By Ankit Agarwal
July 1 marks the anniversary of the implementation of one of the biggest tax reforms in India, the Goods and Services Tax (GST), which set the base for a unified common market (one nation, one tax, one market).
Under GST, every minute detail of every item sold is being digitally uploaded in a central tax database for over eight million Indian businesses. If we average a minimum 120 invoices per business, it still means billion records every month, a huge number that has proved to be both challenging as well as rewarding. While there have been many infrastructural challeneges (complicated compliance, tax slab revisions and last minute timeline alterations), and even a public perception problem, the tax has been adopted across the country. Let’s take a look at how the revolutionary reform has fared in the past one year.
GST: Embracing the change
GST has been one of the biggest economic reforms since independence and while some early adopters embraced the change, the other half raised questions, concerns and queries. The first set of challenges was to seamlessly adapt and execute the new tax regime. India, being a pen-and-paper economy, saw a tough time in shifting to a completely digital platform.
Many organisation introduced multiple software and applications to make it easier to file GST returns, while others conducted counselling and step by step services to help people file returns. Revenue collections from the GST crossed the Rs 1 lakh crore-mark for the first time in April 2018 and were a testimony of a good start.
Tax-avoidance to tax-acceptance
However, unlike in other countries such as Malaysia, businesses in India were not given any time to prepare ahead of GST implementation. Due to the abrupt nature of the implementation, there was resistance from many sectors of the society. The Indian economy is not only averse to digital adoption but for long, has also been a tax evading society at large. To top it all, India has a federal structure and while unified GST is simpler and desirable, expecting State Governments to give up their fiscal authority and adopt a central structure still seems like a distant dream.
In the past 365 days of GST implementation, the tax structure and related nuances have undergone multiple iterations which have led to debates and discussions, raising questions around compliance.
Initial impressions and filing experience
As a majority of our economy (micro, small and medium enterprises) struggled with the digital transition of adapting to the GST model, they also faced major roadblocks with the GST network slow response rate, incompetent error resolution mechanism, and absence of functionality to rectify inadvertent errors in the system added to worries of small business owners. Those already low on working capital businesses had to face hardships as taxes were applicable in case of branch transfers and delays in refund processing.
E-way bills
The implementation of e-way bills was a bold move, which made it mandatory for every transporter carrying goods over Rs 50,000 to carry the same. People initially faced challenges while generating e-way bills, after the portal crashed on the launch date- 1 February 2018. After a wobbly start, the GST council made a decision that inter-state e-waybills would be implemented first, soon to be followed by intra-state e-waybills.
The second wave of e-way bill system implementation was successful, replacing the earlier state-wise e-way bills implementation model. The e-way bill has successfully connected all parties in the value chain- suppliers, transporters, and recipients, under one ecosystem. This makes tracking the movement of goods and keeping a stern check on tax evasion easier. Using end-to-end compliance solutions, people can integrate their e-way bill data to the invoices raised in their system and track the movement of goods to optimize the overall efficiency of the value chain.
Tax evasion
The patchy GSTN Network, coupled with the policy rollbacks and amendments, ultimately aided tax evasion for many. The mismatch between initial and final returns filed by taxpayers proved to be a big thorn in the path of successfully rolling out GST. As a result, taxpayers were unable to correctly report revenue statements. However, the introduction of e-way bills sparked a wave of reform. In April, when e-way bills were introduced, about Rs 94,000 crore was collected as GST returns. These collections were much higher than the average collections of Rs. 91,102 (July 2017-April 2018).
Standing at the one year mark, its safe to say that were way ahead of the initial hiccups. As per April 2018, GST collection has crossed Rs 1 trillion, however, compliance still remains at 69.5%. This clearly indicates that tax collections have stabilised, and now its time to ensure every step of the process is smooth for all.
Ankit Agarwal is the Managing Director of Alankit Limited.