GST Challenges Still Remain For One Nation One Tax

India’s goods and services tax (GST) is an outcome of a successful functioning federal democracy. It is representative of every Indian, each political party and states. Three successive governments were involved in it - the NDA conceived it in 2000, the UPA conceptualized it in 2006, and NDA implemented it in 2017.

Over the last several years, all state governments have communicated the people’s voice through various committees. And in the last 12 months, all state governments have contributed to its evolution by sitting in the high-powered GST Council meetings.

Chaired by the Union Finance Minister, the GST Council also has the Union State Minister of Revenue or Finance and Ministers In-Charge of Finance or Taxation of the States.

Mamta Rajput, an assistant professor at Delhi University is upset, as her home budget is hit with high prices after GST. Her apprehension about GST is more due to lack of clarity on prices, since it was launched last year. She says, “For at least three months (beginning July 1, 2017) my vegetable hawker and grocery store vendor hiked prices on the pretext of GST introduction. At stores, prices marked on the packaged items did not have GST amount on them, while there was no way to check if the prices of vegetables and groceries have been impacted by GST.”

One year of GST is not just about the collection of taxes only, which was `7.41 lakh crore between August 2017 and March 2018 or more than `1 lakh crore collections in April 2018 alone. Rather, it is about setting up a massive process and systems in place that has brought sweeping changes in the budget of the individual, family and institutions.

To begin with, GST had 17 years of gestation, during which successive governments had an opportunity to educate and prepare the stakeholders for a smooth transition from a multiple tax structure to an indirect tax regime on July 1, 2017. Yet, the government seems to have fallen behind in its successful execution.

From day one, there has been massive confusion and apprehensions over how GST will work, some of which prevails till date. The government has categorised GST in five major slabs – 0, 5, 12, 18 and 28 per cent.

Globally, some 49 countries have introduced a single GST rate and 28 others use two rates. India is among five countries that have four rates. In the last one year, there have been more than 300 clarifications on tax and other logistic issues of GST filing and refund till June 2018.

Prof Arun Kumar, economist at the Institute of Social Sciences says, for a complex country like India, GST is a complex tax, unlike the general perception of it being a single and simple tax. Prices of many products and services have gone up post GST. It is against the stated objective of the government that there will be fall in prices after its implementation. GST has impacted nearly all sectors and individuals - from banking, real estate, housing, insurance, services, groceries, toiletries, transport, hairstyling to even packaged drinking water. “In the last 12 months, GST has been in turmoil and it will continue to be so because of the defective design. GST in India is a half-way house with many exemptions,” says Kumar.

Mamta Rajput, an assistant professor at Delhi University, is upset. Her monthly expenses have risen after GST. Her apprehension about GST is due to lack of clarity on what is the correct price of the goods she buys. “For at least three months, my vegetable hawker and grocery store vendor hiked prices because of GST. At stores, prices marked on the packaged items did not have GST rates, while there was no way to check if the prices of vegetables and groceries have risen after GST,” she says.

Homebuyers, on the other hand, are naturally upset over the increase in cost of housing because of impact of GST. “With such property prices, I had to drop plans to buy a house,” says a Delhi-based entrepreneur. Developers are not happy either. Since GST came into force, they’ve been unable to put a  fixed cost of a property they sell owing to a complex math on how to value land and material.

In the last 12 months, the government, including the GST Council, has been trying to bring more clarity on how GST applies on products and services. Its latest effort has been to clarify the tax implications for banking, mutual fund, credit card and insurance firms, details which has remained  fuzzy for a year. The clarifications, which came on June 2018, also revealed a hike in service fees (now GST) on the financial and insurance services.

Last month, the government clarified on several fronts where GST will apply: Exit loads charged by mutual fund companies, interest for default of loan payment, late charges on credit cards, services that banks provide to Reserve Bank of India and insurance policies for non-residents. It also specified that services in ATM, securitisation, future contracts, derivatives and forward contracts in commodities (unless entailing actual delivery of commodities) will not be required to pay GST.

Harish Gupta, an insurance agent in Delhi NCR, says his customers are unhappy with the increased GST rate on insurance. “GST was supposed to reduce the burden on insurance and encourage more people to go for it, but now every customer complains about it,” says Gupta.

Here is why they complain: Premium on a new policy attracts GST of 4.50 per cent on the total premium amount, as against 3.75 per cent in service tax period. On renewal payments, the policy holder will have to pay 2.25 per cent GST. If it is late payment it will be 4.50 per cent, and if it is renewal it is 2.25 per cent. On term insurance and medical insurance, GST is 18 per cent and 15 per cent. It is three per cent more on term insurance in the previous service tax era.

“With the three per cent increase, health insurance policies have become slightly more expensive,” said Sanjay Tiwari, Executive Vice President, Product Management and Customer service, Exide Life Insurance.

GST has not only impacted the personal finance and budget of middle class homes, traders and businesses are equally struggling to make sense of the ever-changing format of both GST forms and norms. In August last year, when GST filing was first introduced, the GST network crashed a multiple times. “In the beginning, we had certain teething troubles, partly due to software which  required a bit of tweaking. But even people needed awareness on correct filing,” says Ajay Bhushan Pandey, GSTN Chairperson.

In September 2017, Bihar Deputy Chief Minister Sushil Kumar Modi, who is the Group of Ministers’ convener to look into the glitches in GSTN acknowledged that “technical glitches, procedural problems and absence of some forms on the network portal causing delays in refund payments and filing of returns by traders and dealers.”

It is true that when a large system has to be changed, teething troubles are inevitable. However, the scale of confusions and the resultant trouble for individuals and businesses was unacceptable. “The design of GST in India is faulty, as it has shown in the last one year. It could not provide ease of doing business and has failed to control black economy. Worst it has made it difficult for an individual to manage their personal finance,” says Kumar.

He also points out that the numerous  tax exemptions will impact the individual consumer. The five critical items that are currently out of the GST ambit are crude oil, natural gas, aviation fuel, diesel and petrol. State governments, of course, continue to play with the fuel prices, which impact the daily budget of an individual and family. Oil and gas are a highly political and emotive issue. Telengana and Andhra Pradesh have openly opposed bringing these items under GST, while others have opposed it in the GST Council meetings. States argue that these items provides excise revenues critical for their budget.

Concerns over tardy implementation of an ambitious tax system has drawn the attention of  several international organisations. According to a United Nations report, India’s GDP growth was pushed downward to 6.6 per cent in 2017 against 7.1 per cent in 2016 due to GST, along with others like corporate and bank balance sheet problems. The report stated that India is expected to recover gradually and grow at 7.2 per cent in 2018.

Success of GST in India depends not only on the legal and tax reforms but also the robust digital network, that customers and businesses can depend and have faith on. It is important that people of India get used to GST, but, its success depends on easy adoption.

rajendran@outlookindia.com

With inputs from Nirmala Konjengbam and Suyash Desai