GST: Hopes rise after year of fear

The Good and Services Tax (GST) was introduced in the country on July 1, 2017 and was imposed on almost all goods and services except goods like petrol, diesel, alcohol, electricity etc. The GST was introduced to help India get onboard the one tax-one nation bandwagon. The idea was to do away with multiple indirect tax levies, multiple compliance requirements, eliminating the cascade effects of inter-state check posts, bringing in transparency in tax administration and collection while reducing tax litigations by keeping the law simple and common across the country.

Though the new scheme of Indirect Tax was implemented with the consensus of all the states, many manufacturing states feared loss of revenue as GST as a scheme of levy is a destination-based consumption tax. To compound this fear, the rates for 100 goods and a few services were reduced significantly post the 25th meeting of GST Counsel held on January 18, 2018.

After one year of implementation, these fears remained only assumptions and presumptions, particularly in the context of Tamil Nadu as these fears turned out to be unfounded. As per the data of the State Commercial Tax Department, Tamil Nadu has earned 20% more revenue during the period July 2017 t0 March 2018 compared to the collections under VAT and other local levies which were subsumed into GST for the corresponding period in 2016-17.

The state service sector has contributed significantly to the increase in revenue, as before the introduction of GST, the state was not empowered to levy tax on services. The increase in revenue in Tamil Nadu is attributable to increase in consumption of cars, two wheelers, white goods and other high rated commodities which earn more revenue to the state, apart from Service Tax revenue for the first time.

It has been found that the state is second in terms of GST revenue collection in the country and second in terms of number of registered assesses under GST. The most impacted sector in Tamil Nadu was the textile industry where GST was introduced after lot of opposition, confusion and deliberation with effect from October 1, 2017. Initially, there was lack of clarity regarding the process and procedure involved in getting outright exemption for exported goods. Till such time procedure relating to LUT (Letter of Undertaking) for exports was made clear, most of manufacturers paid output tax on export and claimed it as refund which remained unpaid for a considerable period.

Under the earlier tax regime, manufacturers could buy raw materials without payment of Excise Duty by furnishing a form if the finished goods which would incorporate the raw materials are ultimately exported. Now that option is not available for manufacturers, consequently they will have to purchase goods by paying GST, although they will not pay output tax on exports by filing LUT. This has resulted in considerable blockage of Input Tax Credit to these exporters as the tax paid on inputs and input services will be available only as a refund after following lengthy and cumbersome processes explained under law.

Due to above reasons, the textile units in Tamil Nadu took a huge hit and many units are now limping for survival. Another industry which got impacted significantly is the entertainment industry which had to bear an additional entertainment tax apart from GST at the rate of 28%.

Compliance issues persist compelling businesses to focus more on GST compliance rather than their operations. Once the I-T department starts the auditing process, fresh litigations are bound to come up under the new law, which business houses will have to encounter. But for the above, by and large one can say all is well as far as Tamil Nadu is concerned in the context of the impact of GST on industries and the revenue collections of the government.

On the plus side, invoice matching has led to Increased credit across industries as earlier the businesses were missing to avail credit on various services and goods used in the course of business. Similarly, online filing and processing of refund claims has led to easier processing of refunds though there were initial teething troubles.

As online filing of all forms, replies and returns become the norm, the removal of many redundant forms and procedures, was inevitable. Owing to this, the GST came as a shot in the arm for Ease of Doing Business. With regard to MSMEs, working capital loans were provided based on GST returns in order to fund their GST Receivables, thus offsetting the Cash Flow Impact. The compliance rating system would lead to increased transparency in business and also ensure there is no tax evasion. Considering the GST being a new law with lots of teething problems, it is fair to conclude that the positives of the GST experience outweigh the negatives. India is defiantly moving towards a transparent economy. The GST is bringing irrevocable change in terms of accounting, disclosures, transparency, and more clarity in tax. All this would help the nation tranform into a corruption-free business environment and a stronger economy.