(Written by MS Mani)
The goods and services tax (GST) has taken center-stage in all discussions across business and consumers. The awareness drives and the constant media attention on this reform has ensured that all businesses in the country have had to alter some of their business practices, supply chains, logistics planning, pricing, etc, to be competitive and compliant. For consumers, who were apprehending some level of retail price inflation, it has been a relief as the price levels have not risen due to GST.
As we step into the second year of GST, it is necessary to look at the changes that it has resulted in and the changes that are necessary to ensure that the reform fulfils all the expectations from various stakeholders. Businesses are relieved that multiple indirect taxes and cesses levied by the Centre and the states are now combined into one tax with uniform rates, rules and procedures across the country. However, while the compliance burden would have reduced marginally for manufacturers, it has significantly increased for service providers. For consumers, there has been a reduction in the taxes levied of the rates for various items. Large number of FMCG products including toothpaste, soap and shampoo have seen a net reduction in the effective indirect tax rates from 26 per cent to 18 per cent.
Going forward, there are large number of expectations, some of them could be short term and some longer term. There is broad-level expectation that the rate slabs in GST could be reduced to one or two slabs at par with other countries. It not be realistic in the near term as the multiple rates are intended to cover goods used by people in various socio-economic strata. Another near-term expectation is that the rates on some of products which are taxed at 28 per cent could be brought down to 18 per cent. This appears to be a reasonable expectation as several products, such as construction and real estate inputs, consumer durables can be moved to the 18 per cent slab over a period of time once revenues are stable.
There is also work underway for simplifying the GST returns as the present compliance framework appears to be complex for many businesses and it is essential to convert it into a modular framework where each category of taxpayer is required to fill in only that section of the return that is relevant for them.
It is expected that the GST Registration would become the Aadhaar equivalent for business as it would be both a business identifier and an enabler for smooth business operations. Businesses which do not have a GST registration may find it difficult to deal with other registered businesses, who may prefer dealing only registered dealers. Despite the fact that the reverse charge provisions have now been kept in abeyance till September 30, it is expected that there would be pressure from large businesses which would compel smaller businesses to register. Such registration would also enable the smaller businesses to avail input tax credit, enabling them to lower their tax outgo. When we apply such kind of normative behavior across the supply chain, it would lead to a large expansion of the overall tax base.
GST has ensured that the process of moving businesses from un-organised to the organised sector, which was initiated by the demonetisation exercise, has picked up pace in the last one year and the changes in rates and the simplification of processes during the next one year will improve the ease of doing business further and strengthen economic growth.’
The writer is Partner, Deloitte India; views expressed are personal