This Article is written by Vanshika Jain, student of University Law College, Bangalore University.
The One Hundred and First Amendment of the Constitution of India, officially known as ‘The Constitution (One Hundred and First Amendment) Act, 2016’, introduced a national Goods and Service Tax in India from 1stApril 2017. The GST is a Value Added Tax (VAT) and is proposed to be a comprehensive indirect tax levied on manufacture, sale and consumption of goods as well as services at the national level which will replace all indirect taxes levied on goods and services by a single tax on the supply, right from the manufacturer to the consumer. GST is one indirect tax for the whole of India.
WHAT WAS THE NEED TO INTRODUCE GST?
The prior multi-staged tax structure had charges from the State and Union governments separately, which led to cascading effect of taxes. There used to be taxes at different rates and at multiple points. The Centre had taxes like income tax, service tax, central sales tax, excise duty and security transaction tax while at the State level it included VAT or sales tax, octroi, state excise, property tax, entry tax and agriculture tax. These taxes led to increased tax burden on the Indian products which affected the prices and sales in the domestic as well as international markets.
It aims to replace all indirect taxes levied on goods and services by the Indian Central and State governments. IT would subsume with a single comprehensive tax, bringing it all under a single umbrella, eliminating the cascading effect of taxes on the production and distribution prices of goods and services. This Law in India is a multi-stage, comprehensive, destination-based tax that is levied on every value addition.
It is currently levied on every product except petroleum, alcohol, tobacco, and stamp duty on real estate in four slabs of 5, 12, 18, and 28 percent. Most of the articles that are used daily have zero Tax as per the latest revision of the tax rates last year. 97.5 percent of articles are covered by 18 percent or lower GST slab. Under the previous value-added tax (VAT) regime, the standard taxation rate was much higher. Only luxury and sin goods are now taxed at the highest 28 percent rate.
AMENDMENT TO THE INDIAN CONSTITUTION
The Constitution contains the Union List and the State List in Schedule VII within which the power to levy separate taxes is given to the Centre and States respectively. GST was to be levied in such a way that both the Centre and the States received the power to levy and collect it.
Further, the legislation had to remain consistent across the Centre and the various State/Union Territory Legislatures. To provide for this, an amendment in the Constitution was necessary.
In order to suitably implement the GST legislation, the Constitution (101 Amendment Act), 2016 resulted in the insertion, deletion and amendment of certain Articles of the Constitution. The following matters were dealt with as a result of these changes:
- The delineation of powers to levy and make laws with respect to this respect
- The applicability and scope of the this law
- The manner of apportionment of revenue from GST among Centre and States
- The constitution, powers and duties of the GST Council
- The discontinuation of existing taxes to give way for GST
- The manner of providing compensation to States for loss of revenue on account of the introduction of GST.
Within two years of its implementation, this taxhas achieved a lot of milestones. Firstly, the number of registered taxpayers at the time when the GST was rolled out was Rs 65 lakh, which today stands at Rs 1.2 crore, a jump of 84 percent over the last two years. This shows a significant widening of the tax base and formalization of the economy under the GST. Secondly, monthly GST collections for July 2017, the first month, were Rs 92,200 crore. Subsequently, it dropped to Rs 83,700 crore in November that year. Collections started rising from the 2nd year onwards with July 2018 collections at Rs 96,500 crore. In 2018-19, the average monthly collection was Rs 97,100 crore with collections breaching Rs 1 lakh crore regularly. After a slow start, the number of registered taxpayers who started complying with GST timelines, grew.
For the first month (July 2017), only 38 lakh out of 68 lakh registered taxpayers had filed GSTR 3B returns by August 25. This amount has now almost become double to 72.5 lakh by April 2019. Also, E-way bill, an anti-evasion mechanism, came into existence from April 1, 2018. The number of e-way bills doubled from 2.8 crores in April 2018 to 5.49 crore in March 2019. It has proved to be a successful template for Centre-State Relations as most decisions in the GST council have been unanimous. The Centre has taken the states along in ironing out issues and also Council has proactively addressed issues as they arose.
CHALLENGES FACED BY GST
Despite its success rate, GST has and is still facing a number of challenges. Firstly, in the GST regime, the process of reconciliation is a challenge. The invoice number that the purchaser has recorded does not match with seller’s invoice received in 2A. Both follow a different principle. One of the major challenges in following a reconciliation process is that both parties involved may have different nomenclature of storing the invoice numbers. On the other hand, the implementation has a hard match around invoice number.
Secondly, it was assured that 90 per cent of the refunds of GST would happen in seven days at the time of GST implementation. But on the longer term, it did not happen. The recent unearthing of fake invoices and fraudulent practices to corner input tax credit may only lead to more scrutiny and more delays. This results in human interfaces, which may lead to the involvement of corruption.
Also, filling GST can be a great challenge as there is no helpline number, which can make this job hassle-free. Rules are complex and compliance is tedious. Even tax experts sometimes fail to understand what needs to be done in a particular situation. In this situation, a typical tax payer cannot understand the nuances of GST. There is no efficient government helpline where a taxpayer can call and discuss his queries.
Revisiting the law, can make the necessary changes and will further ease the process of tax filing by removing the unnecessary flaws. This will further improve the tax collection rates. In the longer term, the country’s economy will grow. The success of GST depends on political consensus, technology and the capacity of tax officials to adapt to the new requirements. Thus GST is a positive step towards shifting Indian economy from the informal to formal economy. It is important to utilize experiences from global economies that have implemented GST before us, to overcome the impending challenges.
With hindsight, it can be said that overcoming the challenges relating to GST implementation, the tax reform will have a long-term impact on the country’s GDP growth, ease of doing business, expansion of trade and industry in the country making it a significant economic power.
- Amendment of Indian Constitution for GST, January 5, 2020 https://cleartax.in/s/constitution-amendment-gst
- EduPristine, GST Bill and its importance in India, August 17, 2015 https://www.edupristine.com/blog/gst-bill-importance#:~:text=GST%20aims%20to%20replace%20all,prices%20of%20goods%20and%20services.
- Lourdunathan & P. Xavier, A study on the implementation of goods and services tax (GST) in India: Prospectus and Challenges, 3(1) INTERNATIONAL JOURNAL OF APPLIED RESEARCH 626, 626-627 (2016).
- Rajesh Gupta, Challenges in the current GST Structure: Way Forward, November 18, 2019 https://www.outlookindia.com/outlookmoney/finance/challenges-in-the-current-gst-structure-a-way-forward-3870
- Vatsal Khullar, GST rates and Anti-profiteering, May 24, 2017 https://www.prsindia.org/tags/gst
- s and Anti-profiteering, May 24, 2017 https://www.prsindia.org/tags/gst