As India's Goods and Services Tax (GST) regime completes one year of its implementation, a panel of experts and ministers discussed the successes and failures of the tax and its effect on the various states.
The panellists included Thomas Isaac, finance minister, Kerala, Mahender Singh, member- GST, CBIC, Manpreet Singh Badal, finance minister, Punjab and Mauvin Godingo, GST council member, Goa.
Watch here: One year of GST: Panel of experts discuss the hits and misses Edited excerpt: Shereen: One of the achievements of this year that we have seen is that politics while may play out outside, at the level of the GST council, politics has been kept aside. There has not been a single occasion in the 27 meetings of the GST council where there has been a vote, all decisions have been taken unanimously. This is a mechanism that has given India hope that a federal structure can in fact work, can in fact deliver. What has been the experience on the GST council? Isaac: We in the GST council have very different positions on many issues and we have evolved a method of consensus decision making. There is a give and take but that doesn’t deter me from having my criticism against the GST structure and even more forcibly the experience during the first year, it has been rather a disappointment to me.
What we set out, we are very far away from that. To start with, there has been a very significant reduction in the incidence of tax rates, something like 40 percent on the average but that is not reflected in the prices. The ordinary people of India have not drawn any advantage from GST, so that is one major issue. There are clauses in the law like anti-profiteering clause etc but they have proved to be very ineffective.
Secondly you must accept the small scale sector, unorganised sector, they are in deep trouble. Once you want to trade with the organised sector you have to come into the GST regime and they would lose the competitive advantage they used to have in the pre-GST period. We cannot do anything within the tax system but our direct support systems for the SME sector has to be improved and there has been no signs of that.
Shereen: You made several points there, you are saying that overall this experience in the past one year has been a disappointment. Your biggest concern is that the benefit that you should have accrued to the ordinary consumer, to the citizen has not come through. Who do you hold responsible for that, do you believe that industry has not passed on enough? Isaac: Let us be very frank, from the first day of the GST Council, this one issue I have been raising, the position taken by the business was, that competition will take care of the issue. I said no, it is an oligopolistic market in India and therefore price determination is not based upon perfect competition. Sheeren: But it has not had an adverse impact on inflation. The expectation was that perhaps GST would have had an adverse impact on inflation; that has not been the case either as well. Isaac: The fact is, say in Kerala for example, 80 percent of the commodities used to suffer 14.5 percent VAT and now a comparable number of commodities, the proportion is only 15 percent. That is the kind of sharp reduction in incidence of tax that has taken place. However, the expectation was the gains would be shared with the consumer; consumers have been cheated. Personally I have been involved in GST deliberations right from the late 2000 when it was first introduced in the empowered committee.
We knew there is going to constraints on state government resource mobilization autonomy. However, the expectation was that, 1) the SGST component, the tax which are not in the inter-state trade, you could give it in a band so that if state government wants to have more resources, they should have the freedom. Me from Kerala, we have chosen a path of development which is focused upon social sector spending and which has done us good.
Shereen: What to your mind has been the single biggest hit of the GST rollout in the past one year and the miss? I know your list of misses is going to be longer than the list of hits, but I am hoping you will start with a hit. Badal: For the start, what the GST Council has done is created a fraternity of finance ministers and we sit together and we share our experiences and best practices of the state. Like last month I had a team from Punjab actually visit Kerala to study their lottery system.
Next week a team from Punjab is going to West Bengal to study their excise policy. So this has been a great experience.
Having said that, I think also the fact that in a very diverse country like India, the fact that we were able to implement the GST, the country is so diverse, I think I would give it an 8 out of 10 and also pay my tribute to P Chidambaram and Pranab Mukherjee and the whole 10 years.
However, having said that, I feel that this was once in a century legislation where we totally were transforming the tax system, from the tax administrator to payer and all. We were told that we will simplify the whole process, it will give a boost to our economy or GDP, and it will also boost tax revenues.
So all three things have not taken place and when we talk to the stakeholders, there are irritants basically and some people have actually rejected it outright.
Shereen: If I could dial back to the months or the weeks ahead of the GST rollout, till the very last day the consensus was that this is going to be a disaster, that things will fall apart even before it actually takes off. Let us be clear, while there have been teething troubles, there has been pain on the ground as far as SMEs are concerned, there have been technology glitches, there have been issues with respect to filing, compliance burden has gone up, but the country has moved on, the transition has happened and things are now moving back to the normal that we were before July 1 last year.
