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Goods and Services Tax: Five Years & Stronger



Goods and Services Tax (GST) was introduced in India on 1st July 2017 and FY 2022-23 marked the completion of five years of GST in India. Since its introduction, GST has naturally faced teething problems but, slowly it has emerged strongly after facing turbulence from the Covid-19 global pandemic and its fallout. The GST Council has played a crucial role in forging a national consensus on key issues related to the tax regime — rates, exemptions, business processes and movement of ITC.


GST was introduced through the 101st Constitution Amendment Act, 2016. It is the biggest indirect tax reform in the country. It was introduced on the pretext of ‘One Nation One Tax’. It has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax. It is levied at the final consumption point and is essentially a consumption tax. It has led to a common national market as it helped mitigate the double taxation, cascading effect of taxes, multiplicity of taxes, classification issues etc. The GST paid by a merchant to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services. The GST avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.


To give a quick background, GST subsumed more or less all the erstwhile taxes levied by the federal government like taxes on manufacture of goods, provision of services etc. and subsumed more or less all the taxes levied by the individual states in the federal structure like taxes on sale of goods whether interstate or intrastate etc. There will be levy of Dual GST in India, where in for all transactions, both Central and State GST will be levied.


However, the imposition of GST has the following fall outs:

  • ‘Sin’ taxes, for instance, are at cross purposes with the government’s policy of generating growth and creating jobs under Make in India’

  • The hospitality industry generates indirect employment in ancillary areas: it buys bed linen, furnishings, rugs and carpets, air conditioners, cutlery, electrical fittings and furniture, and consumes enormous quantities of food produce. All these generate jobs and income for farmers, construction contractors, artisans and other manufacturers. Five star hotels also generate foreign exchange by attracting rich tourists and visitors. So, it’s unwise to levy high GST and disallowing set offs and making the industry bleed.

  • Creation of ripple effect: High taxes on air conditioners, air-conditioned restaurants, chocolates and luxury cars create an economic ripple effect downstream, in a complex web of businesses that have symbiotic relationships. The effect finally reaches down to the bottom of the employment pyramid.

  • Different laws for the same product: GST on bread is zero, but the vegetable sandwich is in the 5% tax slab, hitting the vegetable grower directly.

  • Tax on employment generating sectors: Liquor is out of the purview of GST and hence the cost of manufacture of liquor like wine, rum and beer, which generate large-scale employment and are the backbone of grape and sugarcane farming and the cocoa industry increases manifoldly.

  • Legal disputes: The confusion has given rise to several disputes. ID Fresh Food, for instance, which makes ready to eat foods like chapatis, rotis, parotas and sells various types of idli and dosa batter appealed against a GST ruling of the Authority for Advance Rulings.

  • Political influence in the decision of GST Council: Ideally, political affiliations should not matter in a Council set up to decide indirect taxes. Even the need for a meeting to determine tax revenues for States is evidently a political decision.

Way Forward/Unfinished Agenda

  • Input Tax Credit rules to be streamlined : The purpose behind implementation of GST was to ensure seamless tax credits across the entire value chain without any losses. However, the credit restrictions carried forward from the erstwhile regime add to cost of businesses, blocking precious working capital for companies. The issue of inverted duty structure also continues to be a hurdle as refund of input services is currently not allowed.

  • One Time Amnesty Scheme under GST : Initially, many taxpayers have unknowingly or mistakenly committed some kind of mistakes which might be procedural in nature, mistakes on account of non-understanding of law, on account of technological glitches, etc. Therefore, the government should bring a one-time settlement scheme/amnesty scheme whereby all such taxpayers may be allowed to settle their cases with minimum of burden and in a prescribed time frame.

  • Lack of Dispute redressal mechanism : There is no statutory mechanism under the GST regime that could ensure uniformity in the rulings passed by the Authorities. While much has been accomplished in terms of technology and compliance, legal disputes relating to GST are still at a nascent stage which needs to be streamlined.

  • Use of Blockchain Technology: While GSTN has revolutionized the GST landscape, blockchain technology has enormous potential to resolve glitches and improve efficiency in GSTN, since the unreliability of GST network for small businesses at remote locations still continues to be a challenge.

  • Taxation of Virtual Digital Assets: The government, in its recent Budget, also announced that cryptocurrencies would be taxed under income tax at a rate of 30%. The GST law on supplies related to NFT, on the other hand, does not (yet) provide any explicit guidance in this area.

 

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