GST's 4-Year Itch: A Success Story With Many Casualties

On July 1, 2017 when Prime Minister Narendra Modi launched GST he had said, “GST is the first of its kind system in the country when both Centre and State shall be putting consolidated efforts in the same direction. We shall be proud of this wonderful system for generations to come as GST is a landmark achievement which is bound to take the nation towards exponential growth.”

The Goods and Services Tax (GST) – a one-nation one tax - regime had aimed to be transparent and ease compliance than the pre-GST indirect tax structure that according to experts had broad scope of tax evasion.  

The four-year journey of GST may be a success story in the government notes and tax regime but for the small and medium Indian businesses, it’s a casualty whose price is being paid by them either through debts, loans or suicides in extreme cases. For example: 50-year-old cloth trader Bharat Chandel from Isanpur committed suicide in January this year. The local police claim the reason for suicide was a tax notice to pay Rs 2.44 lakh in GST that was served on December 24. Despite the fact, there was lockdown, Covid pandemic and no work along with restricted movement.

Rakesh Kumar, a Delhi-based small businessman says, “Exemptions from GST during lockdowns and Covid-19 could have helped millions of small people like me but the government and experts ignored to understand how these complexities are hurting us. The least I can say is if there are no traders there won’t be any GST and no tax means no revenue to spend.” He adds that it’s a smaller and medium businessman who are hurt the most and are paying the price.

The simplicity of GST for which it was propagated turned out to be more complex for businesses. Chief economist Madan Sabnavis of CARE Ratings says there has been some fine-tuning especially in terms of tinkering rates across some goods as well as looking at exemptions when it came to MSME through the composition route. However, three issues, which continue to be of concern, are the reduction of slabs to make it simpler along with price benefits to reach the customer. Second, based on FY 21 experience, the centre has to revisit the issue of compensation to states because when drafted it was never envisaged that economy could slump leading to tax shortfalls. Lastly, we need to get petrol/fuel into the ambit to runaway inflation. “With uncertainty due to the pandemic and future lockdowns, a solution has to be found,” he adds.

The GST constitution amendment assured states of compensation for 5-year tenure i.e. from 2017 to 2022. This compensation was for the loss of revenue as state levies were subsumed under the GST. A subsequent law mandated a 14% compound growth in states GST revenue every year till 2022 and a cess was also imposed on sin goods to fund this.

However, with the pandemic and lockdowns being imposed the non-BJP state governments are seeking an extension in this revenue loss period. These states include – Punjab, West Bengal, Maharashtra, Chattisgarh, Tamil Nadu and Odisha.

EY India tax partner Abhishek Jain says, “While a lot has been done, India’s journey alongside GST is fairly young and a lot of areas are still to be debated upon, especially topics such as continuation of compensation cess, the inclusion of excluded sectors, divergent Advance Authority rulings, rate rationalization, etc.” Both Jain and Sabnavis believe GST has been a game changer. It has been a challenging journey but an exciting one.