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MOSL: GST-The 20 months of the GST regime

GST: The 20 months of the GST regime

 

Around 20 months ago, India ushered in the Goods & Services Tax (GST), which is billed as one of the biggest indirect tax reforms in the country's history. This was a major step toward simplifying taxation and facilitating ease of doing business by rationalizing tax rates, improving efficiency in the system and shifting trade in favor of the organized segment. Although it is still early to evaluate whether the GST is really a 'good and simple tax' - as reforms are said to be slow boring of hard boards - we, in this note, have highlighted some of the key trends of this new tax era.

• The Indian government over the past two years has taken many proactive steps to streamline the GST by providing procedural relaxations and clarifications. However, this has led to a deferment in the implementation of a few important anti-evasive measures, and thus, the shift in trade toward the formal economy has been slower than anticipated.
• GST collections have increased YoY in FY19 (until February), but the monthly average collection is lower than the target, slimming the prospects of achievement of the full-year target. However, in our view, collections should improve once the anti-evasive measures are put in place.
• In the new tax regime, the manufacturing sector has witnessed an increase in working capital requirements, while the services sector has had to comply with increased state-level compliances and seen higher tax rates.
• Clarity on including petroleum products and gas under the ambit of GST and anti-profiteering norms is still awaited.