100 days of GST: A roller coaster ride

The Goods and Services Tax (GST) has been re-written even as it completes 100 days post roll out. Not only have the tax rates been changed a number of times for over 100 goods and services, but some of the rules too have been brought back to the levels of pre-GST era.

For example, in exports. Some obscurely ambitious by-laws under the new tax regime have been struck off or kept at bay for a longer period so that they die their own death in due course. For example, the reverse charge mechanism, where the recipient of the goods and/or services is liable to pay GST instead of the supplier.

The all powerful GST Council, in its 22nd meeting on Friday, which was a crucial one that continued for about nine hours without a break, almost overhauled the GST rules. Neither the GST appeared the same after this meeting nor the tone and tenor of Finance Minister Arun Jaitley.

Only time will tell whether these changes are permanent in nature or just a patch work with a limited shelf life, but critics were quick to attribute these to the upcoming Assembly elections, especially in Gujarat, the home turf of Prime Minister Narendra Modi.

Taking a cursory glance at changes in tax rates, one can say that Gujarat may have been a forceful factor behind the changes. For example, reduction in rates of man-made filament, synthetic yarn and fibre, which goes into manufacturing of man-made textiles, of which Gujarat is a hub. Further, lowering of tariffs of at least two food items, including khakhra, a staple breakfast item in the state. Also, concessions to exporters prima facie point to a leaning towards Gujarat. The state contributes almost 12% to India's textile exports, and it has a massive presence in gems and jewellery exports, diamonds in particular. But again it is too myopic to think that national policies are shaped up taking into account a particular state.

Instead, a more comprehensive analysis of the GST in the 100 days of its roll out did suggest that the new tax regime had some inherent weaknesses. And, timing wise, it proved grossly inadequate. Manufacturers had halted production and went for massive de-stocking ahead of the GST roll out, at a time when demonetisation had already had an adverse impact on industries.

Ever since its roll out, through the periodic GST Council meetings, experts kept warning about the adverse impact of certain rules such as monthly returns, matching of invoices and a plethora of new taxes on exporters and job workers. But the government dismissed all that as “minor hiccups” which, they said, would settle down in the first three months. It was only when a web of problems complicated things, the GST revenues started taking a hit and the economic growth plummeted below a psychological 6% level that the government admitted to undoing of some of the GST mistakes.

Forthcoming elections in crucial states, of course, accelerated the pace of things. The prime minister asked the GST Council to review the problems being faced by traders, issues in technology or filling the form. And the GST Council decided to remove exactly those problems, which experts kept pointing out since July 1.

The unworkable monthly tax returns were withdrawn for small and medium traders, giving relief to about 90-95% of the GST filers. Implementation of e-way bill was postponed, realising that the existing electronic system in the country was woefully inadequate. Also laid to rest was reverse charge mechanism, at least for now.

And most significantly, exports, the hardest hit after the GST implementation, were heard. Under the VAT regime, exporters exported at their will, but under the GST regime, they had to execute a letter of undertaking subject to eligibility or a bond with bank guarantee to export. The first set of tax credit has not been handed out to the exporters, and the finance minister said it will be given to them sometime next week.

The situation became so bad that the premier exporters body FIEO went and told the finance minister it was going to lay off employees before Deepavali. A heavy tax on job works started cutting jobs in labour intensive industries. But the prime minister's intervention forced the GST Council to drop most of these clauses. A more serious problem that still remains is the multiple rate of taxation and higher rates of slabs. A lower rate of taxation can only spur demand and stimulate production.

Hopefully, the GST Council will take it sooner than later. Analysts say the GST in next 100 days must strive to do away with any kind of tax that cannot be easily monitored.