On July 1, 2017 ‘one-nation, one-tax,one-market’ regime was launched in India. Called the Goods and Services Tax (GST), this biggest indirect tax overhaul was implemented after decade-long debates and discussions.
What it accomplished?
In short, 17 taxes and multiple cesses including value-added tax (VAT), central excise, service tax, entry tax or octroi, customs duty, central surcharge & cess, luxury tax, entertainment tax, and purchase tax were brought under one umbrella. It helped to consolidate, streamline and make process of indirect taxation easier.
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The implementation wasn’t easy and it still needs a simpler tax filing regime, fewer slabs and a broader tax base. The World Bank at one point said that ‘disruptions from demonetisation and events surrounding the implementation of GST led to a setback in economic activity and a potentially larger negative effect on the poor and vulnerable.’ In later reports the Bank said this phase is over. Let’s take a look at how many promises have been delivered and how many missed.
The hits:
One tax : A consumer in Kanyakumari now pays the same tax on an item as one in Kullu Manali. Removed cascading effect or ‘tax on tax’.
One market: Checkposts at state borders were dismantled, creating a seamless national market.
Distribution networks: GST allowed businesses to streamline distribution systems—production, supply chain, storage.
Formalisation of economy: Tax evasion more difficult transparent with digital processes and incentive of input credit and invoice matching.
Widening of tax base: More businesses are paying taxes as registrations cross 10 million.
Inflation rate didn’t rise: Based on the experience of other countries that launched a single tax regime, the fear was that inflation would rise. That didnt happened. Possible reasons could be that the GST levy was set close to to the existing rate and an anti-profiteering authority was set up.
New cess introduced:Compensation cess was introduced for luxury and sin goods and later expanded to automobiles. Now a new cess on sugar is also being examined.
Refunds mechanism for exports: The refund mechanism for exporters, including data matching law increase the procedures.