This year will perhaps be most remembered for the introduction of the Goods and Services Tax that was in discussion and design for over a decade. With the GST Council, wherein the Centre and States together decide on changes in tax legislation, the new law has completely changed the country’s indirect tax administration and political economy.

With the decision to launch the e-way bill next month, all key provisions of GST will be fully functional.

But five months after its rollout, the new indirect tax regime is still far from perfect, and 2018 will be about the many tweaks and design changes required to not only ease the burden of compliance on small and medium enterprises, but also shore up revenue collections that seem to be lower than expectated.

More tweaks

The economy has already weathered the impact of the rollout of GST in the first two quarters, with less than 7 per cent growth, and going ahead, further changes are expected to further boost growth.

The three main changes expected in GST are: reducing the number of multiple rates, bringing more sectors, including real estate, petroleum and alcohol within the ambit of the tax, and further simplification of the IT- and return-filing process.

“It was important to roll out GST from July 1 due to the Constitution Amendment Act. Changes in the tax structure can be done as and when required, depending on the demands of the industry and the economy,” said a senior Finance Ministry official.

Finance Minister Arun Jaitley has already hinted at more rationalisation of rates in 2018, and hopefully, converging the multiple rates into three standard rates — 5, 14-16 and 18 per cent.

The new year is also expected to see more changes in the return-filing process, including more simplification in the monthly return and a system for invoice-matching.

Recommendations of the Advisory Group of the Law Review Committee of GST that call for more simplification, is also under examination, and is likely to be taken up by the GST Council when it meets next.

Significantly, most of the States are also on board with the changes, and it is now not a question of if, but when, the changes are rolled out.

An indication of this was available when State Finance Ministers, who are members of the GST Council, addressed a panel discussion by industry chamber FICCI this month.

Though all three ministers — West Bengal Finance Minister Amit Mitra, Jammu and Kashmir Finance Minister Haseeb Drabu and Bihar Deputy Chief Minister Sushil Modi — had different perspectives. All agreed that GST needs to evolve more, and hinted at the changes ahead, including perhaps a tweak in the composition scheme to allow input tax credit.

“The expansion of the GST tax base in order to avoid revenue shortfalls would be uppermost in the minds of the government. This can be done by further rate rationalisation of certain products and services, expanding the GST coverage, and compliance simplifications. A phase-wise roadmap covering these areas as ongoing reform milestones would be very beneficial to businesses as it would enable them to plan ahead,” said MS Mani, Partner, Deloitte India.

While India Inc has pitched for these changes as part of their suggestions for Budget 2018-19, most of these will have to be worked out by the GST Council, and the Budget on February 1 could only have cosmetic announcements.

But given the slew of State elections next year and General Elections looming in 2019, no government is likely to ignore the proposals.

Direct taxes

The Finance Ministry has once again embarked on a re-work of the Income Tax Act, 1961, after virtually abandoning the earlier Direct Taxes Code Bill.

A taskforce under Arbind Modi, Member, Central Board of Direct Taxes, has been given a six-month timeframe to re-work the income tax laws, keeping in mind international best practices and the needs of the economy. The report is expected in May 2018.

But with the upcoming Budget expected to be the last full Budget of the NDA government before General Elections scheduled for 2019, its recommendations may have to be given a final form in 2019.