Well begun, the saying goes, is half done, and this is more than true for the GST which was rolled out on July 1, 2017. To be sure, it was not the perfect structure, with a bewildering array of rates and exemptions and a complicated compliance mechanism that never really took off. But, after a year, the good news is that the new indirect tax levy hasn’t been inflationary as some had feared it would be, based on the experience of some other countries. Moreover, although collections in some months were disappointing and not up to the break-even levels pencilled in by the finance ministry, revenues on the whole have been reasonably robust. Collections for the nine months between July 2017 and March 2018 have come in at Rs 8.2 lakh crore, which is a fairly strong increase of 11.9% over the relevant pre-GST regime numbers. On an annualised basis, this works out to revenues of Rs 11 lakh crore. As Chief Economic Advisor (CEA) Arvind Subramanian has observed, the implied tax buoyancy or responsiveness of tax growth to nominal GDP growth is 1.2, which, by historical standards, is high for indirect taxes. Tax experts who have studied the numbers say the buoyancy earlier was less than one, so it is a big improvement. The CEA has said the collections are surprising for several reasons: the challenges in implementing the new levy, the slowdown in the economy and the cuts in the tax rates on more than 200 items in November. This would suggest that the mechanism, after some initial teething troubles, worked well. The credit must go to the finance ministry for having hand-held companies and chartered accountants through the process.
For all their anxieties about the GST and public protestations, the states have not suffered in the least. As Subramanian found in his study, nearly all the states have seen their revenues grow by at least 14%, again, despite GDP growth decelerating and tax rates being trimmed. Better compliance in the future, following the introduction of the e-way bill and a simplified method for filing returns, should help keep revenues buoyant and states might actually report revenue increases of more than 14%. This means that the Centre need not worry about compensation to the states and the latter should now be more amenable to allowing items such as auto fuels to be brought into the GST.However, much more needs to be done to iron out the glitches. As the CEA has pointed out, the rate structure needs to be simplified, and while a single revenue neutral rate of 15% might not be possible just yet, the 28% slab must go. Also, as Subramanian has suggested, the cesses should be coalesced into a single rate.
The compliance mechanism is already being fixed. For the moment, only the summary returns and one return form—GSTR1—need to be uploaded. But, the new system, which should be in place soon, will require assessees to file just one return; this too will be system-generated and all that assessees will need to do is upload the invoices. The government must quickly do away with the anti-profiteering authority which is anti-business, and unnecessary. Asking companies to explain costs and expenses is completely unjustified. Companies might be more amenable to paying their taxes without this kind of bullying. That is what the government should really be aiming for.