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Positive Trend, But Work In Progress
Bipin Sapra
As the GST Council simplifies the tax law, the government needs to
address issues of compliance, data correction and refund mechanism
T
he rollout of goods and services tax (GST),
the biggest tax reform in the history of India,
is going to reach its one-year mark. Even
though the first anniversary represents a milestone
of having introduced the most phenomenal indirect
tax reform since independence, the implementation
part has had its own share of hits and misses. GST is
one reform that many countries have struggled with
in the past and many continue to still struggle, years
after its implementation. On the one hand, we have a
country like New Zealand, which introduced GST in
1986 and has since updated the law a number of times,
and is an accepted cornerstone of the country’s tax mix
and economic growth. On the other hand, Malaysia,
where GST was implemented barely three years ago,
has scrapped GST from 1 June 2018. Despite having a
simplified tax structure, rolling back to the old sales tax
regime is a surprising move. At this juncture, taking
stock of where India is on the path to success of GST
and understanding the issues faced by the industry
would be worthwhile.
In a country like India, obtaining a broad consensus
amongst all the states and implementing GST has been
a commendable achievement. This has established the
true federal character of the Indian fiscal system. GST
has successfully subsumed several state and central
indirect taxes such as state VAT, central excise duty,
purchase tax, entry tax, service tax and reduced the
cascading credit blockage, thereby improving the ease
of doing business in the country.
According to rating agency Moody’s, India’s GDP
growth was expected to slip to 6.7 per cent this year
due to the impact of GST and demonetisation, but
rather it is forecasted to strengthen to 7.5 per cent next
year. With a 50 per cent increase in tax base and India’s
Malaysia’s decision to scrap
GST last month should not
impact India’s achievements
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landmark achievement in tax collection for March
exceeding `1 lakh crore as reported in April 2018, GST
is definitely following a positive trend.
The challenges faced by the industry in undertaking
compliance of GST continues to be a matter of worry.
Problems like non-filing of GSTR2 and GSTR3
returns, absence of matching of credits, delayed
reflection of updated data as well as payments, and
the lack of provisions to modify or revise errors, pose
major challenges to businesses. It will be some time
before GSTN, the compliance portal, achieves its full
capability.
The new tax system is still a work in progress and
the GST Council continues to work towards simplifying
the law and compliance processes, a new mechanism
of filing returns and taking credits is being designed
and there are number of provisions like TCS and TDS,
where there is uncertainty as to whether and when
they will become effective. The refund mechanism
for exporters of goods and services is still facing a
lot of glitches, though both the Centre and the states
have strived to provide utmost support to process the
exporters’ refunds.
The extreme step taken by Malaysia to scrap its
goods and services tax should not impact India’s
achievement of implementing it after years of wait. The
structure of GST law in the two countries and their
respective economic conditions are very different.
As with all new regimes and legislation, there remain
certain areas of uncertainty in the GST regime and the
same need to be addressed by the government. It is
advisable for the government to remove all technical
glitches and hurdles faced by businesses in relation to
compliance or refunds.
To summarise, introduction of GST by the Indian
government is a welcome step in the right direction
for all stakeholders as it will give impetus to the
country’s economy in the long run. However, given
the magnitude and diversity of this change, it may be
sometime before the law and processes settle down.
The author is Tax Partner, EY India