The GST was launched in India with hopes of being a major game-changer for taxpayers as well as for the government. It was expected to not only boost revenue, but also effect transformative changes to India’s indirect tax regime besides ushering in an era of eased compliance. Most of all, it was expected to relieve the economy of the burden of cascading taxes and be a significant step in the creation of a common national market. As we celebrate its second anniversary, let us take a look into how it has fared so far and where it is headed.
Going by international experience, GST has taken between two to five years to stabilise. In this context, in terms of revenue yield, the Indian GST has done remarkably well. In the first 21 months, it yielded an average monthly revenue of Rs 91,334 crore — the average stood at Rs 82,295 crore in the first nine months of its implementation which went up to Rs 98,114 crore in the next 12 months, a growth rate of 19.22 per cent. This achievement pales a little only when we consider the high benchmarking that we had set for it.
The government had set an ambitious target of achieving an annual year-on-year growth rate of 14 per cent on the base year revenue from subsumed taxes in FY 2015-16. This was done to guarantee an assured year-on-year growth of 14 per cent to the states over their respective base year revenues to bring them on board for implementing a uniform and harmonised dual-GST. The average monthly base year revenue from subsumed taxes was around Rs 70,000 crore. The figures of GST revenue yield so far outline the success of the GST implemented in India. To appreciate this point one needs to analyse GST yields in the backdrop of the average monthly revenue from subsumed taxes in the base year 2015-16 which was of the order of around Rs 70,000 crore and it is this benchmark against which the revenue performance of GST is being judged. Accordingly, the benchmarked average monthly revenue for 2017-18 and 2018-19 works out at Rs 90,972 crore and Rs 1,03,708 crore respectively, worked out on the basis of a CAGR of 14 per cent on 2015-16 monthly averages. The average monthly yields for 2017-18 and 2018-19 fell short by 12.3 per cent and 5.4 per cent respectively. These are not actual shortfalls; they merely represent the shortfall from the figures projected at a CAGR of 14 per cent on the base year revenues.
Thus, a whopping reduction of 56.1 per cent in the shortfall, into just the second year of GST implementation, from even the abnormally high benchmarked revenues, is a promising sign and is testimony to the structure and design of GST in the country.
The performance of GST revenues of various states has been as diverse as the country itself. While the average shortfall from protected revenue of all states has gone down from around 16 per cent in 2017-18 to 13 per cent in 2018-19, there are wide variations. During 2017-18, states like Maharashtra, Tamil Nadu, Andhra Pradesh stood at one end of the spectrum with shortfalls from protected revenue ranging from 3 per cent to 7 per cent while states like Bihar, Punjab and Uttarakhand had deficits in the region of 38 per cent. In between lay states like Madhya Pradesh, Karnataka, Rajasthan, Haryana, Kerala, Gujarat, West Bengal and UP with deficits ranging from 12 to 26 per cent. But the real success story was that of the North-eastern states, barring Assam, which were on the verge of “breaking even” in the very first year and most of whom had become “surplus” states by 30 to 80 per cent by the beginning of 2019-20.
States like Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana and UP were on course to closing the gap from protected revenue towards the end of 2018-19. This is a pleasant surprise given that these are manufacturing hubs and GST was thus widely expected to incur losses on the implementation of a consumption type tax; the reason could possibly lie in the fact that these states were doubling up as significant “consumers” besides being production hubs. However, states like Bihar, West Bengal, Karnataka and Kerala are a bit of an enigma in that these were expected to reap the rewards of the consumption-type GST. Bihar, however, has managed to reduce the gap from protected revenue from 38 per cent in 2017-18 to 15 per cent in 2018-19 and it is expected the state would grow out of the revenue-rain-shadow as GST stabilises.
It would not be incorrect to say that the entire tax eco-system had to bear the pangs of radical transformation; it was inevitable. Most hiccups were occasioned by almost every compliance being automated and being designed to be almost entirely system driven; the building of systems went hand in hand with the actual implementation of GST. Initially there were issues with migration of taxpayers to the new system, return filing and even payment of taxes. But the GST Council met often and for long hours to sort out the issues. The return schedules were staggered, dates were extended and the GSTR-2 and GSTR-3 kept in abeyance. A summary return was introduced and its features were enhanced to facilitate filing. Late fees were reduced and even waived for the initial period. Migration issues were almost fully resolved by the end of FY 2017-18. Refunds, particularly to exporters, were temporarily put on a semi-manual track till the systems are fully in place. Significant measures were taken to mitigate the initial difficulties of the MSME sector. A new return filing system is on the anvil, it would transform the way tax returns are filed.
On other fronts, too, the Indian GST has done reasonably well. Check-posts of the states’ tax departments are now a thing of the past and this has significantly cut haulage times and improved the turnaround of fleet. Reporting obligations have been standardised and are now identical across the country. The national e-way bill system, introduced with effect from April 1, 2018, is another feature which integrated the tax system; instead of having to fill out something like four or five (even seven or eight) different declarations, goods can now be moved from one corner of the country to the other on the strength of just one declaration. This is a step in the direction of integrating the national market.
IGST is another such mechanism which is fast integrating value chains in the country. The IGST is India’s unique contribution to the world of indirect taxation. None of the federal systems have as smooth and as efficient a mechanism as the Indian IGST to transfer tax from the originating to the destination jurisdiction.
Effective burdens of tax have fallen and, contrary to the international experience, it has not, on its own, fuelled inflation. Perhaps we have not witnessed price cuts commensurate to the falling effective burden of tax and the anti-profiteering body may have to devise objective standards and a transparent methodology to analyse this phenomenon.
The biggest challenge is fine-tuning the IT system to cater to the requirements of both taxpayers and the tax administration. As has been rightly said, it is like building “an already sailing ship”. This is particularly challenging since nothing of this kind, or of this order of magnitude, has been designed for administering a tax. But I am sure we will overcome and emerge on top.
This article first appeared in the July 2, 2019 print edition under the title ‘GST, the journey’. The writer is Deputy Chief Minister, Bihar
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