It literally took the country by storm six months back when dozens of taxes and levies were rolled into one, but as the new goods and services tax (GST) stabilises, its ambit is now likely to be increased by including natural gas in next couple of months.
On July 1, when the new national sales tax was implemented, it was decried as technologically tedious and expensive and had potential to torpedo political prospects of the ruling BJP. However, the government made numerous changes, including easing the tax filing process and reducing rates on over 200 items, to save the day for the party in Prime Minister Narendra Modi’s home state Gujarat.
While GST transformed India into ‘one nation, one market’ at the “stroke of midnight” on June 30, real estate as well as crude oil, jet fuel or ATF, natural gas, diesel and petrol were kept out of its purview. This meant that the products continued to attract duties like central excise and VAT.
That may well change in 2018, at least for natural gas. A top revenue department official said as the Centre and states are assured of revenue flows, natural gas can be the next big item to be included. “To me it appears that out of the 5 petroleum products, natural gas is an easier candidate for bringing into GST,” he said, adding that a 5 per cent GST, equivalent to that being charged on coal, will benefit states in reducing price of CNG as well as cooking gas piped into kitchens.
The Centre may try to bring up inclusion of natural gas at the next GST Council meeting in January. But doing so for other petroleum items could be difficult because the states and the Centre both get quite a bit of revenue from those items. The roll out of biggest tax reform since independence on July 1 was without undue disruption.
The ‘one nation, one tax’ united at least 17 different central and state indirect taxes under one umbrella to cut tax evasions and reduce corruption. In a bid to get states and political rivals onboard, the government got a four tax rates of 5, 12, 18 and 28 per cent with numerous exceptions, instead of the single slab adopted in countries like the UK, Singapore and Malaysia.
Six months into implementation, there are talks of evasion creeping in with unscrupulous traders colluding with transporters and suppliers preferring to conduct a cash-only business and not pay the tax. Also, states like Tamil Nadu and Maharashtra have used their discretion to raise taxes on certain goods excluded from the new regime, defeating the purpose of unified tax.
But multiple rates wasn’t the biggest problem with GST. It was the costly compliance. The need for computerised accounting in businesses often run by barely literate was a hurdle. For exporters, GST was a nightmare as tax refunds were delayed, leaving them short of capital. Small, unorganised businesses, especially in traditionally dominant textiles and jewellery sectors, were worst hit.
So, the government eased the filing process for traders with a turnover of less than Rs 1.5 crore and expedited refunds to exporters. With GST, about two dozen of 29 states have abolished check points at their borders, where truck drivers had to halt and fill out paperwork, often delay deliveries, at times by days. The posts have gone but tax officials can still clog the roads by demanding inspections of goods being moved or fees.
Prices of some products are varying according to location as traders have not fully implemented the new structure and profiteers have stepped in. Asked by when could real estate be brought into the fold of GST, the official said it is even more “difficult candidate”. “The real benefit of bringing real estate into GST can occur to consumer only when there is a combined discussion on Stamp Duty, Registration charges and GST. If you are going to have real estate in GST independent of stamp duty, then there will be duality of taxation and it will be more burdensome for consumers,” he said.
He said that the new indirect tax reform since independence has “more or less” stabilised and 90 per cent of the problems have been addressed. “Now, whatever are the remaining problems, we need to solve them and stabilise GST. That should be our target for 2018. The other major task we have to undertake in 2018 will be the process of matching of returns because matching of returns is the core to GST. Unless we undertake this exercise, the real benefit of GST will not come,” the official said.
The revenues under the GST after averaging around Rs 93,000 crore for the first three months after GST roll out slipped to Rs Rs 83,346 crore in October as tax rates on several product were cut and teething troubles with the new regime pushed back implementation of key provisions. Over 3 crore returns have been filed on the GST Network portal between August and November.
With revenues dropping, the government said it would move towards matching of returns, electronic transit permit system or e-way bill as it looks to check tax evasion. He said it would take some time to move to a two-slab GST by merging the 12 and 18 per cent bracket, and also ruled out lowering tax rates on white goods from 28 per cent at present.