All is well that ends well and that is what exactly happened with the Goods and Services Tax (GST) during 2018.
The year started with the six-month-old GST. Revenue collection was low, more items were in the higher slabs, procedures were still complicated and economy was in a recovery mode after the twin economic disruptors: demonetisation and GST. There were apprehensions that the economy might slow down.
In fact, when Finance Minister Arun Jaitley proposed raising the fiscal deficit target by 20 basis points for 2017-18 and 30 basis points for 2018-19, the apprehension of GST giving lesser revenue appeared to be stronger.
However, things started changing from the first month of the current fiscal and the fourth month of the calendar when revenue for the first time crossed ₹1 lakh crore. And since then to December 24, the indirect tax regime has seen a lot of changes.
The agenda for the next 12-24 months has also been set up that can be divided into four heads: Rate rationalisation and revenue growth, constitutional validity for compensation law, restructuring of GSTN and agenda for further rate restructuring.
Rate rationalisation and revenue growth: 2018 saw rationalisation in nearly 200 goods and services, most importantly changes in the 28 per cent slab (the highest rate category). The year began with over 50 items in this category and now the list has shrunk to 28. As on date, out of 1,216 over 97 per cent goods attract GST up to 18 per cent — 183 products are taxed at zero rate, 308 at 5 per cent, 178 at 12 per cent and 517 at 18 per cent. According to the government, rate reduction means losing revenues over ₹95,000 crore. But average monthly revenue is hovering at around ₹94-95,000 crore as against less than ₹90,000 crore during last year.
Constitutional validity for Compensation Law: The Supreme Court has upheld the Constitutional validity of the law allowing cess to be collected for compensating States for revenue shortfall under the GST. It said the Compensation to States Act, 2017, is not beyond the legislative competence of Parliament and also does not violate provisions of the 101st Constitutional Amendment. It also categorically ruled that the said law is not a ‘Colourable Legislation’ (under the ‘colour’ or ‘guise’ of power conferred for one particular purpose, the legislature cannot seek to achieve some other purpose which it is otherwise not competent to legislate on).
Restructuring of GSTN: The IT back bone of GST saw major change when it was decided to change the equity structure of the entity — under which it will be 100 per cent owned by governments (Central and States). The Centre will own half of the shares while the remaining half will be owned by all the States. This move was initiated to silence the political opposition.
Agenda for further rate restructuring: The year 2019 is expected to begin with lowering of rate on real estate. Finance Minister Arun Jaitley has already said that the next priority would be to transfer cement from the 28 per cent slab to a lower rate. If revenue shows buoyancy, then 28 per cent slab will be just left about a dozen items, mainly sin items and luxury items, besides automobile.
A future road map could well be to work towards a single standard rate instead of two standard rates of 12 per cent and 18 per cent. It could be a rate at some mid-point between the two.
Obviously, this will take some reasonable time when the tax will rise significantly. The country should eventually have a GST which will have only slabs of zero, 5 per cent and standard rate with luxury and sin goods as an exception. According to Mahesh Jaising, Partner, Deloitte India,: “2018 has been a mixed bag for industry. We witnessed massive rate rationalisation right from November 2017 to December 2018. On the compliance front, the industry has been grappling with timely filing of returns, payment etc on account of GSTIN portal fraught with glitches”.
However, the government has been cognizant of the industry concerns and has been issuing timely notifications granting relief to the trade, he said, adding that the industry is hoping to have the final format of returns soon, to be able to streamline their systems to meet with the compliances.
Said Archit Gupta, Founder & CEO ClearTax, the general sense is that of significant upheaval in the way business was earlier done. “There is also a worry of constant changes that take place and increased compliance in the wake of changing rules. Businesses will enter the second phase of GST compliance by the middle of 2019 and must prepare themselves for what lies ahead,” Gupta said.
Pratik Jain, Partner and Leader Indirect Tax, PwC India, said: “We entered the year when GST was six months old and the initial euphoria had tapered down but the benefits that it offered was seemingly pale in the wake of initial compliance related challenges.”
Consolidation ahead
“The year 2019 is expected to be the year of consolidation for GST, where frequency of changes may be lesser and focus may be more on implementing the new compliance mechanism,” Jain said adding the government may also focus on data analytics and strengthening the audit/intelligence wing to reduce tax evasion. Businesses will hopefully focus on managing the vendor's compliances more efficiently and realising the benefits that GST promised to offer.