In this article, Kunal Sharma discusses the Challenges and shortcomings of GST in India.

Goods and service tax – One nation, one tax

The essay based on ‘GST- One Step towards Simplifying Tax System in India’ shows the flaws and adverse effects of GST on the economy of India. The bill was brought to implement one tax in the country but resulted into the biggest drawback as it ended up implementing 31 different taxes under GST. It is not only a burden on the Indian economy but is a deadly weapon for poor and middlemen of the country. Price hikes in basic amenities make a wider gap between consumers and the market. Despite all the shortcoming, this model could be a grand success had it been planned considering the welfare of poor people. When GST was implemented it was claimed that it would bring great changes in the Indian economy in the market and increase country’s GDP by 7% but reality is that it has made Indian economy worse as the economy was already in a death phase due to Demonetization. According to the latest report of Reserve Bank Of India the economic development rate of the country is decreased from 9.1% ( March 2016) to 6.1% (January –March ) and now suffering at 5.7% ( April – June ) which shows that the implementation of GST is the biggest failure of the present government. Even the finance minister said that the rate 5.7 % in last three months is really a matter of concern. This shows that the plan of GST was brought without a vision which might harm the country’s economy in the long run.

GST – A Step towards Simplifying the Tax System of India

The Goods and Services Tax commonly known as GST was introduced in India on 1^st July 2017. The basic idea to introduce GST in India to remove the multiple tax system which was a part of central and state government and to provide uniform tax system throughout the country. The present GST tax model is inspired from the Canadian GST model and is divided into different tax slabs ranging from 0% to 28%.

After implementation of GST, India became one of the 160 countries to introduce a unified tax regime at midnight. And by unified, we mean four slabs (5%, 12%, 18%, and 28%) and an additional ‘sin tax’ of 40% to be implemented on rare occasions.

A comparative look at the rates in Asia and Europe shows, not only does India have the highest tax rates, but also by splintering a so-called unified structure, we have made it a whole lot more confusing. Therefore, by the present model of GST we cannot conclude the system just by seeing its few advantages but we should also consider its disadvantages and the wrongful decision of implementing GST on Indian phase which is recovering from death phase after demonetization.

The present GST tax system is full of flaws and lacks economic vision as the present GST bill has various loopholes which are laying adverse effects on Indian economy and the people of the country either from working or business class.

• Firstly, the principle on which GST works i.e. one nation, one tax is not suitable for India. Previously we had 32 taxes which included 29 state VAT taxes, 1 sales tax, 1 excise duty and 1 service tax and after implementation of GST we have now 31 taxes including 29 SGST taxes, 1 CGST and 1 IGST which again gives complicated tax structure to the country and contradicts the principle of single tax in nation.
• Secondly, the Constitutional Provisions and Judgments on GST. If we want to impose a single GST tax system in India it is not possible due to,
  • According to the 101^st amendment in the constitution, Article 246 A states that parliament and state can levy taxes on supply on goods & services. So not only parliament but state can have its own GST.
  • Article 279 A of the constitution says that GST council has only recommendatory powers. So it’s up to state governments to implement its ideas. In this way state government levies its own GST and distorts the entire GST system of the country. On 11^thNovember 2016, 9 judges on behalf of the Supreme Court of India gave its judgment regarding entry tax case that every state is as sovereign as parliament in its powers to levy taxes. So it gives freehand to state by which they can levy their own GST.

The present GST Tax System has certain flaws that thereby weakens the movement thus started and proves to be a shockwave for the disturbed economy:

1. GST system is totally dependent on the online submission of taxes which in result overburdens the online system of the Ministry Of Corporate Affairs and the online infrastructure existing is not very sound, so the problem of hanging and website crashes occurs repeatedly which makes tax filing more adverse than before.
2. Due to the implementation of the present GST system in the country it also increases the problem of tax evasion which results in huge loss in the economic condition of the country due to the following provision existing in the Bill which states that business entity with an annual turnover less than Rs. 20 lakhs is given exemptions under GST registration. The above provision provided in the bill is the biggest loophole which can increase the problem of tax evasion and can be explained by a simple example — If a businessman owns a firm or company with an annual turnover of 80 lakhs and falls under the taxpaying category according to the norms of the GST but rather paying taxes he divides his business into 4 firms of 20-20 lakhs and make his wife, son, daughter and himself director of the following four firms and by showing the business into four parts with an annual turnover of rupees 20 lakhs he is not entitled to pay GST but originally these four firms were only in the papers and he saves his firm which has annual turnover of 80 lakh rupees to pay GST and this is how people will do tax evasion in many forms and thus, will result in huge economic loss to our country.

