The GST was not just a grand mid-night event in India, it was a transformation which was felt. From initial confusion, chaos, protests and teething troubles, the GST regime has largely stabilised in last one year, but not as much as the government claims, say several experts.
The Narendra Modi government sure has won accolades around the globe and back home for breaking the 17-year-long impasse in getting the Goods and Services Tax passed in the country, responding quickly to difficult situations and proving that the federal system can work.
But it is a work in progress and due to lack of a smooth switch to the new indirect regime, several experts told FE Online that the implementation and progress have been a mixed bag.
Here’s the report card on GST’s journey so far:
Has the GST helped in ease of doing business? Not for small and medium-sized enterprises
The Narendra Modi government said that the GST has helped in the ease of doing business in its four-year report card but experts point out that this has worked well for the bigger companies and not small and medium ones.
“Bigger companies are able to cope up with the new tax regime, the smaller and medium scale companies are still struggling,” R Muralidharan, Senior director of Deloitte India told FE Online. A similar observation was made by Care Ratings chief economist Madan Sabnavis. “Larger companies are better able to adjust to this scheme and the smaller ones, especially in the unorganized sector, face problems,” Madan Sabnavis said to FE Online.
If the government successfully addresses issues such as expediting refunds, making the GSTN efficient and robust and bringing uniformity in tax rulings across states, the new indirect tax regime can help in ease of doing business, Amit Parmar of GST provider Vayana Network said.
Has the GST to the reduction in inflation? Yes, to some extent
The government said that as the GST reduced the cascading effect of multiple taxes, it helped in reducing inflation. Experts said that the government has ensured that the GST helps in keeping inflation low — or at least has no adverse impact.
“It has been largely neutral when looked at in totality. Some prices have moved up while others have come down. Services have tended to become dearer, while manufacturing displays varied tendencies,” Madan Sabnavis said.
Some efforts like reduction in tax rates, finalisation of rates to keep it aligned to earlier ones and the introduction of the anti-profiteering clause have helped in reduction of inflation, R Muralidharan said.
Has the GST helped in curbing black transactions? Not completely but significantly enough
The input tax credit factor in the GST has made many businesses to join voluntarily, and with this, black transactions have been curtailed significantly. Moreover, the GST led to the formalisation of the more and more businesses, which now leaves less room for tax evasion.
“With a strong credit system that allows tax deduction in the hands of business, GST is designed to encourage compliance. Coupled with e-way bill system, it has ensured that the businesses record their transactions properly,” L Badri Narayanan, Partner at law firm Lakshmikumaran & Sridharan told FE Online.
Jigar Doshi, an indirect tax partner at SKP Business Consulting, also said that tax evasion or black transactions have come down. “Due to one to one co-relation of input tax credit with invoices uploaded by the vendor, it has become impossible to claim the credit on bogus invoices,” he said.
Has the GST made customers more informed, or more confused? Both!
The government said that the GST has led to more informed consumers due to the simplified tax regime. The experts said that too many and too frequent changes have led to confusion and chaos but the government has also been able to communicate properly to people about their rights such as asking for GST reduction benefit.
“Both consumers and businesses have been kept well informed. You can see these most starkly in restaurants where bills are scrutinized for GST rates,” Badri Narayanan said. Amit Parmar told FE Online that due to frequent changes customers are often left confused but there is no dearth of information to seek clarification from.
Has the GST helped in Make in India? The jury is still out
None of the experts FE Online spoke to said that the GST has helped Narendra Modi’s ambitious Make in India. Will it help in future? Experts are hopeful that it may but before that, a lot of work needs to be done. For Make in India initiative to succeed, issues such as better infrastructure, regulatory framework, correction of inverted duty et al are crucial along with the GST and should be prioritised, said R Muralidharan.
While Amit Parmar said that the GST has not yet led to any visible effect on the Make in India initiative, Badri Narayanan said it is early to conclude.
The GST was launched on July 1, 2017 ,and any decisions pertaining to the new indirect tax regime is taken by the GST Council, headed by Finance Minister Arun Jaitley and consisting of finance ministers from states known as the Group Of Ministers (GoM). As the GST completes one year, experts hope more efforts towards making GST return filing simpler and inclusion of petrol and diesel under its ambit.