GST Journey Since Launch and the Road Ahead

Since India introduced the goods and services tax (GST) in July 2017, the tax reform has seen numerous changes. About 18 months into its life, it is still under intense scrutiny. Mint takes a look at GST’s evolution and its future direction.

In the pre-GST tax regime, each commodity would attract up to 17 taxes, Under the GST, four tax slabs were introduced, with each item taxed at one rate. The plan is to move towards a single standard rate in the future of around 15% Since its implementation GST rates have been sharply cut on many items. The highest slab of 28% has only 27 categories of products, down from close to 228 at the time of rollout Has GST succeeded in achieving its goals?

The goods and services tax (GST) replaced 17 central and state taxes that existed before and has led to the removal of check posts at state borders, transforming India into a single market. It cut business costs by removing what is called “tax on tax”. GST has also increased the number of taxpayers to 3.4 million, according to the fiscal year 2017-18 Economic Survey. The increase in the tax base will help the exchequer with higher receipts when economic growth quickens. However, a large part of the economy—fuels, electricity, land and real estate excluding construction contracts are still outside GST.

Why has this tax regime been criticized?
One of the criticisms from the opposition Congress party is that GST has multiple tax slabs and that the highest slab is 28% against a cap of 18% it had proposed. The National Democratic Alliance government contests this saying that GST has brought down the tax rate on 97.5% of commodities to 18% or less, as against an effective rate on most of the items in the pre-GST era of 31%. The opposition also alleges that the GST regime was rolled out in a hurry and without adequate preparation, which resulted in hardship for traders across the country.

Why has India adopted multiple GST Rates?

Income inequality makes it difficult for India to adopt a single tax rate for all commodities as in the city state of Singapore, which taxes all items at the rate of 7%.

Have consumers benefited?
Yes, through tax cuts. Transparency in its computation has made the high incidence of indirect tax on many daily use items apparent, which has prompted the federal tax body, the GST Council, to cut tax rates. The Council estimates the tax cuts announced so far amount to a benefit of ?80,000 crore a year. However, the issue of businesses not passing on tax cut benefits to consumers remains a serious concern. Many consumers have filed complaints which are being examined by the National Anti-profiteering Authority.

What direction is the GST heading towards now?
The GST Council plans to converge the 12% and 18% slabs, which would make GST a two-slab tax, barring the items on the exempt category and the few luxury and sin goods taxed at 28%. When revenue receipts improve, the council will also consider inclusion of crude oil, petrol, diesel, natural gas and aviation turbine fuel in GST. This will help businesses into oil and gas exploration, refineries, as well as industries such as airlines in reducing their tax burden.

The Mint, 26th December 2018

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GST Council Meeting Highlights: Movie Tickets, Video Games To Be Cheaper, Says Arun Jaitley

Earlier this week, PM Modi had said the government is aiming to bring 99% of items below the 18 per cent GST slab and warned of stringent action against defaulters of bank loan and fugitives.
The Goods and Services Tax (GST) Council on Saturday cut rates of 33 items from 18 per cent to 12 per cent and 5 per cent, Puducherry Chief Minister V Narayanasamy said, following a meeting chaired by Finance Minister Arun Jaitley. The meeting at Vigyan Bhawan was attended by finance ministers all the states.

Earlier this week, Prime Minister Narendra Modi had said the government is aiming to bring 99 per cent of items below the 18 per cent GST slab and warned of stringent action against defaulters of bank loan and fugitives.

Here are the Highlights on the GST Council Meeting:

The Goods and Services Tax (GST) Council on Saturday decided to form a seven-member Group of Ministers (GoM) to study anomalies in tax collection in some of the states which showed wide deviation from what was expected, according to news agency Press Trust of India. "The Council has approved the proposal to form a seven-member GoM to study the revenue trend, including analysing reasons for structural patterns affecting revenue collection in some of the states," Finance Minister Arun Jaitley said after the meeting, according to news agency PTI.
The study would include the underlying reasons for deviation from revenue collection targets vis-a-vis original assumptions discussed during the design of the GST system, its implementation and related structural issues, he said.

Reduction in GST Rates/Exemptions on Services:
GST rate on cinema tickets above Rs. 100 shall be reduced from 28% to 18% and on cinema tickets upto Rs. 100 from 18% to 12%.
GST rate on third party insurance premium of goods carrying vehicles shall be reduced from 18% to 12% Services supplied by banks to Basic Saving Bank Deposit (BSBD) account holders under Pradhan Mantri Jan Dhan Yojana (PMJDY) shall be exempted.

Air travel of pilgrims by non-scheduled/charter operations, for religious pilgrimage facilitated by the Government of India under bilateral arrangements shall attract the same rate of GST as applicable to similar flights in Economy class (i.e. 5% with ITC of input services).

GST Rate Reduction on Goods which were attracting GST rate of 28% :

From 28% to 18% GST slab rate-Pulleys, transmission shafts and cranks, gear boxes etc, falling under HS Code 8483 Monitors and TVs of upto screen size of 32 inches Re-treaded or used pneumatic tyres of rubber Power banks of lithium ion batteries. Lithium ion batteries are already at 18%. This will bring parity in GST rate of power bank and lithium ion battery
Digital cameras and video camera recorders Video game consoles and other games and sports requisites falling under HS code 9504

GST Leading to Hawala Transaction, Input Tax Credit Black Money

West Bengal Finance Minister Amit Mitra Tuesday said the GST is leading to hawala transactions as businesses are claiming input tax credit and authorities are not matching those claims with invoices.

