In the recently concluded CA Final examination which I had appeared for, due to a technicality, we were still tested on Excise and Service Tax in the indirect tax paper, instead of GST which is now the prevailing tax regime. We did have GST for 10 marks and reading the 30 odd pages for it piqued my interest in the law.
A week after the exams, I have been reading up on GST to get a hang of it. And what struck me was it seems to be a well structured, well drafted law. All I kept hearing since the time GST came into being was how complicated it was. I for the life of me couldn’t understand what was so complicated about it. If anything, it is so much more simpler than the erstwhile indirect tax regime of Excise and Service Tax.
India’s federal structure is such that the constitution has given powers to both the Centre and the States to levy and collect tax. In the erstwhile regime, the Centre had powers to levy Excise duty and Service Tax while the States levied state VAT. These were different levies going into the coffers of different governments. The primary concern with GST was who would levy it.
The answer to that came in the form of a dual model GST wherein both the Centre and the States would levy and collect the tax. How? Simple really. On every taxable supply of goods and services within a state, there will be levied a Central GST (CGST) and a State GST (SGST). Both the taxes would be levied at the same rate. On interstate supply there will be levied an Integrated GST (IGST) which will go to the Centre. This corresponds to the erstwhile regime where a Central Sales Tax was levied on interstate transactions.
India is a massive nation. And like every other nation, it comes with its own set of problems and peculiarities. It has perhaps gone unnoticed that what a monumental achievement it is to change an entire regime of taxation in a democratic, secular country of 1.2 billion people. I think India deserves immense credit for what it has achieved.
When I say India, I mean everyone from the Government to the opposition, from the large corporates to the SMEs, from the retailers to us consumers, we all should pat ourselves on the back for this. This is one of the most significant milestones in the Indian journey after Independence. What is sad however is the unabashed criticism that we seem to attract left, right and center.
I have been reading The Economist for almost 6 years now and they never fail to criticise India on everything from economics to politics. Barring Mint, I don’t read any major Indian newspaper because the quality of journalism is pathetic and because it’s a cesspool of negativity. I just find it baffling that none of these esteemed newspapers give the slightest credit or recognise India’s transition to GST.
There have been implementation issues, yes, and it is not exactly the most perfect law out there. For one, multiple rates defeats the objective of GST. Over time, GST should have only 1 rate, thus bringing into reality, ‘One Nation One Tax’. But the mere fact that we have managed to push through GST should be a cause for celebration. Nothing great was ever achieved without a few hassles along the way. Remember, the first time GST was mooted in parliament was nearly a decade ago. It has been only 5 months since GST went live. Give it time and see how the nation prospers. A unified economy sans any state barriers, seamless input tax credits, a high rate of compliance and a thriving logistic network that boosts trade and commerce are what GST seeks to achieve, and it will, eventually.
One of the objectives of the Narendra Modi administration has always been to bring in more people into the formal economy and the tax net by improving the level of compliance. GST is one the prime enablers of that. How? If one does not register under GST, then that person cannot claim input tax credit on their purchases and more importantly cannot pass on the credit on their sales to their customers. So if you fail to comply with the law, you are going to end up losing your customers. One of the repeated criticisms that I have heard is how cruel the GST law is on small businesses and how difficult it is for them to comply. It is neither difficult nor easy. It is what it is. The local kirana store in my locality is GST compliant. Tell me again how hard it is. If a shop with less than 5 employees can do it, anyone can.