by Ankit Agarwal
It has been a year since the Goods and Services Tax (GST) was rolled out across the county, subsuming 17 indirect taxes and a host of cesses. The expectations from GST were varied. Businesses, whether large or small expected fewer taxes, less paperwork, transparent rules and easy bookkeeping. Consumers expected to pay lesser prices and taxes for the goods and services, and the taxpayers were looking for more convenient ways of compliance. The government intended to get more businesses in the tax ambit, thereby increasing its revenue, and reducing the rate of tax evasion and profiteering.
The success and realities of the GST have been mixed. We have seen effective short-term and medium-term gains. The GST revenue collection in June rose to Rs 95,610 crore. The compliance rate stood at 69.5% and considering the size and the market, its a healthy number to achieve within the first year of its implementation.
As we begin planning to face another year, lets explore how GST has really impacted India in the short-term and what the projected impact for the longer run is.
A year on, the impact is visible
For any reform to have a widespread impact, there is a gestation period filled with teething troubles. It has been the same for GST. The challenges ranged from adoption to execution. India, traditionally a pen-and-paper economy, struggled to adopt digital platforms. Moreover, given the wideespread tax evasion among Indian businesses, ignorance and resistance were major hurdles that are gradually being dealt with and will likely continue in the months to come.
However, the short-term impact despite the challenges has been positive. It has led to the removal of multiple taxation regimes and cascading tax effects. Due to the lower burden of taxes, overall costs have decreased with subsequent increase in production. This is also gradually reducing the burden on the end consumer. Black money, fraudulent practices and tax evasion have reduced, especially as reforms like the E-way bill bring in more control and transparency. Consequently, government revenues have increased as a result of the extended tax base; this has led to a healthy economic outlook.
What will the future look like?
In the long-term, GST would be simplified even more. Globally, countries that have benefitted from GST implementation typically deploy two- or three- rates, as compared to the five-rate structure in India. As the cascading effect disappears, inflation will reduce, thus leading to a positive consumer outlook. As the tax revenue rises, the fiscal deficit would improve.
The international business community has welcomed this changing landscape of Indian business, and noted that the GST has helped improve the ease of doing business in India. This is expected to attract more FDI investments and help growth in exports.
Upcoming initiatives need to focus on capacity-building and digital adoption
As immediate next steps, the government needs to address capacity-building and digital adoption among the SMEs and MSMEs in India. The overall compliance cost needs to be lowered and technology is a great enabler here. Shifting a pen-and-paper economy like India to a completely digital platform is a good start. However, there has to be considerable investment both from the government as well as the industry in this direction. Counseling services and hand-holding guidance to file returns will be important.
In hindsight, the GST has been a step in to the right direction. It will have a long-term impact on the country’s GDP growth, ease of doing business, expansion of trade and industry, and the ‘Make in India’ initiative. Most importantly, it will be significant in establishing and promoting honest business practices, which will propel India towards becoming a significant economic power.