Last year when the clock struck 12 at midnight proclaiming the start of the first day of July, the Indian Parliament in a special joint session formally announced the country’s move towards a unified tax regime in the form of the Goods and Service Tax (GST). The finance minister had warned about teething troubles in the beginning but the shoddy implementation made it a headache for businesses, small and big. At the completion of one of year of GST, it is time to review the impact it had on the economy and what more can be expected in the time to come.
Inflation: The new tax subsumed a lot of older ones like excise duty and state VAT which for most items added up to almost 25% while about 50% of the articles fall under the 18% tax slab now.
Widening Tax Base: A large number of businesses applying for GST registration in India during this period suggests that the complete digitisation of the process has helped in formalisation of the economy helping in a drop in tax evasion rates while bringing more number of people under GST’s ambit.
Unified Taxation: Finally there was a single tax applicable on a particular item in every state of the nation and with checkposts vanishing from every state border, it helped corporations in organizing their distribution network.
Weak IT Infrastructure: The critics as well the supporters of the system agree on one point after the completion of one year of GST that a process touted as completely paperless had such a frail information technology system which made the whole compliance procedure a headache for everyone involved.
Cumbersome Claims and Refunds: The three stage process of claiming input tax credits every month has not been smooth and similarly the Integrated GST refund procedure is also quite time consuming resulting in slow functioning and reduced efficiency of businesses.
Unhelpful Cesses: Numerous taxes were scrapped with the advent of this new system but the purpose was somewhat defeated with the introduction of new levies and surcharges in the form of cess especially on luxury and sin goods. There are indications that a cess on sugar may be brought while automobiles have already been included.
Lesser Tax Slabs: The Prime Minister has ruled out a single slab by saying that milk and Mercedes cannot be taxed at the same rate,but there is a case for merging of slabs and reducing their number to two. There is also the case for reducing the maximum tax for quite a few goods.
Broadening of the ambit: There are many products which are still not under the new system’s purview and some important items like electricity and petroleum products like petrol, diesel and kerosene should be brought under the GST umbrella.
Easy Returns Filing Process: A new and better procedure for filing of returns is being expected to roll out in the next few months and it will bring much needed relief to entrepreneurs by easing compliance.
At the completion of one year of GST, it can be said that though the various processes associated with the new taxation system are still evolving, the benefits outnumber the drawbacks but constant improvement is needed to make it a really advantageous proposition for consumers as well as businesses.