The GST may not be the best in its class, but it is much better than the previous system

A "good and simple tax", that is how Prime Minister Narendra Modi described the Goods and Services Tax (GST). Finance Minister Arun Jaitley made a better speech during his session on June 30, 2017 at midnight: "There will be a control over inflation, tax evasion will be difficult, rates will be more The country's GDP will benefit, and the additional resources that governments and the Center will receive will be used to serve the poor. "

In theory, the GST was win-win. It has included 17 taxes and 23 cesses, ending the cascade of taxes (paying taxes on taxes) that has reduced efficiency and raised prices. But none of its proclaimed benefits should flow overnight. Indeed, given the inevitable trade-offs in the implementation of such a historic reform – particularly its ramifications for sub-national fiscal autonomy in a federal democracy – the benefits could only be expected from time to time in time. Even so, a year later, where are we facing the promised benefits of the GST?

But first, a few caveats. For starters, it is impossible to establish a one-to-one relationship between fundamental fiscal and macroeconomic factors such as inflation or GDP, which are influenced by a host of domestic and global factors.

Second, the GST we have today is a patchwork, badembled by the constraints of fiscal federalism. It is a work in progress and it is likely that it will remain so for a few more years before reaching the desired goal of a simpler tax structure. and wider. Third, the total impact of change should be felt in the longer term.

So, how did the GST benefit from the promised benefits? Take inflation. Have prices gone down? Yes and no. While prices for many goods, especially essential goods, have fallen after the GST, services are more expensive.

However, given the relatively low weight of services in the Consumer Price Index (CPI), inflation decreased between July 2017 and April 2018 compared to the corresponding period of the year. 39, last year. While the actual impact varies by household based on the share of services in their baskets of consumption – since services have a lower share in low-income food baskets – the GST can be considered globally beneficial on the price front.

Improving Tax Compliance

Has Tax Evasion Decreased? It is still early, but there is every reason to believe that tax avoidance has at least become more difficult. According to the Ministry of Finance, compliance levels have steadily increased and are expected to improve once the e-way Bill system (introduced from 1 April 2018) has stabilized and billing (to be introduced at from September 2018) will become reality.

Increased formalization of the economy and the link between direct and indirect tax returns (small businesses must report their GST identification numbers in their tax return forms for 2018-2019) should also help to check for tax evasion.

Are tax rates lower? Not really. In fact, the rate of many services has increased compared to the pre-GST period. But as incomes rise, it should be possible to reduce rates.

Remember that the first attempt was to arrive at revenue neutral rates. But once incomes rise and the sectors currently excluded from the GST-electricity, real estate, alcohol and petroleum products-enter the tax sphere, it should be possible to reduce tax rates and the number of slabs. six-0%, 5%, 12%, 18%, 28% and 28% + cess-we currently have.

Collections

Has the GST added the promised 2% of GDP? On the contrary. Growth declined in the first year of implementation of the GST. From 7.1% in 2016-17, the GDP growth rate fell to 6.7% in 2017-18. However, if we look at the sequential growth, the picture is quite different.

Growth from one quarter to the other was 7.7% in the fourth quarter of 2017-2018. And for the year as a whole, it is expected to reach 7.4% in 2018-2019, although the share of the GST is questionable.

Has the government collected more income? According to the Department of Finance, the total revenue collected under the GST between July 2017 and March 2018 was 7.41 lh crore. The collections surpbaded the 1-lakh crore mark for the first time in April 2018. And although they declined to 94.02 crore in May 2018, all available evidence suggests that collections will increase during the first half of the year. 19. Against an average monthly collection of 89, 885 crore in the last fiscal year, the Irish government hopes to absorb an average of $ 1.1 trillion for this fiscal year.

Of course, the problems persist. But these are largely in the operational area and relate to issues such as return reporting, invoice matching, reverse charge mechanism and technology. What is clear is that the positives outweigh the negatives. So, unlike Malaysia, there is no going back on the GST.

Admittedly, a year is too short a period to judge a decisive event like the implementation of the GST, just like the ironic comment of former Chinese Premier Zhou Enlai: "It is too early to say ".