Goods and Service Tax: Two Years Journey

The goods and service tax (GST) has completed two years of operation. This article deals with the analysis of 2 years of GST.

GST hailed as the single-biggest tax reform, it was rolled out with a gong in a special session of Parliament two years ago and subsumed 17 existing indirect taxes including the excise duty and sales tax.

GST is currently levied on every product except petroleum, alcohol, tobacco and stamp duty on real estate in four slabs of 5, 12, 18 and 28 percent. 

For proper functioning of GST, GST council was set up.

About : The Goods & Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax, was set up on September 15, 2016, asCountry’s first ‘federal institution’

Need for GST council The GST council is the key decision-making body that will take all important decisions regarding the GST. The GST Council dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states. The predominant responsibility of the GST Council is to ensure to have one uniform tax rate for goods and services across the nation.

GST Council structure Article 279 (1) of the amended Indian Constitution states that the GST Council has to be constituted by the President within 60 days of the commencement of the Article 279A.

Members of GST Council GST Council will be a joint forum for the Centre and the States. It consists of the following members: The Union Finance Minister will be the ChairpersonAs a member, the Union Minister of State will be in charge of Revenue of FinanceThe Minister in charge of finance or taxation or any other Minister nominated by each State government, as members.

GST Council recommendations:

  • Article 279A (4) specifies that the Council will make recommendations to the Union and the States on the important issues related to GST, such as the goods and services will be subject or exempted from the Goods and Services Tax.

Reason for GST Introduction

GST Statistics In terms of revenue yield, the Indian GST has done remarkably well. In the initial phase of 21 months, it yielded an average monthly revenue of Rs 91,334 crore — the average stood at Rs 82,295 crore in the first nine months of its implementation which went up to Rs 98,114 crore in the next 12 months, a growth rate of 19.22 percent.Accordingly, the benchmarked average monthly revenue for 2017-18 and 2018-19 works out at Rs 90,972 crore and Rs 1,03,708 crore respectively, worked out on the basis of a CAGR of 14 percent on 2015-16 monthly averages. The average monthly yields for 2017-18 and 2018-19 fell short by 12.3% and 5.4% respectively. 

GST of states The performance of GST revenues of various states has been as diverse as the country itself. The average shortfall (Protected revenue) of all states has decreased from around 16% in 2017-18 to 13% in 2018-19. During 2017-18, states like Maharashtra, Tamil Nadu, Andhra Pradesh stood at one end of the spectrum with shortfalls from protected revenue ranging from 3% to 7 % While states like Bihar, Punjab, and Uttarakhand had deficits in the region of 38%. States like Madhya Pradesh, Karnataka, Rajasthan, Haryana, Kerala, Gujarat, West Bengal and UPwith deficits ranging from 12 to 26%. However, North-eastern states, excluding Assam, had become “surplus” states by 30 to 80 percent by the beginning of 2019-20.

Recent status After breaching the ₹1 trillion mark in goods and services tax (GST) collections for two consecutive months, indirect tax fell marginally to ₹99,936 crore.However, the average monthly collection for the April-June quarter stood at ₹1.04 trillion, up by 7% from the corresponding period of last year.

Analysis of Loopholes Initially, there were issues in GST like-Migration of taxpayers to the new system, Return filing and Payment of taxes. Fine-tuning of the IT system with the requirements of both taxpayers and the tax administration.The multitude of tax ratesBut the GST Council sort out the issues by- Return schedules were staggered, Dates were extended to file returns.Temporary halt on the GSTR-2 and GSTR-3. Introduced Summary return and its features were enhanced to facilitate filingLate fees were reduced and even waived for the initial period.Migration issues were almost fully resolved by the end of FY 2017-18. Refunds, particularly to exporters, were temporarily put on a semi-manual track till the systems are fully in place. Measures were taken to mitigate the difficulties of the MSME sector.Introducing the new return filing system is on the anvil, it would transform the way tax returns are filed.Introduction of E-way bill for easy transport of Goods.

Initiatives  Exemption to persons earning up to Rs 5 lakh from payment of income tax.Reducing the number of tax slabs in GST- including zero rates — can be re-categorized into three.However, the sudden reduction in categories will lead to a massive loss of revenue for the government. He suggested a gradual reform in this direction.GST is gradually reforming its loopholes like the 35 meetings of the GST Council that
have made 90 amendments in the GST rules. 

Way forward

The new tax regime is being received well as 20 states are independently showing more than a 14 percent increase in their revenues. It shows a vital instance of cooperative federalism where the Central and state governments work together to take collective decisions on all issues relating to the indirect tax regime of the country.