‘One nation, One market, One tax’ – the driving motto behind the introduction of GST, with effect from 01 July 2017, has brought 1.3mn taxpayers into a unified indirect taxation system. The profound idea behind the implementation of GST was that it would offer a win-win situation for all stakeholders, be it the governments at the Centre or States, taxpayers or the tax administrators. Manufacturers and traders were to benefit from fewer and easier electronic tax filings, transparent rules, cost reduction and ease in record maintenance. Consumers would be paying lesser for the goods and services, and the government would generate more revenues by plugging revenue leakages through the adoption of efficient data analytic tools. So, how has GST really impacted India?
The first five years of GST have been a roller-coaster ride, impacted by two waves of COVID-19 that resulted in global lockdowns and supply chain disruptions. The tax reform measures coupled with the stabilisation of the performance of GST’s technology backbone, witnessed record GST collections on a month-on-month basis, indicating not only improvement in economic activity but the efficiency of the measures to plug revenue leakages. In fact, the tax base has almost doubled in the last five years from 6.63mn to over 13mn.
Prior to the introduction of GST, it was projected that GDP would grow by 1% to 3%; however, the combined effect of demonetisation in 2016, the impact of trade wars and Brexit and later the pandemic, could not translate the gains of GST into a significant impact on GDP growth.
The introduction of GST has simplified business processes, tax administration and compliances in India. The Ease of Doing Business Index, a measure used by World Bank Group in which ‘paying taxes’ is one of the important parameters used to determine country rankings, has shown significant change. India’s ranking during the last three years showed a sharp upward momentum from 100 in 2018 to 77 in 2019 and 63 in 2020 – a jump of 37 places in a span of 3 years.
Five years down the GST lane, there are challenges yet to be addressed – be the highest tax rate of up to 28% (and compensation cess on certain goods), a large number of tax slabs (as many as five), exclusion of products or sectors (petroproducts and power) resulting in cascading taxes, technical glitches of the tax portal, etc.
GST and technology
With the introduction of GST, the country adopted a pan India technology platform, which could aid the adoption of sophisticated automation tools and simplify GST reporting and related compliances. GST demands greater integration of tax domain knowledge and technology, as compliance has become paperless and data intensive. After the initial hiccups, the GST portal started handling registration and compliance functions with consummate ease. Also, the integration of the Customs/SEZ portal and sharing of data with other departments/regulators within the government helped explore the unexplored areas of data analytics and audit.
The robust unified e-way bill system introduced in 2018, has facilitated dispensing with the archaic check-posts, thereby reducing supply chain lead time and associated costs for companies and helping the tax administration monitor tax compliances and potential revenue leakages better.
The introduction of e-invoicing from October 2020, provided a system that allows real-time data reporting by taxpayers. The availability of real-time and relevant data helped in the detection of tax frauds and curbing evasions. Further, the standardised format and data reporting allowed the interoperability of data for multiple reports and filings. The E-Invoicing mandate, which started off as a protocol for large taxpayers with a turnover above INR 5bn, is now made mandatory for businesses with a turnover of INR 20mn, which is the tell-tale story of the scale of automation and technology adoption that GST has brought to the table.
While the entire indirect tax compliance and reporting ecosystem has witnessed a remarkable transformation that was difficult to visualise 5 years ago, the compliance portal is yet to make progress in invoice-wise validation and acceptance of Input Tax Credit (ITC) by the buyers as was originally envisaged through Form-GSTR-2 (input tax credit return to be filed by the buyer), which came to be suspended due to technological challenges. An alternate mechanism, which was sought to be made operational effective from 01 April 2020, appears to have been put on hold.
As GST evolved and started gaining stability in the last 5 years, the government, taxpayers and tax administrators have been proactively working closely to remove the hurdles, which is inevitable for the massive transformative exercise of redrawing the country’s indirect tax horizon. Emboldened by the experiences of half a decade, the remaining gaps between the expectation and progress so far, can be addressed to further simplify the tax structure, enhance the Ease of Doing Business index ranking, increase compliance and an overall reduction in tax rates and prices and augment revenue.
As Winton Churchill remarked ‘success is not final, failure is not fatal; it is the courage to continue that counts!’
(Gunjan Prabhakaran is Partner and Leader – Indirect Tax and Pratik Shah is Director – Indirect Tax, BDO India)