17 December 2018

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Did GST Meet its Objective and to What Extent

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GST

Did GST Meet its Objective & to What Extent


Heralding a revolution in Indian Economy, The Goods and Services Taxes (GST) looks totally promising for its future. The biggest tax reform in India with an objective of “one nation, one market, one tax” has been finally implemented and we look forward to the changes which come cascading. With this single stroke of action breaking all barriers, the Indian government has unified a market of 1.3 billion citizens and this $2.4-trillion economy of our country is looking to reap great results with this roll out.

There have been mixed reactions on GST implementation since the beginning and whether we arrive at making it a “good and simple tax” has been the question. Have we or are matters more complicated? Let’s hope that the implementation of GST in the 29 states and 7 territories of India really work towards a greater future. So, how far have we succeeded in making it effective? Let’s take a look.

What is GST?

The Goods and Services Tax or GST is an indirect tax that has come to replace many other indirect taxes (about 17) in India. All the existing state and central indirect taxes other than Customs Duties are converged to GST. It came into effect on July 1st, 2017 and is applied on every stage of value addition on the supply of goods and services. It is implemented in all the parts of India (except Jammu and Kashmir).

The implementation of GST is aimed at uniting the country and termed as ‘one nation, one tax’ because it advocates charging the same amount of tax to a product irrespective of the region or the state where the product is being sold. For example, a TV in Uttar Pradesh will have the same amount of tax as that of a TV in Karnataka under GST.

How Does GST Work?

The GST council has time and again met on several occasions and taken decisions regarding tax structures, rules, etc. It is also looking to further simplify the tax regime. Currently, all the states have adopted the State GST (SGST) laws.

For GST compliance, all the registered people must file monthly returns by 20th of the succeeding month through the Form GSTR-3B. Additionally, invoice-wise outward supplies are to be submitted through Form GSTR-1 by the 10th of the succeeding month. Taxpayers with a turnover or sales up to 1.5 crores can file GSTR-1 on a quarterly basis. Other taxpayers with a turnover above 1.5 crores are to file monthly returns.

The GST Council further simplified the format on July 21st, 2018, by allowing the quarterly filing of returns for taxpayers with a turnover up to 5 crores. This move is said to benefit about 93% of taxpayers. There is also a provision of e-bill for consignments above INR 50,000 and an e-bill is effective for both inter-state and the intra-state movement of goods. Good industry and people participation along with the government’s support and pro-active measures can truly achieve the ‘Good and Simple Tax’ regime.

What is the Economic Scenario after GST?

GST is envisaged to bring in simplicity in the tax procedures. It is said to be neutral in the application and is considered an attractive and efficient system of tax. Here are some points on the Indian Economy scenario as per the Economic Survey of India 2018:

  • The number of indirect taxpayers has gone up considerably, about 9.8 million; most of these new registrations are by people who have voluntarily chosen to be a part of the GST, mainly small enterprises that purchase from large enterprises.

  • The states that have shown the highest GST registrations are Maharashtra, UP, Tamil Nadu and Gujarat, respectively. There is an increase in the number of tax registrants as compared to the old regime in states like UP and West Bengal.

  • There was a fear among the individual states that GST implementation will undermine tax collections, which is allayed as the GST base of all the states are closely linked to their GSDP (Gross State Domestic Product).

  • The internal trade is about 60% of GDP, which is greater than last year’s Survey estimation and goes well with the other large comparable countries.

  • It is now easier to estimate state-wise international exports of goods and services, which was not possible before and the five states with the largest exports in the present are Maharashtra, Gujarat, Haryana, Tamil Nadu and Karnataka.

  • India’s formal sector non-farm payroll is doing substantially well and is 5.3 crores more under GST than it was under the social security scheme. The size of the formal sector (considering both GST and social security net) is a mere 13% of total firms and gives 93% of turnover. A whopping 87% of firms are purely informal and not under the tax regime and we hope that GST brings in stability in the formal sector tax regime.

