It has been a successful first year of GST, and PM Narendra Modi’s vision of cooperative federalism seems to be coming true. What’s better is that it’s only expected to get better for all the stakeholders.
GST: A brief history: “Taxes are what we pay for a civilised society, including the chance to insure,” said Wendell Holmes Junior. Needless to add, the implementation of the Goods and Services Tax (GST) starting July 1, 2017, is by far the most transformative indirect tax reform by the Narendra Modi-led Government in post-independent India’s history.
The Congress-led United Progressive Alliance (UPA) dispensation sat on the Kelkar Committee recommendations for 10 long years without being able to forge a consensus on even bare basics like the mechanism of compensation to States or method of dispute resolution under GST. Hundred percent compensation to States for the first five years for revenue losses incurred and two-third weightage to States in composition of GST Council, with the Union Government retaining only one-third, made GST a reality in the true spirit of cooperative federalism, all thanks to the BJP-led NDA Government. Again, any proposal by the GST Council needs a three-fourth majority to become a law.
GST structure: Integrated GST (IGST), which deals with inter-State sale, has revenues being collected and shared by both States and the Centre. SGST and CGST, dealing with intra-State sale, have revenues being collected by the States in the case of SGST and Centre, in the case of CGST.
GST is largely pro-poor and pro-middle class, and this is amply evident from the fact that items of daily use, from milk, curd, eggs, fish, chicken and flour to rotis, milk powder, tea, coffee, medicines, frozen vegetables, LPG, biogas, stents, kerosene, sanitary napkins and, eating out in both AC and non-AC restaurants, are charged either zero percent or five per cent tax. Barely 50 items, largely sin goods and luxury products, are charged at 28 per cent. In November 2017, in a landmark improvement, GST on 178 items was additionally reduced from 28 per cent to 18 per cent.
GST collections: After the introduction of the E-way Bill in April 2018, GST collections in May 2018 (paid for the month of April 2018), came in at a good Rs 94,016 crore, much higher than the monthly average of Rs 89,885 crore in financial year 2017-18, since GST’s launch in July 2017. Since its inception, monthly GST collection has never fallen below Rs 83,000 crore, with the lowest being Rs 83,716 crore in November 2017 and the highest being at Rs 100,000 crore in April 2018 (paid for March 2018).
GST in India vs GST worldwide: GST was implemented in New Zealand in 1986 at 10 per cent, with the current rate being at 15 percent which is applicable to all purchases but there is no GST on residential rents and financial services. GST was initiated in Singapore at three per cent in 1994 and is now seven per cent. In Indonesia, imports are subject to both Value Added Tax (VAT) and GST, with luxury tax on imports at between 10 per cent to 50 per cent but most exports are exempted. The tax rate in Indonesia is largely between 10 percent-35 percent.
In China, there are three tax rates, zero per cent, five per cent and 19 per cent, with very few items that are ‘recoverable’ or that enjoy the benefit of input tax credit. GST was introduced in 2000 in Australia with a tax rate of 10 percent which is collected entirely by the Central Government and shared with States in a certain proportion. The GST rate in Canada is five per cent on supplies of goods and services and in some Provinces, there is harmonised sales tax, which is 15 percent.
Brazil has six tax slabs: Zero percent, 1.65 per cent, two per cent, seven percent, 12 percent and 17percent. In the US, federal tax rates are between 10 per cent and 39.6 percent of taxable income while State and local Governments charge tax from zero per cent to 13.30 per cent of the total taxable income. In the UK, there are three tax rates, including zero per cent, five per cent, and 20 per cent with most goods being covered in 20 per cent bracket.
France has four tax rate slabs. Rates are 2.1 per cent, 5.5 per cent, 10 per cent and 20 percent, with 20percent being the most widely applicable rate. Again, in Ukraine, standard tax rate is 20 per cent and VAT is additionally charged. Aforesaid comparisons highlight that there is no single kosher GST rate. In fact, there are 40 different GST structures in 160 odd countries where it is applicable. Indian GST is unique due to the sheer array of numbers involving a country of 1.27 billion people and counting.
GST network, GSTN: GSTN software has been developed by globally acclaimed Infosys Limited and will be subjected to third party audit, both functional and performance audits. Since rollout from July 1, 2017, GSTN handled over 11.5 crore returns and processed over 376 crore invoices. Currently, over 1.11 crore businesses are registered under the GST regime, of which, 63.76 lakh migrated from the erstwhile service tax and value added tax regime, and 47.72 lakh are new registrants. As many as 17.61 lakh businesses have opted for composition scheme under GST. Thirty thousand crore worth of refunds have already been sanctioned. The sheer volumes handled reflect the robustness of GSTN and should silence all doubting Thomases.
Talking of criticism, renowned industrialist Adi Godrej summed it up best when he said that thousands of wholesalers, distributors and retailers, catering to the Godrej group, are very happy with the way GST is being executed and the only ones having a problem with GST are those who had escaped the tax net all these years.
GST and fuel taxes: The 122nd Constitutional Amendment that made GST a reality, has a provision for including petrol and diesel under the GST ambit at an opportune time, something that was missing in the Bill drafted by former Finance Minister P Chidambaram.
However, the BJP-led Government is absolutely right in treading on this cautiously because fuel taxes account for almost 30-40 per cent of the revenues for many States and it is only prudent for the revenue stream from GST to stabilise before biting the bullet on this one. Limiting the fiscal deficit to 3.3 per cent of GDP in FY2018-19 is another consideration that rightfully prevents any hurried action on this front.
GST amendments: On the 1st anniversary of GST, unarguably the biggest indirect tax reform in the largest democracy in the world, some changes to further strengthen the system that are being explored, include a new single page modular return system instead of GSTR 1, 2 and 3; change in the definition of supply under Section 7 of CGST Act, trimming the negative list under Input Tax Credit (ITC); single window audit, merging the 18 per cent and 12 per cent rates and most importantly, doing away with multiple registrations by having a single registration across India to simplify return filing procedures.
Conclusion: Electronic end-to-end filing by an average of 70 to 80 lakh persons every month with more than 350 crore invoices being processed in May 2018 alone, with a tax compliance ratio of more than 70 per cent, that is set to touch 96 per cent in the months ahead, GST or ‘One Nation One Tax’, which is an ode to Prime minister, Narendra Modi’s tireless vision is an idea that has truly arrived and will only get better and keeps getting fine-tuned to meet the larger interests of all stakeholders.
(The writer, Sanju Verma, is an economist and chief spokesperson for BJP, Mumbai)
Writer: Sanju Verma
Courtesy: The Pioneer