In the last few months, the outbreak of the coronavirus pandemic and consequent nationwide lockdown has been one of the most challenging times for the GST body. But the Centre has risen to the challenge and implemented significant tax relief measures including accelerated refunds, the extension of tax deadlines, waivers of late fee and so on, writes Manjula Muthukrishnan, Managing Director of Avalara Technologies Private Limited, Indian operations of Avalara, Inc.
Three years of GST
On July 1, 2017, the Goods and Services Tax was launched in India after quite a few years of planning, debates, and discussions. Instead of multiple tax touchpoints that had taxpayers running from pillar to post-filing their taxes throughout the year, tax return filing was limited to a few return forms.
In the pre-GST era, the Indian indirect taxation system was divided between the Value Added Tax and Service Tax. Additionally, because we are a federal nation, the authority to levy and collect output tax liabilities was segregated between the Centre and States. This meant that the states had the freedom to implement their individual tax structures and adjust tax rates. This also meant that taxpayers were paying different rates of the same tax on the same product in different states. Why was this a concern? Well, while some states, like Maharashtra and Gujarat, saw phenomenal revenue collections and hence were better developed, other states didn’t get enough collections, affecting their development rate to some extent.
Three years ago, with the introduction of the Goods and Services Tax, India became a Common Economic Market. Every state was now required to levy uniform tax rates. What’s more, is that the Goods and Services Tax was a destination-based tax – this eliminated the cascading effect of taxes and encouraged inter-state trading.
GST also helped the tax department widen its base and the first two years under this revolutionary indirect tax regime saw the number of taxpayers skyrocketing from 65 lakhs to 1.20 crores. It also brought about an increase in monthly revenues by 12 percent in 2017-18 and 2018-19.
The journey so far
The Goods and Services Tax is now commencing its fourth year in India, and the last three years have seen a lot of activity around this indirect tax. From juggling commodities between tax slabs, increasing and decreasing the number of tax return forms to introducing new measures like e-way bills and e-invoicing, a lot has been done over the last 40 GST Council meets.
Some significant changes, like the addition of the e-way bill, helped businesses iron out concerns with regard to transportation of goods while keeping tax evasion in check. We have seen changes in norms around claiming the input tax credit. While banks were left disgruntled as they were not initially allowed to claim the input tax credit, the government later announced an amendment that allowed banks and other financial institutions to avail Input Tax Credit (ITC) under the GST regime.
GST got stabilized and streamlined to a great extent over the course of the past few years. However, businesses feel there is a need for further simplification, rationalization of tax rates, reduced frequency in law changes, smoothening of inherent structural issues is required to make GST compliance easier for both, the taxpayer and the government.The rising number of litigations and disputes on GST rates are another concern for taxpayers. There is also the need for a centralized registration system as well as a centralized AAR. Keeping the IT systems updated and ensuring proper implementation of these frequent changes is what makes GST compliance operations for businesses burdensome. Besides, the onus of compliance is on the taxpayers.It is time that they wake up, adapt and use solutions to overcome some of these challenges which can be solved by technology.
The last three years have been a mix of seized as well as missed opportunities under the GST regime. India has implemented stringent measures to keep tax evasion in check. The GST authorities are introducing processes to further the country’s Digital India initiative, including the filing of returns via SMS, adjusting accumulated ITC in the electronic cash ledger, e-Office application to automate internal file handling, court hearings through WhatsApp video calls, e-invoicing and many more.
In the last few months, the outbreak of the coronavirus pandemic and consequent nationwide lockdown has been one of the most challenging times for the GST body. But the Centre has risen to the challenge and implemented significant tax relief measures including accelerated refunds, the extension of tax deadlines, waivers of late fee and so on. Additionally, many economic steps were introduced to inject liquidity into MSME, banking and power distribution sectors in a bid to get the nation back on its feet. While these are welcome moves, their correct and optimal implementation is crucial. On the other hand, the future looks particularly challenging for the government in terms of revenue collection. It would be a fine balancing act between revenue generation and supporting industries to mitigate the risks triggered by the COVID-19 crisis.
Goods & Services Tax combined with other progressive steps saw India rise to 63rd out of 190 countries in terms of ease of doing business, but its rank for paying taxes is an abysmal 115th. Anti-tax evasion initiatives like Operation Kark might help in improving future collections.
India has a long way to go, and GST is still an evolving indirect tax system. Here’s hoping the next few years will bring about a much-needed economic revolution for the country with digital transformation in tax function, e-invoicing, new return system, rate rationalisations, improved compliance procedure and measures to curb tax evasion.
Views expressed in this article are the personal opinion of Manjula Muthukrishnan, Managing Director of Avalara Technologies Private Limited, Indian operations of Avalara, Inc.