PREPARATION HAS BEEN STARTED TO OBSERVE GST DAY ON 1 ST JULY, 2018.

Goods and Services Tax (GST) was introduced on 1 July, 2017 and is about to complete one year in operation. Let's look at how things stand a year later.

1) India has four non-zero rates of tax when it comes to the GST; 5 percent, 12 percent, 18 percent and 28 percent (Actually, it has six non-zero rates of tax given that gold is taxed at 3 percent and precious stones at 0.25 percent). Over and above this, there is a special cess on certain goods categorised as luxury and sin goods. Hence, we have many rates of GST. The Indian bureaucrats and politicians, have designed one of the most complicated GST systems in the world.

India Development Update, published by the World Bank, in March 2018, points out that only four countries in the world, other than India, use four or more rates of GST. This is from a sample of 115 countries. These four countries are Pakistan, Ghana, Italy and Luxembourg.

49 out of the 115 countries in the sample use a single rate and 28 countries use two rates. India is clearly in a minority here.

2) More rates of tax make the system inherently more complicated. The argument offered against this is that the earlier system was more even complicated. This might be true for the goods part of the system, but when a new system is being designed from scratch, it needs to be as user-friendly as possible. The GST system is clearly not user-friendly.

3) The complicatedness of the system comes out from the fact that in 2017-2018, the rate of compliance stood at 64.6 percent. This basically means that more than a third of those who need to file GST returns did not do so during the last financial year.

4) The top rate of tax of 28 percent (without considering the cess on sin and luxury goods) is the second highest in the world, from the sample of 115 countries, considered earlier. Higher rates are another reason which put off people from paying the tax.

5) The Harmonised System of Nomenclature (HSN) which allocates codes for every conceivable good, runs into all of 438 pages and has 18,306 entries. Of course, bureaucrats would have sat and thought through this and come up with every conceivable product category that they could think of.

Despite this detail, there has been confusion regarding the categorisation of some goods. Is Appy Fizz an aerated drink or a juice? Is Red bull an aerated drink or an energy drink? All this could have been avoided if there were one or two rates of GST.

6) Having one or two GST rates would mean a simple system. And bureaucrats and chartered accountants, do not like simple systems which ordinary people can understand. A simple system does not allow them to draw their rents.

In fact, if there were only two rates of tax, one for goods and one for services, a 438-page HSN book would no longer be required. This would clearly mean lesser work as well as relevance for the bureaucrats and the chartered accountants. And that is something that they clearly don't want.

7) The GST was marketed as one nation one tax. But that has clearly not turned out to be the case. Businesses with presence in one or more state need multiple GST numbers. They need to file multiple GST returns as well. They also need to have multiple GST logins and passwords.

This is something that clearly does not help the ease of doing business.

While this is a major systematic flaw, it can be simplified by giving businesses which have presence in multiple states, a single login and password, so that they don't have to login into the GST website multiple times to file their returns.  Information technology can be used to make things easy for them.

8) Continuing with GST being marketed as one nation one tax, the e-way bill provisions have been made mandatory from 1 April, 2018. While the e-way bill provisions for interstate movement of goods (i.e. between states) are uniform, the same cannot be said about provisions regarding intrastate movement of goods (i.e. within a state). This again creates problems for businesses operating across multiple states.

9) The complicatedness of the system can also be made out from the fact that the GST council has put out 158 notifications till date. This includes tax and rate notifications. Having said that, it must be said that rate of issuing of notifications has fallen in 2018.  These notifications have been issued at the central level. There are other notifications at the state level.

However now CBIC has started preparation to observe GST day on 01.07.2018.