India GST one year on

It is now one year since the overhaul of India’s complex and overlapping indirect tax regime, and the introduction of a Goods and Services Tax (GST). The new unified indirect tax was designed to simplify compliance, and end large-scale double and compounding tax for business which was stifling the manufacturing sector.

Good start; more progress needed.

There have been several success in terms of the reforms, reducing the compliance burden, but further work is still required if the tax is to realise one of its central aims – give the country a tax regime that is efficient, tax neutral for business and easy to understand.

• GST has broadened the tax base, which gives the government stability in its revenues. The number of GST payers has grown to 10.1 million from 6.4 million.
• The number of companies now ‘compliant’ has reached 65% compared to the initial level of 55%. The shortfall of projected revenues has now narrowed. However, this is short of the INR 744 billion target
• The number of GST rates, six (0%, 3%, 5%, 12%, 18% and 28%), is high by international standards and results in confusion, scope for manipulation and fraud. There have been reclassifications recently towards just three rates
• VAT credits, particularly for exporters, have been slow and caused cash flow difficulties for many businesses
• There have been a large number of revisions to the regime, which have been difficult to keep track of
• The major challenge came with the IT functioning for the complex GST return clearing system – Goods and Services Tax Network. This was ultimately withdrawn, to be reformed over the next six months

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