7 years of GST: Balancing tech & transformation

The time has come to usher in GST 2.0

Seven years on, the goods and services tax (GST) has cemented its place as a game-changer for India’s digital economy. This tech-driven tax regime, where government and businesses have embraced automation, has demonstrably delivered. It has brought us closer to the dream of “one nation, one tax,” boosting supply chains and creating a springboard for specific sectors to thrive. However, as we celebrate this milestone, it’s crucial to take stock. A closer look at the actual impact of GST will help us identify areas where it can flourish further.

India’s digital leap:The success of GST as a reform hinged on a robust compliance infrastructure. Enter the GST Network (GSTN), a game-changer that streamlined registration, tax payments, and return filing for taxpayers. Even sceptics acknowledge its success. GSTN has not only simplified compliance for businesses and the tax department, but also empowered them with sharper data analytics to identify and combat tax evasion.

The automation of processes like e-waybills, e-invoicing, and monthly returns has, in many ways, revolutionised tax compliance, and this successful digitisation model is now inspiring other countries to follow suit. 

The biggest winners of this simplified system might be the micro, small and medium enterprises (MSMEs). GSTN’s initiatives like quarterly returns and relaxed GSTR-9C requirements have incentivised MSMEs to register under GST, significantly boosting the taxpayer base. This growth translates to benefits for MSMEs, as large businesses increasingly prefer to work with GST-registered and compliant entities, thereby fuelling the expansion of MSMEs. Additionally, GST has helped in unlocking better credit facilities for MSMEs, further propelling their growth.

“Ek Bharat, Sreshtha Bharat”: Living up to its promise of “One Nation, One Tax”, GST has implemented a unified system, created a common market, and eliminated the cascading effect of taxes that previously inflated business costs. The result is a boost for Indian businesses’ competitiveness in the domestic and global markets.

Faster deliveries, lower costs for businesses: Prior to GST, interstate movement of goods was plagued by entry taxes and checkpoints at state borders. This added significant time and cost to deliveries. GST has eliminated these hurdles, allowing for seamless movement of goods, resulting in faster transit times and lower logistics costs for businesses. GST has also ushered in an era of enhanced credit flow and more liberal credit provisions compared to the pre-GST regime, empowering businesses to re-imagine their supply chains. By eliminating the need for multiple warehouses, companies can now operate with a centralised model, significantly boosting their margins. Key gainers from this are fast-moving consumer goods, consumer durables, retail, and automotive sectors.

Fixing inverted rate structures and easing ITC rules: While the government has undoubtedly taken steps to streamline GST rates and improve cash flow, concerns persist, especially from sectors still grappling with an inverted duty structure. A further reform will ease credit accumulation woes and help address industry anxieties. A key demand gaining traction here is the inclusion of petroleum products under the GST umbrella. This would ensure a seamless flow of input tax credit (ITC) throughout the supply chain, potentially benefitting both businesses and the broader economy.  By addressing credit blockages and incorporating key products like fuel, the government can pave the way for a more efficient and beneficial GST system for all.

Simplified rate structure: Rate rationalisation in GST, when compared to the erstwhile regime, has been a substantial contributing factor in bolstering consumer demand and thereby growth.  The auto sector could perhaps be touted as the biggest winner here. GST’s success demands a simpler future. The current multi-tier rate system, ranging from 0 to 28 per cent with additional cess on certain items, causes classification disputes and inadvertent non-compliance. It also creates inversion in certain sectors.  A rate rationalisation exercise in consultation with industry will further help reduce cases of inversion, lower classification disputes, and increase compliance.

Dispute resolution: The GST law is still evolving, hence disputes on various issues are bound to arise. Initially, errors occurred in adhering to the new GST laws because businesses were not familiar with them and divergent positions were adopted, with minimal clarity and precedents. The time is right for the government to consider bringing in an amnesty scheme for regularising initial period transactions, allowing a complete waiver of interest and penalties. State-level advance rulings on GST currently create confusion due to inconsistencies. A National Advance Ruling Authority would ensure uniform interpretation of the law across the country, reducing uncertainty for businesses and minimising disputes.

The Goods and Services Tax Appellate Tribunal (GSTAT) also holds immense potential to streamline dispute resolution within the GST framework. The recent appointment of a president for the tribunal marks a positive step forward. To fully unlock this potential and expedite case resolution, timely appointment of the remaining GSTAT members is crucial.  This will provide clarity on limitation periods, and ensure a fully functional tribunal. A robust GSTAT will significantly reduce the burden on High Courts, leading to a more efficient and timely dispute resolution process for businesses.

Sectoral FAQs: Early GST FAQs, meticulously addressing industry concerns, provided clear guidance on some aspects. Reintroducing these sector-specific Q&As would be immensely helpful in navigating ongoing GST complexities and nuances.

GST’s next chapter: In conclusion, the visionary rollout of the GST has laid a strong foundation for a dynamic Indian economy. As we move forward, focusing on rate rationalisation, a liberalised credit regime, and a mature dispute resolution mechanism will be instrumental in ushering in GST 2.0.

The writers are partners at EY India.  Rachit Suri, senior tax professional, EY India,  contributed to the article. The views expressed are personal