Three quarters of GST: Chaos still prevails

India's biggest tax reform, the Goods and Services Tax (GST), has completed three quarters post its implementation, even as traders are struggling to come to terms with the new regime.

The economy, at the time of the GST's rollout, was reeling under tremendous stress emanating from the demonetisation. The sudden change in the tax regime was stressful to traders and chaos prevailed all over.

Not only was the chaos arising from the issues in the GST Network and the complicated taxation, but it also set the government worrying, due to falling revenues from the new tax regime, and the country was staring at a fiscal slippage. Till now, the government has collected Rs 6,25,501 crore in revenues from the GST, as per the latest data released by the Finance Ministry.

The Economic Survey 2017-18 said that the pre-GST revenue collection by the Centre and states was Rs 9.7 lakh crore, while the estimated annualised GST revenue collection is expected at Rs 10.9 lakh crore. However, with latest data available on GST trickling down, the number seems to be dwindling down by 2%. As per the calculation, the annualised GST collection would be pegged at Rs 10.7 lakh crore.

It seems that the government was aware of the fact that there would be a dip in indirect tax collection post-GST. Indirect tax collections (Central Excise, service tax and Customs) in FY17 came in at Rs 8.63 lakh crore, 22% more than the actual revenue receipts in 2015-16.

Despite a robust growth of 22% last year, the government set a target of
Rs 9.27 lakh crore from indirect tax collection, targeting a small jump of 7.2%.

Dwindling monthly collections

However, what has been more worrying is the dwindling monthly revenue coming from the GST. In August 2017, the collections stood at Rs 93,590 crore, followed by Rs 93,029 crore, Rs 95,132 crore,
Rs 85,931 crore, Rs 83,716 crore, Rs 88,929 crore, and Rs 85,174 crore in subsequent months leading up to February 2018. When GST revenues plunged in November 2017, the government tried to fix the onus on the rationalisation of the tax rates that had taken place earlier that month. However, with revenue again dipping the next month, the government alleged tax evasion by traders. According to the Centre, traders were suppressing their revenues to come under the composition scheme. This was the reason that the government expedited the implementation of the e-way bill.

Also, the formation of the GST Council puts the government in a peculiar position of semi-federalism, which can be catastrophic. While the Central government is responsible for the fiscal position of the country, yet most indirect taxes, which are an important component of revenue receipts, are under the GST Council's purview.

Glitches

On the implementation side, there were many glitches in the IT infrastructure put in place by the GST Network, and maintained by Bengaluru-based IT major Infosys. Such was the impact of these glitches that the Council decided to constitute a Group of Ministers (GoM) headed by Bihar Deputy Chief Minister Sushil Kumar Modi to address the issues. The GoM, which held its first meeting in September 2017, kept on pushing deadlines to sort out glitches. Initially, 48 glitches were identified, and the GoM set a deadline of October. However, it wasn't before January 2018, that most of these issues - ranging from non-availability of forms, to crashing of the network - were completely resolved.

"After nine months of GST, the Council has been able to resolve only a few of the issues that beset this 'poorly implemented' tax. Unless a drastic change is not made in the coming financial year, GST officers will do anything to garner additional revenue which will only increase litigation," says Bengaluru-based tax expert Mohan Lavi. Not only have the glitches and dipping revenue been an issue after the rollout, the country has also seen a mass resentment against the GST.

The GST came in five different tax slabs, some going as high as 40% initially. These rates were perceived as being very high by many economists, as well as traders. Many traders, at the time of implementation, complained about not being aware about the system. Many also complained about the increased compliance cost associated with GST filings.

There are three monthly returns that every taxpayer, other than compounding taxpayer and Input Service Distributor (ISD), has to file each month. This excludes submission of half-yearly and annual returns. Previously, service tax returns were to be filed once every six months in a financial year. In case of VAT, excluding the annual return, if the turnover of the trader was less than Rs 25 lakh per annum, he was expected to furnish his return every quarter, while if the turnover of business was more than Rs 25 lakh per annum, the assessor was supposed to file the return every month. Also, the GST seems to have failed on the motto that it was launched with - one nation, one tax. While Customs Duty still prevails in the country, alcohol and certain other products - which are high revenue generators for the government - continue to come under the purview of the erstwhile tax regime.

Though the transition has not been as smooth as the government had hoped, a few initial glitches are expected with a tax reform of this magnitude. As the country is embarking on a new financial year, the GST Council's task on indirect tax has been cut out - to ensure that the complications with the system are further reduced.