By Deena Jacob
GST as a key step towards One Nation-One Tax in a country with over 17 centre and state tax levies that were replaced, did shake up the entire indirect tax landscape in the massive restructuring drive. Evident changes were made in the way business is conducted, taxes paid, and reports and returns submitted in the post GST era. For a nation of a billion consumers with over 60 million small and medium enterprises (SMEs) spread out in metros as well as the Bharat, the fully digital system of tax network, with complex new laws to comply with, the regime was overwhelming to every business owner.
The issue was more amplified for SMEs who did not have the resources nor the access to the right channels for understanding and following the system. Many went out of business, many bore the consequences of being non-compliant, for many the new tax levies drove them from decent profits to losses, thereby struggling to stay afloat. It took the government about 36 GST council meetings thus far and a hundred amendments to refine the system to make some progress towards finding a balance between the ease of business, tax collection mechanisms and return filings.
To top this lack of clarity in provisions, lack of infrastructure maturity to implement and enable tax filings, document uploads and struggles with the plethora of returns and unachievable or missed deadlines, it looked like we were heading for an overall break down in the initial phase.
That being said, there has been an impressive more than 6 million addition to the tax base and a clear double-digit growth from first year at around 14 per cent in the average monthly collection of taxes, standing at Rs 1 lac crores for the current financial year. This is despite reduction of items in the highest bracket and rationalising the rate for essential items including struggling sectors like auto. It looks like we are moving towards a true One Nation-One Tax status.
Increase in GST exemption limit, simplification of returns and the conscious endeavour to include more of essential items in the zero-5 per cent tax brackets, all while ensuring not to have an unbearable strain on the exchequer, have helped the SMEs stabilise. Elimination of complexities in the cross-border goods movement in the pre-GST regime is also a welcome change.
Another key benefit in the long run for the SMEs is that the system widens the base of SMEs that are a part of the formal economy. This, to a great extent, would enable them to get into the stream of trackable history of credible transactions, which makes them eligible to have access to formal credit. A rough estimate of the credit gap in the MSME segment stands at a whopping Rs 16 lakh crores, primarily driven by a lack of understanding on formal bookkeeping and record-keeping and retrieval to prove the potential of the business. With GST systems and the data capture design, it provides an effective way in which the entity’s real business can be tracked and evaluated using the GST infrastructure. This would result in a lesser reliance on informal source of credit charging unreasonable costs and cheaper sources of capital which would help businesses grow.
Thus, as we reflect upon the GST journey in the last two years, it can be reiterated without a doubt that the shaking-up of the largest indirect tax system globally has happened with minimal disruption to businesses, especially the SMEs. Though during the rollout and a few subsequent months the looming uncertainties pointed towards a possible failure of the regime, government along with the states through GST councils had been extremely effectively addressing the consumer needs.
(Deena Jacob is the Co-founder and CFO & Head (Revenue and Growth) at Open. Views expressed are the author's own.)