GST’s Year 2 will be critical

Simplify the tax and the processes, especially for SMEs

T here was never any doubt that India needed a unifying Goods and Services Tax (GST) to replace myriad state and central taxes and cesses that were preventing businesses from being able to treat the country as one market and which crimped the free

ourtake flow of goods across India. There was also never any doubt that there would not be one tax rate that would be levied on most products and services. And finally, there was never any doubt that liquor and fuel would be left out of the new tax regime, at least for the initial years. These given, how has the GST regime performed?

On the returns front, the numbers look healthy, and, as finance minister Piyush Goyal told this newspaper in an interview, the April receipts suggest that 2018-19 will be good. The number of assesses has also grown by 4.7 million to around 11 million, a clear indication that the new regime has forced more businesses into the tax net, thereby formalising the economy. The tax has also not proved inflationary; or, more accurately, according to an analysis by this newspaper, it is difficult to establish that in product and service categories that have seen inflation, it is GST which is responsible. But the new tax regime has also had lots of teething troubles, perhaps more than anticipated, suggesting that there may be something to the criticism that not enough thought and preparation went into it (but then, one can never be prepared enough for something like GST).

Then, there are still far too many open issues about the processes involved. The reverse charging and invoice matching ones haven’t been closed yet; and there is still confusion over the annual returns form. With Year 1 behind us, it is GST’s second year which will perhaps be critical. The government needs to simplify the tax and the processes, especially for small and mid-sized businesses – and, to be fair, Mr Goyal said in his interview that this is exactly what it will do. The government should also try and see whether it can reduce the number of tax slabs under GST, from the existing five to perhaps three (although even four may be acceptable as an intermediate step). Just like it doesn’t make sense to have one tax rate for all products and services, it doesn’t to have five different ones. Again, to be fair, Mr Goyal repeatedly described GST as an evolving tax and said the GST council would be open to considering changes in the regime based on receipts under the current regime, and relief for tax payers (not just in terms of rates, but also processes). It should if the country has to reap the long-term benefits of GST.