July 1, 2018 marks the first anniversary of GST (Goods and Service Tax). A year ago, on the midnight of June 30, 2017 GST was rolled out in a ceremony held in the Central Hall of Parliament. It was not just a change in tax system but a complete overhaul to align the country for modern financial realities by aligning itself to ‘one nation, one tax’. There were many apprehensions expressed at the time of GST roll out such as fear of inflation, revenue loss to the states etc., The GST implementation has overcome all the fears in one year’s journey by addressing all the teething issues from time to time in consultation with GST council. Let’s examine how GST had one-year successful implementation run.
Before we look into the details of what happened after GST roll-out, it is imperative to make note of the success of this government in bringing the consensus among different political parties and most importantly taking the states into confidence.
Though taxation power on goods was with central government, it was limited up to the stage of manufacture and production while States had power to tax sale and purchase of goods. Centre had the exclusive power to tax services. In such a setup, implementing GST has required the reconciliation of interests of various States with that of the Centre. Some of these issues included origin-based versus destination-based taxation, rate structure and compensation, Dispute Settlement etc., In bringing consensus, the present government succeeded where the previous government had failed.
How GST Eased Daily Life
GST has been hailed as Good and Simple Tax. There seems to be no exaggeration if we look at the status of daily consumed goods under GST. Wheat and rice are staple food items for vast Indian population. Pre GST, wheat had 2.50% tax and rice had 2.75% tax whereas under GST both attract 0% tax. Curd, Lassi, buttermilk which were under 4% GST have also attracting zero percent tax under GST. Desiccated coconut taxed at 12% before has only 5% tax under GST. Brooms and brushes taxed at 5% now have no taxes. Similarly, Agarbatti taxed at 12% earlier came down to 5% under GST.
In brief, large number of daily usage items are either exempted or fall under 5% slab.
Therefore, the fear that GST may initially bring high inflation has proved wrong.
Boost to Business
Some commentators have been busy in building a narrative that GST has introduced a complex system hurting business interests. However, the data shows that such fear-mongering has no factual basis at all. Consider this. Within a one year of GST, 48 lakh enterprises have been added as compare to the 66 enterprises registered in all these years from Independence! This may be attributed to the simple procedures adopted under GST. Manufacturers, traders, service providers whose income is under Rs 20 lakh have been exempted from GST, thus creating a friendly eco-system for the small business. Those who have annual turn-over up to Rs 1 crore have simplified composition scheme with concessional rate.
Story of Transparency & Growth
Under GST, everything happens online, thereby replacing the inspector raj system with a transparent portal. In one year around 350 crore invoices were processed, over 11 crore returns filed and over 10 crore e-way bills generated. More than Rs 45,000 crore of GST refunds disposed off till date.
The e-way (electronic way) bill introduced from April 2018 is an example in this regard. It envisages one e-way bill for movement of the goods throughout the country, thereby ensuring a hassle-free movement of goods. In fact, 14% pre-GST logistic costs reportedly came down to 10-12% after GST.
Of course, a change as comprehensive as GST is bound to pose certain challenges as it involves various stake holders apart from government. Unfamiliarity with the new system and IT systems, legal challenges, return filing and reconciliations, passing on transition credit were the challenges being faced. Many of the processes in the GST are new for small and medium enterprises in particular, who were not used to regular and online filing of returns and other formalities. But government always held consultation based on the feedback received from businesses, consumers and taxpayers from across the country and actions were taken to incorporate suggestions and reduce problems through short-term as well as long-term solutions.
Even the apprehension expressed by some quarters that Centre has to compensate most of the states in the initial years also did not come true as the present year’s GST collection from many states are in sound position where compensation is not needed.
Thus, there are many number of reasons to celebrate the success of GST’s first anniversary.