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GST's Tumultuous Journey

The Goods and Services Tax (GST) has just completed a year, and it has been an eventful journey.

GST's Tumultuous Journey

The Goods and Services Tax (GST) has just completed a year, and it has been an eventful journey. It is showing signs of settling down, but it will be probably a year or more before all the glitches and annoyances that have come to the fore after the rollout are actually sorted out. It has not turned out to be the good and simple tax that Prime Minister Narendra Modi promised people, though it is also hardly the Gabbar Singh tax that Congress President Rahul Gandhi dubbed it.

No one had expected the rollout of the GST to be smooth. It was after all the biggest tax system change since Independence. Too many decisions - including which product would attract what tax - were left till the last possible minute. To compound the problem, the GST Council was rolling out GST with multiple slabs, cesses as well as exemptions and exceptions. Then there were the onerous reporting systems - and the fact that the GST Network (GSTN), on which the filing would be done, was yet untested. Many smaller businessmen had expected that the rollout date would be deferred and hence not prepared for the full changes.

What helped was that the members of the GST Council - the Union finance minister as well as State finance ministers - were prepared to take quick decisions to sort out problems as they came up. The GST Council meetings moved swiftly to resolve most problems, whether it meant tweaking rates or changing the reporting requirements and a few rules to make sure that GST would not prove to be a burden. The GST Seva Kendras also helped to sort out the issues of the small- and medium-sized businesses.

The bigger companies, which were preparing for the GST rollout for over a year, took the changeover in their stride. They were very happy with GST, because the tax system would cut out the advantage that smaller players operating informally and evading taxes enjoyed. The small- and medium-sized firms had to deal with a fair amount of disruption in their businesses, because the GST system not only increased their cost of compliance but also hit cash flow cycles. Moreover, as rules and rates kept changing rapidly on the basis of feedback in the first few months, the firms had to keep changing the prices they were charging. Exporters were hit hard because refunds became a problem. Some of these problems have since been fixed. The issue of too many and too complex returns has been sorted out partially - the matching of invoices is yet to start and that is a relief for companies. The GST network has also stabilised.

However, the refund problem is still not over and that is hurting many small and medium companies. Litigation is also on the rise as companies and tax officials grapple with the new system. Meanwhile, from the Union government's point of view, the tax buoyancy is still to materialise, which means they cannot spend as much as they would like in the run up to the general elections next year.

GST has not led to a collapse of businesses as many critics had warned. But it has caused enough disruption and companies are only now beginning to get back to business as normal.

Over the next year, if the tax collections rise enough for the government to feel comfortable, one can expect a rationalisation of the rates. But that is still some while away probably.

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