GST regime: work in progress

India's biggest tax reform, the Goods and Services Tax has been a long time coming. The process that started in August 2016, when the Rajya Sabha passed the Constitution Amendment bill, finally culminated in the biggest fiscal policy change the country has seen since Independence.

Tax policies and reforms were common even in pre-Independence India. Post-independence, the L K Jha Committee suggested the introduction of the Value Added Tax (VAT) in 1974. A modified version of this tax called the MODVAT (modified VAT) was first introduced on select commodities in the year 1986, and then levied nationwide in 2005-06.

With the government opening up the country's shores to globalisation in 1991, FDI (foreign direct investment) and expanding private businesses became the norm.

The GST is the latest tax change to be added to this historical line-up, and is a culmination of the economic reforms started way back in 1991. However, the GST is hardly five months old. It's like a toddler who has just learnt to walk, and everyone is afraid it will falter one too many times.

So, let's try to take a closer look at the nuances of this tax regime and understand what has been working and what is not.

Any change in policy cannot take effect overnight. Nevertheless, there is much about GST that is praiseworthy, so let's take a look at some noticeable benefits:

Reduction in taxes: even in the 23rd GST Council Meeting held on 10th November, 2017, the GST Council decided to reduce the number of items in the 28% tax bracket. Reduction in restaurant rates to a universal 5% (except for those restaurants in starred hotels that charge tariff upwards of Rs 7,500 per night) means that the 'aam aadmi' can walk into any restaurant - AC, non-AC, serving liquor or without - and expect to pay a uniform tax.

Benefits for SMEs: the government has increased the threshold limits for registration for Composition Scheme and this limit is now set at  Rs 1.5 crores. Service providers on e-commerce platforms who do inter-state supply but have a turnover of less than Rs 20 lakhs are now exempt from registrations.

Relaxation in compliance: it has now been decided that the businesses below the annual threshold of Rs 1.5 crores means will now file returns on a quarterly basis. Of the three monthly returns that were initially required of every business, the government has put two returns on hold (GSTR-2 and GSTR-3) and asked that each business now file only two monthly returns - GSTR-1 and GSTR-3B - till March 2018.  

Extension of deadlines and removal of penalties: the government's decision to extend filing deadlines for the previous returns and also reduce penalties for late filing of returns to Rs 50 per day (Rs 20 for nil returns) shows that the government is ready to work with the people to ensure the success of GST.

While all that's written above holds true, we cannot deny that there are some teething troubles that everyone is facing. These are as below:

Lack of clarity: some sectors, like e-commerce, for instance, are still a little unsure of the rules that are applicable to them. Some businesses are still unsure of how to carry out digital payments and understand the nitty-gritty of the new GST law.

Technological restraints: for many businesses that have never used an online software for accounting or taxation, finding a GST-compliant software and using the GSTN Portal for tax filing is a daunting task. This has caused some confusion among businesses and caused delays in filing returns and ITC claiming.

Constant lobbying by industries: many industries that were not taxed during the tax regime and now have to pay GST have time and again lobbied for tax reduction or abolishment. So far, the government has been steadfast in its decisions to levy taxes, but there have been strikes by certain sectors and the threat is still in the air.

If we look at our neighbour, Malaysia, also the last country to implement GST, we see that in the two years since adopting GST, their economy has improved for the better. All in all, it is a success story that the country can be proud of.

Given the time and willingness on the part of the business community to actively adapt to the new economic scenario, GST in India can be a huge success story, too.

(The writer is Founder & CEO ClearTax)