After spending nearly a decade in the workshop, the Goods and Services Tax (GST) completed six months of existence by 2017-end. However, the new indirect tax regime continues to be volatile amidst concerns over falling revenue collections and government’s struggle to plug revenue leakages in the absence of a full-fledged system in place. The year saw accelerated decision-making by the GST Council to ensure it was implemented from July 1. The first meeting of the year saw GST Council resolve the sticky issue of dual control of administration of taxpayers. The Council agreed to split equally the taxpayers with revenue above Rs 1.5 crore between state and center for administrative purpose. For those with revenue up to Rs 1.5 crore, concerned state would get 90% of taxpayers while center will have rights over the remaining.
The next month saw GST Council approving another major landmark in terms of compensation bill. The bill guaranteed Center’s compesation to ensure that states’ revenue would continue to grow at at least at 14% year-on-year for five years from FY 16 level. In March, the GST Council completed most of the legislative work and the parliament then cleared the center GST, integrated GST, union territory GST and the Compensation bills.
Keeping with the tradition of convening GST Council meeting outside Delhi on different occasions, the 14th meeting in Srinagar in May finalised the rates of over 1200 items in goods category and services in the five pre-decided slabs of 0%, 5%, 12%, 18% and 28%. Over 80% of the items were kept below the 28% slab while cess of varying quantum was imposed on demerit goods and luxury items. The cess thus collected is to be used for compensating states in case of revenue shortfall.
By the end of June, all states with the exception of Jammu and Kashmir had cleared the state GST bills in their respective legislative assemblies. The government unveiled its plan to launch GST at midnight in Parliament. Main opposition party Congress along with West Bengal chief minister Mamata Banerjee and left parties decided to skip the launch.
The first month of GST began on a positive note with states removing check-posts at borders which enabled faster movement of goods. However, by the end of the first month, cracks in the system had started to appear as reports of GST Network crashing under immense last minute rush started appearing. This led the GST Council to relax many return-filing deadlines.
In subsequent months, the Council cut rates on over 300 items after it appeared that many daily-use items had ended up in the 28% slab due to the equivalence principle used to determine GST rates. While that was welcomed by the industry and consumers at large, the problems with the IT backbone persisted, frustrating taxpayers and administration alike. It got worse when time came for filing the comprehensive triplicate forms (GSTR-1,2&3), which was essential for matching invoices– a feature that is supposed to distinguish GST from the earlier VAT system.
Finally, in November, the Council succumbed to the pressure of extremely low compliance in filing GSTR-1 for July and put the triplicate forms in abeyance till March while allowing taxpayers to continue with summary return form GSTR-3B.
At the end of the year, many of the original GST features are being scrutinised in a bid to make it friendlier for all stakeholders. But the earlier compliance-related relaxations has made the system porous. This resulted in two consecutive months of dip in revenue to nearly 81,000 crore in November from Rs 83,000 crore a month earlier. This compared unfavourably with an average of Rs 90,000 crore in the first three months, raising the specter of fiscal slippage, although admittedly only by a small margin.