#4 Ways GST Has Revamped India's Tax Structure, Courtesy Arun Jaitley As GST enters third year, Arun Jaitley looks back at the monumental restructuring of one of the world's clumsiest indirect tax systems

It has been two years since the Goods and Services Tax (GST) was implemented. Bringing one of the world's clumsiest indirect tax systems in structure was not an easy task or as the former Finance Minister Arun Jaitley put it, required "monumental restructuring'. Challenges were many. Be it the not-so-informed citizens or state governments fearing the unknown, multiple blocks were on the road of India getting a unified tax regime.

Ahead of the Union Budget 2019, Jaitley shed light on how the implementation of GST has impacted the nation. Entrepreneur enlists some here:

Consumer & Assessee-friendly

Before GST came into force, consumers were most scared. "The high taxation of pre-GST era pinched the consumers' pocket and acted as a disincentive against tax compliance," Jaitley pointed, adding that the last two years have seen each of the meetings of the GST Council reducing the tax burden on consumers as the tax collections improved.

An efficient tax system certainly leads to better compliance. The GST council has gradually worked to bring down the tax slabs in products of consumer use and white goods along with luxury items. Jaitley argued that the sudden reduction of all categories can lead to a massive loss of government revenue and hence, this exercise had to be done in a gradual manner as the revenues increased.

As on today, most consumer items have been brought in the 18%, 12% & 5% GST category. Only luxury, sin & some white goods remain in 28% slab. A sudden reduction of all categories can lead to a massive loss of government revenue leaving the government without resources to spend.

— Arun Jaitley (@arunjaitley) July 1, 2019

Widening Tax Base

Cashing in the fact that more assesses means more revenue, Jaitley shared that the GST assessee base in the last two years has increased by 84 per cent as the number of assessees covered by the GST has increased from 65 lakh to 1.20 crores, leading to higher revenue collection. "In the eight months of 2017-18 (July to March), the average revenue collected per month was INR 89,700 crore per month which increased by about 10 per cent to INR 97,100 crore in the next year (2018-19)."

The assessee base in the last two years has increased by 84%. The number of assessees covered under GST today are at 1.20 crore. This obviously leads to higher revenue collections.

— Arun Jaitley (@arunjaitley) July 1, 2019

With respect to compliance, businesses up to an annual turnover of INR 40 lakh are GST exempt whereas those with a turnover up to INR 1.5 crore can make use of the composition scheme and pay only one percent tax. "There is now a single registration system which works online and the procedures for the trade and business are reviewed and simplified regularly," Jaitley shared.

Gaurav Anand, co-founder & Director, Namaste Credit, however, doesn't agree that the current GST mechanism has eased businesses in many ways. "SMEs have to pay GST at an event of raising the invoice but they also have to extend a line of credit to their customers. This leads to reduced working capital. SMEs are borrowing to maintain working capital when they should be focused on building capital," he argued.

The government should look at making GST more-friendly for SMEs. There are just too many slabs complicating the computation and creating inefficiencies,' Anand believes should be made simpler.

Direct Tax, Progressive Tax

Clearing the air, Jaitley dismissed the idea of a single GST slab stating that such an arrangement is possible only in "extremely affluent" countries where there are no poor people. He is of believe that it would be inequitable to apply a single rate in countries where there are a large number of people below the poverty line. Hence, the direct tax is the only way to progress. An indirect tax is a regressive tax, he said.

Arguing about the difference between statuses of individuals in the country, Jaitley stressed, "A Hawai chappal & a Mercedes car cannot be taxed at the same rate." However, he agreed that the rationalization of slabs is needed and the process is already on. "Except on luxury and sin goods, the 28 per cent slab has almost been phased out. Zero and 5 per cent slabs will always remain." Jaitley further suggested that as the revenue increases, policy makers can merge the 12 per cent and 18 per cent slab into one rate.

In the pre-GST regime, the rich & the poor, on various commodities, paid the same tax. The multiple slab system not only checked inflation, it also ensured that the Aam Aadmi products are not exorbitantly taxed. A Hawai chappal & a Mercedes car cannot be taxed at the same rate.

— Arun Jaitley (@arunjaitley) July 1, 2019

While Jaitley is right, customers are unhappy different slabs within a certain industry. "Some companies charge 5 per cent, some 12 per cent and some 18 per cent. There should be a defined GST slab for all the players," argued Rajan Navani, Vice Chairman & Managing Director, JetSynthesys. "GST should be payable only on receivable and not on invoicing as it puts a burden on SME and leads to cash crunch," he recommended.

The Happy State

In pre-GST era, both Centre and States were entitled to impose indirect tax on goods. The States had multiple laws which entitled them to impose taxation at different points. The dialogue around implementation of GST invoked a fear of the unknown in the state governments. They felt as if they were losing their fiscal autonomy to tax, Jaitley pointed.

The Central Government overcome the hurdle by persuading States with a 14 per cent annual increase from the tax base of 2015-16 for a period of five years. However, the lurking doubt is as to what will happen after five years? To which the government has assured that every State has been paid its share of tax as also from the compensation fund, if necessary. "Already after the second year (of GST), 20 States are independently showing more than a 14 per cent increase in their revenues," Jaitley boasted.

The GST merged seventeen different laws and created single taxation, with this new system the days of filing multiple returns, entertaining multiple inspectors and additionally facing the inefficiency - trucks being stranded at the State boundaries for days altogether, vanished.

— Arun Jaitley (@arunjaitley) July 1, 2019