Badal: Anybody can make mistakes, mistakes are made, but all I am trying to put across is we must A) acknowledge the mistakes, keep are our ears to the ground, and we must have an honest feedback from the stakeholders. Once we do that because my motto is nothing less than perfection in the design and implementation of the GST is acceptable.
If India has to become a super power and within my lifetime and I hope I have another 10 years to live, then we must design it in such a way and implement it in such a way – after all, GST is a tax which is implemented in about 100 other nations of the world. We can actually go to what are internationally recognized as the best practices and as long as we are willing to listen to each other and this spirit of cooperative federalism is taken to a next level – there are 200 changes in the law which are coming up, and if some time is given rather than rush through the legislation, otherwise we are bound to make the same mistakes. That is all I am trying to say.
Shereen: I know that you have consistently believed that things will improve when it comes to both revenue collections as well as the compliance burden easing out, we are still waiting for that simplified form, my sense is that it is expected between August to October is the timeline that the government is working with at this point in time but give me a sense of what a state like Goa has experienced in the first year of the rollout and what next can we expect? Godinho: It is not only Goa, the whole country is impacted by GST. If you look at our journey in the last one year, I can safely say that during the one year the way it has been implemented, the way GST has worked, it has been a splendid legislation in indirect taxation which is working very well. When I say working very well you look at the collections, collections are not bad. There were so many pessimists in the beginning who said it will never work, it will crash in three months time. Shereen: Let us be honest, collections have been under what you were estimating as well. Godinho: Yes but when you work in a big country like India and we have lowered the rates listening to the common man, looking at the common trader, the small businessmen, we have taken their opinion into consideration, wherever it hurts them we have not hesitated even though knowing well that we will lose revenue to lower the rates. The emphasis has been to give more relief to the common man.
Any country which brings any legislation whether it is financial or otherwise, ultimately we want to have a better system than what was already there. We want to give relief to the businessmen, we want to give relief to the common trader. As I would describe at the end of one year, GST I would call it “garibon ka sochne ke baad tax,” because we have thought about the common man. Food grains are out of the ambit of GST, items which impact the common man are out of the GST ambit, those items which are most commonly used even by the middle class and the nation as a whole or the large population, you have the lowest bracketing of tax towards those particular goods. That means we have always thought about the common man.
While looking at this, we have to also look at the revenues, we have to look at employment generation, we have to look at investments into infrastructure, into the overall growth and overall buoyancy in the economy as well as the revenues. So, many things have to be balanced.
Sometimes we fail to realise, India is a combination of not only 27 states, it almost becomes like a combination of several countries. Even though 100 countries have been able to implement a reform like this, they have been smaller countries with a smaller population. We are so diverse, we have so many diverse views, we have a very healthy and robust democracy where everybody is so robust in his views and expressing those views so strongly even economically that you sometimes feel whether a consensus will arise but to the credit of GST council though people belong to different political parties, they thought about India as one country at that point of time.
I want to complement every political party. Normally this type of spirit builds up during wars when all Indians unite but here was one reform where all Indians united, why don’t we look at that. To take these decisions also, you need guts, you need out of the box thinking, you need to take a risk in your economy and our leader Narendra Modi has taken this risk. It is not so easy on the back of demonetisation, you have GST being introduced and it is still working at the end of one year.
Now obviously opinions will slightly change, they will be tempered because of the coming Lok Sabha elections, it is bound to be that way.
Shereen: I want to understand what that statement means - so we should not expect anything more now on the GST till the Lok Sabha elections are over and done with? Godinho: No. I said there are always dynamic situations, they need a dynamic response, and our government is dynamic enough, taking everybody on board to take those right decisions which will further simplify GST and make it easier for the businessmen and the community at large to sort of dwell themselves into the GST regime. Shereen: The GST Council signs off on the decisions and it is CBIC that has to ensure that those decisions are actually executed on the ground. Give me a sense of what the experience has been from an administration and execution point of view, what have been the highs and the lows? Singh: I would like to inform that Central Board of Excise and Customs, now it is Central Board of Indirect Taxes and Customs under the department of revenue and ministry of finance. It is responsible for implementing GST in the country in coordination with the state governments.
Last one year, after July 1 2017, till now, we are almost completing one year and I can tell you honestly that it has been a journey, a rollercoaster ride. We have been in thick of implementing GST and after one year of implementation I can say with certain amount of satisfaction that it has been a great success.
We are aware that there have been glitches, there have been concerns, there have been issues, but our officers, central government officers, and state government officers under finance secretary have been always willing to listen to the grievances, the concerns of the taxpayers. We have been going out to the taxpayers, we have been holding outreach programs.
