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1st Anniversary of GST - A taxpayer's 'Mann Ki Baat'!


TIOL - COB( WEB) - 613
JUNE 28, 2018

By Shailendra Kumar, Editor

IN the next 48 hours the most talked about tax reform in India - the Goods & Services Tax (GST), will turn ONE! And on its first anniversary, there would be several official events across the country. The Tax Administrations of the Union of India as well as the States are going to celebrate July 1 as the 'GST Day'. Red carpet welcome is going to be given to the representatives of the taxpayers. The Cabinet Minister, Mr Arun Jaitley, on the recovery path after his serious health issues is likely to demonstrate his stage-agility, physically as well as 'fiscally' on this occasion. Industry and trade representatives would also share their views on the GST journey so far! Even TIOL with many industry experts and GST policy makers will be articulating the flight path of the journey dotted with days of tribulation and trepidation for both - the GST Council as well as the taxpayers!

Even before others talk about the journey, the Prime Minister, who is known for his ability to run AHEAD of TIME in respect of many policy initiatives, grabbed the opportunity and aired his 'Mann ki Baat' last Sunday. And the key expressions he emphatically used in his Radio Talk, were cooperative federalism; Information Technology replacing Inspector Raj, extinction of check-posts leading to smooth movement of goods; gestation period for a large reform like GST and full credit to taxpayers for their ability to adapt to the new environment. I am indeed surprised how he missed the points like formalisation of the economy; a dent to the cash economy; expansion of the tax base; greater convenience to compliant taxpayers and much higher revenue. I guess he deliberately did not touch them, as they are largely the consequences of a good tax reform if implemented with sensitivity and alacrity to make quick changes.

Let's examine the FIVE yardsticks the PM talked about. He gave full credit to the States for enabling the slogan of federalism to acquire a truly cooperative character in action. Given the constitutional bias in favour of the Centre, it was indeed a Herculean task for a political leadership to give more elbow room to the tiny and large States ruled by different political parties, to have their say in deciding the key components of the GST Design. With countless political patience, the representatives of the Union of India dealt with the demands and grievances of the States and succeeded in evolving meaningful consensus which led to smooth sail through for several contentious proposals in the GST Council meetings. True, it was the force of consensus that sustained the momentum for the frequent meetings of the Council.

But, whether such momentum is going to be seen in the second year of the GST is a matter of speculation. A good number of experts have begun to question its sustainability on the ground that the political landscape is fast changing because of the approaching General Elections in early 2019. Secondly, the policy juggernauts would prefer stability to major changes in the new regime. Thirdly, the revenue collections are yet to mature to an optimal level. Since it continues to be a major worry for the Centre as well as some of the States which have not experienced the buoyancy like many other industrialised States, a clarion call to slow down the reformatory measures may turn out to be a dominant voice at the next Council's meeting on July 21.

However, it is unlikely that some of the mega decisions which have already been taken, would be delayed. The second year of GST is certainly going to see a new GST Return format, most probably one page; further deferment of contentious provisions like TDS, TCS and RCM; further strengthening of the e-Way Bill system; a Centralised body to settle divergent views coming from dozens of Advance Ruling authorities; tweaking of 28% tax rate slabs, particularly for the Services and some regular use goods and a minimum of three dozens of amendments in the GST laws. Since these changes are consequential, they have to be accommodated fast. As regards the legislative changes, the Government's intention appears to be the one to make them public only through a Bill during the Monsoon Session and if the voices are raised against some of the changes, they may be taken up for the final parliamentary approval during the Winter Session. Meanwhile, it goes without saying that the litigation would multiply!

The other key expression used by the Prime Minister was the IT substituting Inspector Raj. In common parlance the expression 'Inspector Raj' was interpreted as the real power resting with the Tax Inspectors who used to harass and extort money from the taxpayers. But the truth was - the oppressive power rested with the labyrinths of meaningless procedures and regulations which used to vest uncontrolled discretions in individual officers. Such powers were often used by the senior officers but since the Inspectors were at that end of the 'tube' which used to interact and communicate with the taxpayers, the common man always blamed the Inspectors for all the ills of the system. Though the PM sounded confident of IT replacing the Inspector Raj but its authentic assessment should logically come from the taxpayers and not the Prime Minister. Inspectors of the CGST administration may have become facilitators but what about the States? The trade and industry feel that the States need to do something drastic to 'implant' a sense of the letter and the spirit of the new legislation and must be educated about the fair play besides the catalyst role they can play in buoying up the economic activities. Truckers carrying e-Way Bills have different tales to share about them. To avoid being accosted by them (Inspectors) on the highways or expressways, a good number of truckers have begun to prefer unknown zigzags through the villages and end up travelling more distance and consuming more time. It may be seen as initial hiccups but States certainly need to monitor their own officers more closely if the real benefits of 'One Nation, One Tax' is to benefit the logistics sector. Check posts are indeed gone but not the CHECKS - this is how the present situation may be described as!

As regards the gestation period for the new tax regime, the Prime Minister is right in underlining the fact that given the size of our economy and also the historical data of many countries, it should take anywhere between 5 to 7 years. Going by this parameter, if the success is to be assessed, the Indian GST has indeed scored very high - anywhere between outstanding to exceptionally good! In less than 365 days the Indian version of GST has empirically crossed many hurdles and I guess, the full credit goes to GSTR-3B. It is now to be seen whether our policy makers would be successful in fully replacing the GSTR-3B by a new GSTR in the second year or are we heading for a new shade of chaos? A lot would depend on the kind of changes which may be introduced in the months to come.

For whatever success one may tend to attribute to the Indian GST in its first year, the Prime Minister is right in giving full credit to the taxpayers. Though his statement may be read by his detractors as politically appeasing but the unquestionable fact remains that a good chunk of taxpayers were mentally prepared for this new tax regime and that helped them in overcoming their pain and resistance, finally leading to adoption and compliance. Certain sectors demonstrated fulminations but those incidents were tactfully handled and regular tweaking of the GSTN and other procedures finally soared up the compliance percentage to almost 70% of the total tax base of above one crore. At a time when GST has failed in a leading Asian economy, its partial success so far in India makes it a good subject for a case study by not only multilateral international bodies like the World Bank and IMF but also those economies which continue to face irritants even after many years of GST implementation. The Indian GST has a bright future and it can be brighter if the taxpayers' genuine voices ('Mann ki Baat') are heard more frequently.



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