The Modi government’s most touted moves were demonetisation and goods and services tax (GST). As India is heading towards the Lok Sabha elections, reforms like demonetisation and Goods and Services Tax (GST) are headed to look like bigger failures due to the flow of black money and tax evasion.
Even a British brokerage HSBC had said that a year into implementation, the Goods and Services Tax has not delivered on the promised formalisation of the economy as yet. “The GST regime was originally associated with formality. But so far, in our view, it has not been able to live up to that promise. It has not brought down the demand for cash which has, in fact, only gone up,” the report said.
In the short-run, the glitches in the framework, including delays in tax refunds, teething issues with the new IT network and higher tax rates for services have led to an increase in the cash-based activity, the report said, adding, it is one of the factors for the rise in cash circulation.
The GST was implemented from July 1, 2017, and since then it has undergone multiple changes, including lowering of tax rates of many items and an increase in the number of cesses and the levy rate. In April, Finance Minister Arun Jaitley had claimed that the GST and note ban had led to an increased formalisation of the economy and also cited that 1 crore new income tax returns were filed in 2017-18.
A month after the levy went into effect in July 2017, a little over 7 percent of taxpayers failed to comply with the requirement that every business with annual turnover of 7.5 million rupees ($108,000) or more file three returns every month.
The biggest failure of GST implementation has been the unpreparedness of the IT backbone. GST is based on a digital system, where not only monthly returns for inward and outward supply, as well as tax returns, but even correspondence, are supposed to be electronic.
GSTN, the agency responsible for maintaining the IT system, failed to make available electronic forms and offline utilities on time. Many GST functionalities are still not available online. Frequent extensions of filing dates were more due to the failure of the IT system rather than the unpreparedness of taxpayers.
Failure of the IT system was the greatest single reason for causing dissatisfaction with GST. Small businesses around the country found it hard to adjust to the new information technology (IT) system, and the GST network failed to cope with last-minute spikes in filing of returns, forcing the GST Council, which is overseeing the regime, to defer several deadlines. The GST return filing procedure was also relaxed several times to make compliance with the new regime easier.
Thirteen months is time enough for the much-hyped experiment with the new taxation regime to stabilise, allowing for an assessment of its efficacy and procedural simplicity. The numbers suggest that the performance of the new tax is more than just disappointing, but in fact fiscally damaging. The most recent such evidence is with respect to GST collections in August relating to transactions in July. The Finance Ministry reports that collections stood at Rs 93,960 crore for that month. This is not just lower than the Rs 96,483 crore collected in June, but way below the peak collection of Rs 1,03,5459 crore recorded in April 2018.
All these factors point towards GST as failure of badly conceptualised and implemented policy under the current BJP-led government.