Yesterday only I was in Guwahati - I can tell you one simple thing, e-way bill, there is a lot of discussion on e-way bill, just for the sake of example I can say, I was talking to transporters there, and they were telling that one truck from Delhi to Guwahati, it used to take 15 days. The expenditure, accounted or non-accounted, used to be Rs 20,000 for one truck. Rs 20,000 has gone, there is no expenditure and the truck reaches within 7 days. All barriers on the state barriers, they have vanished overnight. This is the greatest achievement.
If some research or some study can be done, how much petrol or diesel we are saving on the trucks, there used to be 36-48 hours queue for miles together on the borders just to cross the border - show your papers and enter in the other state.
Now if you start from Kanyakumari to go to Kerala, if you have e-way bill which you can generate yourselves, there is no interaction with the state government officer or central government officer and you can just flash the e-way bill number and you can just pass through. Nobody is going to check you. It is the greatest relief to the transporters, to the taxpayers.
Shereen: You said that you believe that at the end of one year you can satisfactorily say that GST rollout has been a success. What are the other metrics that you would like to share with us on why you believe it has been a success? Singh: It has been a great success. Revenue wise you can say for the month of March, April, we collected more than Rs 1,03,000 crore. Shereen: But you also caveated that by saying that we do not expect the Rs 1,00,000 crore number to be a trend just yet. Do you feel more confident about that now? Singh: It will come. Next year we collected Rs 94,000 crore; it is not a small amount. It is increasing and it is all doubting Thomas's who were saying that revenue will fall down. Nothing of the sort is happening.
Actually it is going up. We are taking measures, even now we are conscious of the facts of the problems of the people, we are conscious of the problems which the taxpayers are facing.
Our officers, state government officers, and CBIC officers are deployed in every nook and corner of the country. Small places we have range offices, our commissioners are sitting in faraway places like Imphal and they are always willing, they are ready, available, and they are accessible to listen to the grievances of the taxpayers and solve those problems.
We have a very robust mechanism to address those problems, we have various committees.
Shereen: What are you most concerned about today. You gave me a long list of why you believe the rollout has been successful, what are you most concerned about even today? Singh: One thing which is bothering us is the compliance from the taxpayers. We being in India, everybody knows, I do not want to mince words, we are hesitant to pay taxes as Indians. So it is a great challenge to bring people, to convince them, that if you pay tax, it makes life easy for you. If they do not pay taxes, if they want to avoid taxes, they make life difficult for themselves. They are doing great harm to the nation also. We have mechanism to convince them and we are trying continuously to convince them. Shereen: Are you running out of patience or do you still have more patience? My question is very pointed, are we now going to see some serious enforcement measures coming into play? Vanaja Sarna said that we will wait to use the 'danda', but has the time now come to use the 'danda' is the question? Singh: We do not want to use the word that we will use 'danda', but as you will agree with me, we will run out of patience. So there are methods, there are means just to convince the taxpayers and it is for their benefit. If you pay taxes, you do the compliance, life is much more easier for you, you can have a very sound sleep in the night. If you are otherwise, it is difficult for you. Shereen: Now in terms of next step, in terms of priorities, the next meeting of the GST council we understand is on the 21st July. It is likely to be on video conference, the meetings that happen over video conference don’t really take any substantive decisions, so I don’t know what is going to come off that meeting. What can we realistically expect now in terms of priority areas, in terms of the decisions that could be taken over the next few months? Isaac: I am not looking for changes. I want things to settle down. Changes will have to come but let us settle down. Not every time you meet you change your rate or you bring in that, bring in this. We have undertaken a number of measures, let it stabilise, let the forms come, let the e-way bill become effective and then let us see the outcome and then we will have a considerate view of the things rather than kneejerk reactions. Shereen: Since Kerala was the first state to actually bring down the VAT on petrol and diesel to provide relief to consumers, do you believe that in earnest there is likely to be a decision on bringing petroleum products under the ambit of the GST?
Just rollback the excise duty hike and the issue is three fourth solved and then we can certainly discuss how to bring it in GST. There is a compensation law, states will have to be compensated and that is going to be a big issue, how it is going to be compensated because it is such a huge amount. Therefore I am saying there is a simple direct way of tackling petroleum price hike – rollback the increase in the excise duty.
Isaac: There is such a simple, direct way of tackling it. The whole issue is that in the last four years excise duty has been hiked by some 200-300 percent, just roll it back, issue is solved. Now you are talking about GST, consensus has to be reached and so on so forth, deliberately delaying things.