India’s biggest tax reform, Goods and Services Tax (GST), completed its half-decade journey on June 30, with many hits and some missteps, also brought about a paradigm shift in the use of technology to achieve tax compliance and made more than Rs 1 lakh crore collection. Revenue every month is a ‘new normal’.
The nationwide Goods and Services Tax (GST), which included 17 local taxes such as production tax, service tax, value-added tax and 13 taxes, was introduced at midnight on July 1, 2017.
Under GST, a four-rate structure is imposed that either exempts or imposes a lower tax rate of 5 percent on essential items and a higher rate of 28 percent on automobiles. Other tax brackets are 12 and 18 percent. In the pre-GST era, the total value-added tax, excise, and GST and their cascading effect resulted in 31 percent as tax payable, on average, to the consumer.
Besides, there is a special rate of 3 percent for gold, jewelry and gemstones and 1.5 percent on polished and cut diamonds.
Besides, the highest tax bracket of 28 percent is taxed on luxury, sin and incomplete goods. The income tax collection goes to a separate group – the Compensation Fund – which is used to offset the revenue loss incurred by the state due to the introduction of the GST.
The GST also represents an unprecedented exercise in fiscal federalism as the center and states come together on the GST Board to work out modalities for the smooth operation of the relatively new tax system.
The council met 47 times so far and took measures that made the GST collection of Rs.1 crore a month a ‘new normal’ and on its way to bring the figure to Rs.1.4 crore every month.
As the government releases the GST group figures for June on July 1, the groups are widely expected to follow the trend of the past four months and be around Rs 1.4 crore.
The groups touched a record of Rs 1.68 thousand crore in April 2022 and it first crossed the Rs 1 crore mark in groups in April 2018.
On the fifth anniversary of the GST, the Central Board of Indirect Taxes and Customs (CBIC) tweeted, “The Goods and Services Tax (GST) included many duties and taxes, reduced the burden of compliance, removed regional imbalances and barriers between countries, and greatly increased transparency and overall revenue collection. “.
Over the past years, the government has been proactively issuing circulars and clarifications to remove doubts about taxes under GST and ensure ease of doing business.
Recently, the GST Board, at its 47th meeting in Chandigarh, decided to ease compliance for small taxpayers who file via e-commerce platform.
Those suppliers, who only make supplies within the state, need not apply for GST registration if their annual turnover is less than Rs 40,000 in the case of goods and Rs 20,000 in the case of supplies.
To assist tax officers with management, the GST Network, which provides the technological backbone of the indirect tax system, uses artificial intelligence and machine learning to extract cutting-edge data and plug revenue leaks.
However, tax experts are looking for a simpler GST structure, one that ensures the smooth flow of input tax credits through the entire supply chain without losses.
Partner and Leader of BDO India – Indirect Taxes, Gunjan Prabhakaran said: “Over the past five years, the Goods and Services Tax (GST) Act has evolved and alleviated many issues faced by taxpayers through timely clarifications and amendments.
“However, the GST Board and the government must quickly address some of the other difficulties that taxpayers have with regard to the unwarranted and excessive issuance of cause-of-show notices (for financial figure adjustments, registration grants, etc.) which would achieve the dual objective of ease of doing business and removing the cascading effect of taxation.”
Rajat Mohan, Senior Partner at AMRG & Associates, said that in the past five years, the GST law has matured at a rapid pace. First, the focus was on compliance and technology; Sooner rather than later, the gears shifted, and taxpayers were asked to self-regulate annual filings.
Now the law appears to have entered the next stage where litigation must be reduced either by replacing vague tax laws or clarifying the practical application of technical issues. The companies expect the government to resolve all sectoral issues such as the qualification of a BPO/KPO as an intermediary, a tax credit for capital spending on construction, and the imposition of a goods and services tax on highly neutral alcohol (ENA), Mohan said.
While the GST administration has proceeded with caution, there is still a long way to go to realize the full potential of GST and make it a ‘good and simple tax’.
With gasoline, diesel, and the ATF out of the GST, a large portion of the economy is still not covered by the indirect tax system. Tax experts say the inclusion of petroleum products in the GST network could reduce costs for businesses.
With emerging technology, new asset classes such as virtual digital assets (VDA) or cryptocurrency have emerged.
Clarification is needed as to whether it will be classified as a supply of “goods” or “services” and what the tax rate will be.
Rationalizing the tax rate is something that will happen sooner or later.
Current inflationary concerns may have derailed plans for rate adjustment and GST panels, but they will eventually be a reality as both the center and states need the revenue, and fewer panels will mean a simplified tax system.
Besides, the Council’s decision makers also have to come up with a solution as the state governments, from July 1, 2022, consider stopping offsetting compensation for lost revenue due to the implementation of GST.
When the GST was introduced on July 1, 2017, states were promised compensation, from the liquidity fund, for five years if their GST collection fell below the 14 percent compound revenue growth rate.
Most of the countries have sought to extend the compensation mechanism and a final decision is likely to be taken at the next meeting of the GST Board in Madurai in the first week of August.
Abhishek Jain, indirect tax partner, KPMG in India, said that from now on, the government could consider creating a central authority to resolve conflicting AAR provisions across states and consider eliminating anti-profit provisions that free companies from setting prices.
Moreover, the introduction of petroleum and electricity within the scope of the GST will help prevent relaying and ensure further uniformity. Finally, some checks can also be integrated into the GST notices generated by the system, in order to avoid any unnecessary inconveniences to taxpayers.”