THE POSITIVE (IDEAL) SIDE OF GST

[Dr. Sanjiv Agarwal]

In today’s economy – be it global or country specific, where there is a general recession across the globe, new frontiers in managing revenue systems becomes imperative and the role of Government reform in tax administration to effectively provide services and tax compliance in digital economy become the driving force for revenue streams. Digital tools only act as a facilitator in this process.

Indian experience of managing tax revenue is a classic example of effectively managing tax revenues. On one hand, economy is transforming from traditional to digital, while on the other hand tax revenues are improving and so is the tax-GDP ratio.

In the wake of economic reforms, the tax system in India is undergoing revolutionary change today, in line with the liberal policy. Some of the changes include: rationalization of tax structure; progressive reduction in peak rates of customs duty; reduction in corporate tax rate; introduction of equalization levy; customs duties to be aligned with ASEAN levels; introduction of Goods and services tax; widening of the tax base; tax laws have been simplified to ensure better compliance.

Though, Indian financial system has over the years graduated to a mature and robust system, tax management, tax administration and compliances have also transformed significantly for better, both in direct and indirect taxes.

Goods and Services Tax (GST) is the biggest tax reform in independent India. It is one of the most sweeping indirect tax reforms in any federal polity in the world, in which complexities such as multiplicity of taxes and cesses, multiplicity of rates, multiple compliances, and cascading of taxation will be removed. This game-changing reform will result in significant ease of doing business as well as reduction in the overall tax burden on the consumers and the common people. GST is a shining example of national integration and of fiscal federalism at its best. It is a testimony to the working of India’s federal democracy. It has been made possible because of close cooperation between the Central Government and all the State Governments as well as all political parties.

The tax reforms on GST front is a unique example of how a country with over 30 federal states / union territories functions on a common tax base and yet retain the characteristics  of a national tax as well as individual state so much so that the slogan “One Nation, One Market, One Tax” becomes so apt.

The constitution of Indian provides for anall-powerful GST Council which is the supreme body to implement and govern GST in India. It comprises of representatives of State Governments, Union Territories and Union of India.

The implementation of GST in India is like a wedlock between tax administration, use of information technology in digital space and the taxpayers. It not only provides for simplicity, transparency and integrity of tax system but also offers smooth and seamless credit of input taxes. GST has been implemented in the backdrop of unique features of Indian economy viz, a heterogeneous economy comprising of services; manufacturing and agriculture; multiplicity of taxes and tax rates; vast range of products; diverse tax base (rich, poor, educated, uneducated, urban, rural etc.), volatility in business cycles and so on. India is also a country where demographic profile is presently young. This provides flexibility in transiting from a traditional to neo or digital environment, which GST offers.

In pre-GST regime, India suffered a regime of multiple taxes, both Union and State which had inherent disadvantages to tax payers as well as tax administration. To quote,cost of collection and cascading effects of taxes were two major drawbacks. GST subsumes over 15 different taxes into one, providing relief to one and all.

GST promises an efficient tax system full of new frontiers for managing tax revenues. Some of the new features peculiar to Indian GST are dual tax system (Comprising of central tax, state tax and an integrated tax for inter-state trade), compensating the states suffering loss of tax post-GST, a common portal for all filings, coordinated tax administration between states and union, multiple tax rates (0%, 5%, 12%, 18% and 28%, besides few composite rates for specified transition), levy of Compensation Cess to compensate the states,transaction and audit trails, seamless input tax credit and so on.

The entire GST model operates on an electronic platform, known as GST network (GSTN) operated by a separate entity with stakes of all Governments. GSTN is responsible for all functions, transactions and processes pertaining to GST. Registration of tax payers, payment of taxes, filing of returns, matching of transactions, invoicing e-way bills etc. all are routed through GSTN. It has proposed that assessments and adjudication may also be done electronically. Because of the digital interface and significant use of data intelligence / analytics, anti-evasion measures have also come as a handy tool for the Government to manage revenue.

Indian experience of paying monthly taxes,levy of taxes on forward / reverse / cross charge basis, tax collection at source and tax deduction at source, taxing e-commerce and Government transactions all have a bearing on effective tax revenue of system.

GST address trade barriers, distortions in system and tax discrimination and is an answer toward moving on to a effective and efficient tax law, it is expected to play a key role in bringing about transparency and accountability in the system leading to good governance at micro and macro level and is going to be watershed tax reform of the century and a win-win proposition for all stakeholders, if the implementation issues are addressed appropriately, sooner the better.