Seventeen years after its primary formulation, the Goods and Services Tax (GST) became a reality on July 1, 2017. Immediately after its roll-out, it faced criticism due to its multiple tax rates. Many questions have been raised, questioning the implications of the much coined slogan, “One Nation, One Tax”. One month after its implementation, the problem associated with matching invoices was noticed and GSTN, which is the IT backbone of GST, collapsed. The government was forced to introduce a new GST form in order to ensure smooth revenue collection.
The government is initiating frequent changes in the timeline of GST returns and amending tax slabs. This is not a good sign. Business houses have started questioning the intent of the decision makers. The change, by way of reduction in GST rates, might send a cheer among the masses but the absence of anti-profiteering laws has diluted the effect. The methodology has to be prescribed to protect the interests of both the consumers and the corporates. The recent GST rate notifications should reduce prices of several commodities but there is a need to ensure that the consumers enjoy the benefit of rate reduction. But the sudden reduction in GST rates and removal of ITC has shocked the industry.
The country is five months into the new tax regime and there is an urgent need to create an environment where we are better informed about the GST regime. The technical glitches need to be addressed and measures are needed to ensure the stability of the new system. The multiple GST rates have created disruptions and have forced the government to think of the possibility of lesser tax slabs and easier procedures. Formation of an empowered committee to review procedures under GST is a welcome step but it should be time bound.
At its last meeting, the GST council has finalised the rates for all the goods and major services. Many items have been shifted from the 28% slab to the 18% slab. It is clear that the GST council is working with a mind-set of initiating easier tax slabs and simpler procedures. If the economy can successfully move from multiple tax slabs to a single-tiered or a two-tiered GST regime then it can be expected that the existing loopholes would be overcome and the economy will be given a major boost. We may never move to a single rate GST due to a prevailing socialist mind-set but the 12 % and 18% slabs can be combined into a single rate. This may make GST a two-tiered regime with a higher tax slab for sin goods. It is good that the GST council is meeting frequently and taking problems of businesses into consideration. The real purpose of GST is to simplify business and compliance procedures. A lot of effort is required to achieve this aim and the council has to review GST forms so as to simplify the system. We need a more calibrated approach and a mind-set to make the process easier and this can lead to better compliance from small and medium businesses.
-The author is the DGM of Taxmann, one of the leading publishers of tax and corporate laws in India.