Stating that Goods and Services Tax (GST) was implemented in haste on July 1, 2017, Mitra said he had then opposed such hasty rollout as the computer systems were not prepared to deal with uploading of as many as 3 billion invoices.

"Today a short (returns) form is being filled and when you do not upload invoices, according to me, today hawala is happening out of GST. If invoice is not required to be uploaded, when you file GSTR-3B then you claim input tax credit (ITC), which is black money because there was no transaction. It was unprepared GST, Mitra said at the 'Agenda Aaj Tak (news channel)' event here.

Under the GST regime, businesses currently file summary sales return GSTR-3B and final sales return GSTR-1.

Initially, when GST was implemented, businesses were required to fill up 3 forms-- GSTR-1 (sales return), GSTR-2 (purchase return) and GSTR-3 (final return which combines both GSTR-1 and 2).

However, businesses complained of difficulties in filing of three returns a month as the GST systems could not accept the last minute rush on the due date of filing those returns.

Following this, the GST Council, chaired by Union Finance Minister and comprising state finance ministers, decided to come out with a summary sales returns form GSTR-3B for businesses to pay taxes by the 20th day of the succeeding month.

The system of filing GSTR-3B and GSTR-1 does not require businesses to upload invoices to match purchase and sales returns.

While GSTR-2 and 3 has been kept in abeyance, the tax authorities are working on simplified returns forms which should be launched sometime in 2019.

"I had said that GST should not be launched on July 1, 2017. Computers were required to process 3 billion invoices, but there was no testing or pilot run," Mitra said.

GST, which amalgamated 17 different central and state taxes including excise duty and sales tax or VAT, not just made India one market by levying a uniform tax rate on a good or service, it also did away with tax-on-tax prevalent in the previous system.

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Will Try to Get 99% Items in 18% Slab or Lower, says PM Narendra Modi

GST Registration Services

Prime Minister Narendra Modi said on Tuesday the government would make efforts to bring 99 per cent of items under the goods and services tax (GST) into the 18 per cent slab or lower. The next GST Council meeting is four days away.

“Only 0.5 to 1 per cent of the items — luxury goods such as aircraft, cigarettes, alcohol and SUVs — will be taxed at 28 per cent,” Modi said.

Currently, 39 items, or about 3 per cent, of about 1,280 items that draw the GST attract a levy of 28 per cent. If Modi’s announcement turns into reality, only up to 13 items would remain in the 28 per cent bracket, pushing goods such as two-wheelers, cars, cement, and computer screens into the 18 per cent slab.

However, this announcement has drawn severe criticism from finance ministers (FM) of Opposition-ruled states. Manpreet Badal, finance minister of Punjab, said that a suo motu announcement by the PM without the approval of the GST Council, a constitutional body, was unwarranted. “The PM should not make unilateral announcements like this… since even the agenda for the coming GST Council meeting is not yet finalised,” he said.

Badal Criticised the Union Government’s Frequent Changes to GST Law. 

The New GST Test

“This is a badly designed GST, difficult to fix. The Congress viewpoint is that if we come to power, we will bring in GST 2.0,” he added.

Experts have voiced a concern that rate cuts might not be the only solution to make the GST seamless. “Taxing nearly all items at less than or equal to 18 per cent will be challenging. Businesses also want simplicity of return filing and ease in claiming input-tax credit refunds,” said Archit Gupta, founder and chief executive officer of ClearTax.

M S Mani, Partner, Deloitte India, pointed out the reduction in revenue after cutting rates remained a concern. “The move would surely herald the movement to fewer rates in future, but then there might be headwinds in revenue collections. The overall collections would reduce in the short term, but lead to tax rationalisation on the one hand and fewer disputes on the other,” he said.

Kerala Finance Minister Thomas Isaac also voiced these concerns on Monday

Will make efforts to bring 99% things in sub-18% GST slab, says PM Modi Badal said the Union government should be patient and wait for issues arising out of GST implementation to stabilise. Modi, however, said the exact opposite.

“The GST as a system has stabilised and as a result, we are reaching a situation where 99 per cent of the items can be brought within the tax bracket of up to 18 per cent,” he said at the Mumbai event.

He added the number of registered enterprises rose from 6.6 million before GST roll-out to 12 million now, justifying the rate cut.

The November 2017 meeting of the GST Council — which preceded Gujarat assembly elections — had reduced the tax rate on items in the top slab. Eight months later, the July 2018 meeting chaired by the interim FM Piyush Goyalhad too generously pruned the 28 per cent slab.

Union Finance Minister Arun Jaitley Had Lauded the Move, Back Then. 

Multi-State GST, Input Tax Credit fraud worth Rs 2 billion detected “The GST Council within a record period of thirteen months has almost phased out the 28 percent category items remaining in this category are only luxury items or sin goods. It is only a matter of time that the final obituary of the ‘Congress Legacy Tax’ is written,” he had written in his blog.