Going by the same principle here GST returns filed for the period July 2017 - March 2018 are as follows:

Source: Businessline, The ET* and PTI

So, it is quite apparent that compliance has improved over time. Further, the revenue collections also rose to whopping Rs.1.03 lakh crores for the month of April 2018. This makes it undeniably perceivable that gradually GST has very well penetrated in Indian economy. For the first time ever, India has jumped 30 positions to become the top 100th country in terms of ease of doing business ranking this year as declared by the World Bank. Economists owe this change to the successful roll-out of GST along with other strategic policy changes.

Hail the rationalization of multiple tax slabs, rate cuts and other modifications like return simplifications in the latest GST council meetings, the recent one being concluded on 21.07.2018, Indian economy needs and hopes for better and further improved indirect tax regime for attaining the win-win situation of One Nation - One Market - One Tax.