Implementation of GST in India was a pathbreaking decision. It subsumed almost all indirect taxes into one and helped create India into a single market of 1.3 billion people. There have been ups and downs in its implementation, and so far, there are about 800 changes made to the original Act. It’s still in the process of taking final shape and form. The way this Act is complex on so many levels makes it difficult to have a straight forward solution to the huge issues it tries to deal with. The GST Network functions with intelligent technology, but it is unable to handle the load of frequent filing of GSTR1, GSTR 2, or the GST annual return. The sheer number of visitors daily to the GST portal and the returns filed or the taxes paid are rumored to be around 4 million and above in a single month.
Through GST Network, the government is handling a very significant challenge of maintaining and running the new tax regime. There are criticism and appreciation both in the ways the government is handling the new tax regime. Though the GST Network has its challenges, it is the structure of GST that effects the common taxpayer the most and to understand whether the Goods and Services Tax is also Good and Simple tax, it is necessary to look at the structure of the new tax system.
How Complex is Goods and Services Tax?
The world bank data indicates that the Goods and Services Tax regime is among the most complex tax systems in the world. It not only has the highest tax rates but also contains the most significant number of tax slabs. The data also showed that Goods and Servies Tax has the highest standard of the tax rate in Asia and is only second to chile in terms of worldwide standard. There is a subset of goods and services under the GST tax regime taxed at 28%; this is the highest from a sample of 115 countries that implement the VAT system.
What makes it more complex is the 5 different Tax categories – 0%, 5%, 12%, 18% and 28%. In the recently held GST council meeting, it was decided that semi-precious stones will have a new tax slab, and it will be taxed under a 0.25% tax rate. Apart from this, petroleum products, real estate, and electricity are kept out of this tax slab system. This creates more complexity to the already complex tax system.
A good example of an uncomplicated system can be seen in the other data produced by the world bank, where it shows that 49 countries use a single tax rate. Twenty-eight countries use only two tax rates, and only five countries use four tax rates, including India. The other four countries that use four tax slabs are Pakistan, Italy, Ghana, and Luxembourg.
The formula that makes India use four tax slabs is because of how there is a vast consumption of different goods and services in different sections of the Indian society. The economy imbalance is significant, and to cater to the needs of its citizens as well as to create a robust tax system, India needs to use four tax slabs. This was evident through the explanation given by former finance minister stating that the common-man goods such as rice, wheat, sugar cannot be taxed in the same manner as a luxury or a sin-product like Mercedes car or a yacht is taxed. Because of this compulsion, the single tax formula will not work in India, and it is ruled out very early on when the structure of GST was introduced.
It is not just the tax slabs that distinguish the Indian tax system compared to the rest of the world. According to data from the world bank, the fiscal threshold of businesses that come under the full impact of GST is highest among all other comparable countries.
Efforts to make GST simple:
The government has been vigilant about the feedback that comes from taxpayers as well as small enterprises about GST. There have been some rapid changes the GST council made to the GST Act to try and simplify it as much as possible. It seems like a continuous process where several changes are decided in every GST council meeting. But the government was successful to some extent to simplify the whole tax process.
Earlier, there were a threshold Rs. 7.5 million, but in the months following the launch of GST, the limit was doubled to Rs.15 million. This was mainly to simplify and ease the cost of compliance of medium and small businesses. But still, India remained in the higher threshold bracket when compared to all the other 31 countries that have a similar tax regime.
The structure of GST is very complex, and a typical taxpayer might find it very difficult to remain GST compliant. There has been confusion about the Input tax credit, reverse charge system, and various other rules that are set by GST.
The way the government has decided to exempt the small businesses from GST has created a double problem. The decision to exempt small businesses from GST was to simplify the tax process, but the collateral effect it had on small businesses was negative. Because small businesses are exempted from GST, any consumer will not be able to claim the input tax credit, and this, in turn, pushed the buyer to purchase from larger companies because larger companies come under GST. A buyer can claim input tax credit there. Also, the purchasing cost increased for small businesses as they do not fall under the new tax system.
As it is complicated for small businesses, the larger businesses to have their issues to remain GST compliant. The way GST is complex for larger firms is through the rules about invoice matching between outputs and inputs, the CGST, SGST, and IGST rules and various other rules that are applied for larger businesses.
Conclusion
GST in India was launched to simplify and strengthen the tax regime as well as to curb corruption and create proper revenue for the government by stopping tax evasions that were widely practiced in the earlier tax regime. GST was successful to a reasonable extent in reaching its aim, but there are a lot of changes still needed to simplify the new Act for a common taxpayer. Few changes happened to the GST annual return, tax rates, and the frequency of filing taxes, which made it somewhat easier. As the government is alert and is open to changes through feedback, it creates great hope that GST will become more simplified in the coming year.