The surveys broadcast various sectors of our economy and give state-wise and enterprise-wise turnover and tax collection after GST implementation. Let’s see one of these tables where the bifurcation of turnover and tax liability is based on business types. The table classifies both the aspects: turnover and number of enterprises.

Distribution of Turnover Based on Transaction Type

Transaction Type

Filed Returns

Tax Liability

B2B

B2C

Exports

Other

Total

Below Threshold

0.2%

0.2%

0.0%

0.0%

0.4%

32.2%

0.9%

Composition

1.2%

1.1%

0.0%

0.1%

2.4%

36.0%

4.4%

SME

3.8%

2.3%

0.1%

0.5%

6.8%

22.0%

10.5%

Medium

15.5%

4.3%

1.5%

2.8%

24.1%

9.2%

29.8%

Large

36.5%

4.9%

7.7%

17.1%

66.2%

0.6%

54.4%

Total

57.3%

12.8%

9.4%

20.5%

100.0%

100.0%

100.0%

 

Source: Economic Survey of India 2018 (Survey based on GST data)

In the table mentioned above, the categories of businesses taken are:

  • Below Threshold = less than Rs. 20 lakhs;
  • Composition = Rs. 20-100 lakhs (current upper limit is Rs. 150 lakhs);
  • SMEs = Rs. 1-5 crores;
  • Medium = Rs. 5-100 crores;
  • Large = Rs. 100 crores.

The data shows that the distribution of turnover is screwed to a large extent. The largest filling of tax returns of 36% is by composition firms, but they account for less than 3% of total turnover; while the large firms account for less than 1% who filed returns but contribute to 66% of turnover and 54% of total tax liability.

This article is just a sampler as per the current economic surveys that show the present and future of GST implementation. In the short-run, the taxes might seem overwhelming; however, statistics show a rise in the economy and a lower tax burden in the long run. It is a period of great change and we hope that this step will further stabilize the non-formal areas of Indian Economy and bring a better tomorrow.

ployees instead of mindlessly hiring new employees to cut down on costs. According to a report by IBM, it was found out that with appropriate training, there was a 10% increase in productivity at the year-end. There is a major skills gap that is sweeping the industry right now and it will only get worse if employees aren’t adequately trained. According to a report by McKinsey, 82% of surveyed executives at top companies believe that upskilling is at least half the answer to the threat of skills gap.

  • More diversity in workplaces: Many top organisations are striving more than ever to diversify their workplace as much as possible. There are employee support groups being set up in offices. Diversity in ethnicity, age and gender will be greatly encouraged while hiring employees. This not ensures fairness, but also the growth of business because now there are perspectives and different ideas from varied backgrounds. A significant mixture of these diversities will bring in fresh ideas and innovations. Managers should have the skill to be able to bring out the best from people regardless of their background.

  • Increased age of retirement: Many employees are working beyond the age of 65.  So be prepared to work with an even more diverse workforce! Not only are people working past the age of 65, but many of them are even re-entering the industry. Experience definitely counts, and this will benefit newer employees wanting to learn from and get a different perspective on things. A retirement study taken in 2017 in America showed that more than 40% of people who worked beyond 65 did so because they enjoyed the work. A study by Pew Research predicts that by the year 2050, around 1.5 billion people will be working beyond the age of 65.

  • Co-working spaces: More businesses today are open to the idea of shared workspaces than ever before. Co-working helps build a connected community and a healthy working environment. These are mostly used by start-ups because the flexibility suits them well. Another important aspect is reduced costs. Most people are open to the idea of meeting people from diverse working backgrounds at common spaces in the office to discuss ideas or engage in hearty banter.

So these we were some of the major changes in workplaces that companies and employees will have to brace themselves for this year. Since many of businesses have adopted agile practices in their operations, adapting to these changes will not be an issue.

 
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