According to the previous tax system in our country, one had to file tax twice a year but now the system has been made so complicated that one has to file GST thrice a month on the 10, 15 and 20 dates of the month respectively, only through online system. So in a simple way one has to file 36 GST taxes then has to file 12 TDS returns. So now 36+12=48 and 1 annual return so total 49 taxes are filed in a year which is really tedious process and hence lays overburdening on the Tax department of India and businessmen too and if a person owns 13 outlets in 13 states of country then he has to file 49*13= 637 taxes in same year which is simply very irrelevant system.

India’s GST model is based on the Canadian GST model but is a failure in country like India because in Canada throughout there is uniformity and same culture but country like India which is a diversified country and is not uniform throughout as in the North there is an entirely different culture compared to the South. In North where people demand wheat, in south there is huge demand for rice, so by the implementation of GST uniformly in India would lay adverse impacts in near future, as the demands in different areas differ in a huge country like India, unlike small ones like Singapore.

Impact of GST on agricultural sector

Before and after independence of the India its economy is mainly dependent on primary sector i.e. agricultural sector and now also agricultural sector is considered the backbone of Indian economy but due to implementation of GST this backbone is broken and is suffering a lot as tax slabs in agro sector has been increased without taking initiatives for making the infrastructure and new irrigation techniques for the betterment of farmers but imposing more tax than before not only lays adverse effects on agricultural sector but is also responsible for the increase in price in manufacturing sector too, as cost of production will increase if the primary or raw material is costly. We can analyze adverse effects on agro sector by following aspects :

1. Fertilizers are considered as key factor of agricultural sector but previously 6% (1%excise + 5% VAT) tax was levied on that but after GST now it is put under tax slab of 12%.
2. The same impact is there in tractors, waiver on the manufacture of the tractors is removed and GST of 12% has been imposed and its spare parts lie under the 28% tax slab which is considered as luxury category tax slab and kept with the parts of BMW and AUDI which is totally irrelevant as without tractors agriculture is not possible and levying 28% tax on tractor parts is a mockery with the poor farmers who spends his entire life on fields just to fulfill his nation’s demand and needs.
3. India’s milk production in 2015-16 was 160.35 million ton, increased from 146.31 million ton in 2014-15. Previously only 2% VAT tax was charged on milk and certain milk products but under GST the rate of fresh milk is nil and skimmed milk is kept under 5% bracket and condensed milk is taxed under 18% tax slab which again is burden on farmers and cattle farmers.
4. Tea is considered as a crucial item in the Indian household but its prices are also increased due to imposed 5% GST more than previous VAT rate of 4-5% with Assam and West Bengal with the exception of 0.5% and 1%. So, imposing heavy taxes on the agricultural is not justified with the poor section of the society which includes farmers and peasants, this will not only increase the cost of production for farmers but also decrease their profit margin which will subsequently result in increase in creditability among farmers and instead of giving them support this tax system is increasing insecurity and due to which suicidal cases among farmers, peasants will take a boost.

Impact of GST on Insurance sector

On one hand the government is pushing every citizen of the country to open a bank account by initiating ‘PradhanMantri Jan DhanYojna’ and on the other hand GST has made financial services expensive. Transactions fees in financial services have become more expensive as these services are put under 18% tax bracket in the new goods and services tax (GST) regime. Previously these services were so taxed at 15% and the hike in the tax rate means that individuals will have to pay 3 rupees more for every 100 rupees paid for banking transactions. (Economic times: you will have to shell out more from banking transactions from July).

India is amongst the most under-penetrated Insurance market (less than 10% population of India has insurance). This was the only reason for the governments launching the ‘Pradhan Mantri Jeevan Bema Yojna’ however, with the GST, insurance premiums have become expensive which is proving a roadblock in a price sensitive market like India. Life, health and motor insurance are increased up by 300 basis points.

Impact of GST on telecom sector

The telecom sector is already under server debt and a burden of license fee. The current debt stands at around 4 lakh crore (Telecom debt unsustainable – TOI). So with the implemented GST model further taxes in this field will increase definitely. On one hand, government is initiating ‘Digital India’ and on the other hand telecom services (Phones, broadband etc-) is getting costlier as most of the operators will pass on the increase to the consumers in order to cope up with GST. Therefore, it contradicts the initiative of Digital India in order to give boost to Digital India initiative. Government should lower the tax slab in telecom sector. So that the telecom services can be accessed easily even by the poor sections of the society.

The petroleum sector is not kept under GST slab. Petroleum products like crude, high-speed diesel, ATF are kept away from tax slabs. So its costs are likely to rise because of dual indirect tax mechanism.