After a year of goods and services tax (GST), India can pat itself on the back. While giving full respect and effect to democracy, keeping intact the federal structure, the country has been able to successfully introduce and implement a completely new tax law subsuming multiple taxes. The GST law itself is extremely complicated with heavy compliance requirements. But the GST regime is still better than the previous system which existed in India. India was in an unusual position in this regard, as many other countries made the transition to GST or value-added tax from no indirect tax in any form.
Despite all its complexities, GST implementation is widely seen as successful in India, and there are multiple reasons for this. The first and the most important one is the GST Council, which has been able to speak in a unified voice on all the issues. With every GST Council meeting, various concerns raised by different industries have been addressed. Numerous circulars, sets of frequently asked questions, and amendments to rate notifications have been issued, sending a clear sign on the part of government that it is willing to do everything to make the transition to the GST regime as smooth as possible.
Another reason for success has been the willingness of taxpayers to comply with the law. In general, it can be seen that taxpayers are complying with all the procedures – from filing returns to the generation of e-waybills – and the overall attitude of industry is to be compliant with the rules, regulations and procedures pertaining to GST.
The Economic Survey 2017-18, published by the Department of Economic Affairs in January 2018, shows that 3.4 million businesses that had not been registered under the previous indirect tax system had obtained registration for GST. The intention to be part of the system to be able to benefit from credit and to pass on the credit seems to be one of the major reasons for this. It could gradually lead to greater formalization of the economy.
The credit provisions were the biggest thing implemented in the first year of GST. Next came the e-waybill system. This system allows government to track movement from one state to another, permitting the elimination of check posts. The backbone of the e-waybill system is technology. Accepting imperfections in the technology required, the government deferred the e-waybill requirement multiple times. The e-waybill system has recently been implemented again. It is now being rolled out in stages across all states, for both inter- and intra-state movement of goods. When completely implemented, the system is expected to have a huge impact on logistics.
Another big change that has been widely publicized has been the anti-profiteering provisions. These provisions have had a significant impact on the business community, which has been cautious with any price increases. The absence of guidelines has made it difficult for businesses to confidently comply with the anti-profiteering provisions. Questions such as whether to calculate profit at unit level, product level or entity level have remained unanswered. This has left businesses with no option but to find a way based on their own understanding to pass on any extra benefits to customers.
One area that requires another look is the advance ruling authorities scheme. With most orders going against the taxpayers, the scheme is being viewed negatively by businesses. This requires reconsideration.
Continuing the hard work and efforts in the second year, we can expect further removal of difficulties by way of changes in the law, further revisions and consolidation of rates, and simplification of returns. Already, rates have been cut on various electronic white goods, handicraft items, paints and varnishes, etc. Transaction value has been made the basis of determining the applicable rate and not the declared tariff, which provided big relief for the hospitality industry, and the issue of supply of food in canteens, mess halls, schools, colleges, etc., has been addressed, putting an end to confusion in this regard. All this now requires revisions in prices, packaging of goods and hotel advance bookings, in full compliance with anti-profiteering provisions.
The GST Council has also approved simplified returns, which should make it easier for assessees to amend details. Once implemented, taxpayers having turnover below ₹50 million (US$730,000) will have the option of filing quarterly returns.
Although the latest changes are welcome, clarifications regarding anti-profiteering provisions, classification issues, tax treatment on advances received by the hospitality sector, etc., are still awaited.
L Badri Narayanan is a partner at Lakshmikumaran & Sridharan. Jyoti Pal and Disha Jain are principal associates.
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