Goods and Services Tax has replaced about 17 indirect taxes from the previous tax regime and brought it under one umbrella. Though GST is majorly one tax, it divides into three segments. The CGST, SGST, and IGST. All these are similar with just some little differences. Knowing all about CGST act will help you understand how the tax is remitted to the central government, similarly knowing about SGST will help you know about the taxes the state government levies. There are some new rules and regulations that apply to taxpayers as a part of the new regime. The composition scheme under GST is one such example of the changes that GST has brought to the tax system.
History and evolution of GST
The concept of GST was first proposed and was approved to be worked on in 1999 in a meeting between the then prime minister Atal Bihari Vajpayee and the economic advisory panel. In 2002 and 2005, there was a committee recommendation on rolling out of GST, but as it was not fully developed, it was not implemented. In 2011 the head of GST committee Asim Dasgupta registered and admitted that 80% is ready.
There was back and forth in the development and implementation of GST since its proposal. After many reviews and considerations by opposition and state governments, GST finally passed Rajya sabha on 29th March 2017.
In a historic mid-night parliament session held on 30th June – 1st July of 2017, GST was launched by the president of India, Mr.Pranab Mukherjee. Since its launch, there have been around 800 changes made by the GST council to the original GST law.
By April 2018, one year from the start of GST, There were about 376 changes made in the law. Of these changes, about 73 changes were related to tax exemptions of various goods and services, and 65 were related to the tax rates of different products and services.
There were many flaws and issues in GST when it was launched. Many experts expressed that GST was not fully functional, and there was a hurry to launch it. There was dissatisfaction with its launch in many sections of an economist. But many experts were in favor of its launch too. Basically, it was a mixed reaction to the launch across the country.
Exporters initially had issues with GST as they claimed that 60% of the GST refund was stuck with the government. This was after government sanctioned Rs. 17,616 crore in March 2018. There were a lot of issues with tax rates, exemptions, large and small enterprises, and filing of frequent tax returns.
To address the problems on all these points, the GST council held numerous meetings and brought changes to accommodate solutions for all the pressing issues.
By the completion of 2 years since its launch, the GST council held 35 meetings and made 90 amendments to the actual bill. By all the changes GST went through, it became a highly developed tax system. There were fewer issues in its functions and efficiency, and it turned into a robust system. There were still many issues regarding rates and exemptions and other parts of its structure and frameworks.
After two years of its implementation, it became difficult for suppliers to evade taxes, and the revenue base for the government expanded exponentially. About 85% of the assessee base increased in two years from 65 lakhs to 1.2 crores. The government revenue went up by 12%.
The average revenue collection of 8 months in 2017-18 reached Rs.89,700 crore per month. In 2018 -19, the monthly average revenue collection increased by 10% to reach 97,100 crores, and though there was a massive increase from 2018 to 2019, it missed the target collection set by the government for both years.
There was about 20% shortfall of collection from what the government was targeted for the years 2018-19. An estimation that the GST collection would reach 7.4 lakh crore failed, and a revised estimate for 2019-20 set to reach 7.4 lakh crore. The average revenue collection in 2018 was 10% lower for a few months. About 20 states experienced a 14% increase in revenue overall.
Changes and impact of GST:
Several changes were made to the original GST law to address issues affecting businesses, the economy, and the overall budget. The different schemes under GST also saw a significant change. An excellent example of frequent change is the changes in the composition scheme.
Small businesses can choose to opt for composition scheme to get rid of the tedious formalities and many tax filing and can opt to pay GST at a fixed rate on the total turnover. This scheme was only for businesses whose turnover was under one crore rupees. But as there were several recommendations and as the GST council encountered some issue with this, the threshold for turnover was then raised to 1.5 crores. This had its positive and negative effects on different businesses.
Positive impact: The removal of many taxes was a welcome change and had a positive impact on businesses and taxpayers. It helped in curbing corruption to some extent. There was a reduction in the manipulation from the middlemen and helped companies file taxes on their own through the GST portal.
There was a boost to organized logistics. As healthcare and education exempted from GST, it helped in rapid development. The products that had higher tax rates in the previous regime and under GST if the prices reduced, then the supplier have to pass the benefit to the consumer this helped consumers and increased buying power.
Negative Impact: The number of tax slabs created confusion and impacted some businesses negatively. The dual control of center and state on taxes had its adverse effects. Some commodities experienced an increase in prices because of higher tax rates. Textile, media, dairy, IT, and a few other sectors faced losses. Real estate had a significant adverse effect on different levels.
Changes for the Composition Scheme under GST and other schemes had its benefits to some taxpayers. Still, it is the frequent changes that made it difficult for the majority of taxpayers and businesses to stay compliant.
New companies need to consider all about CGST act and the SGST act before choosing on any particular product or supply because there could be significant profit or loss that can occur depending on the tax slabs and implications of GST rules. Overall, GST has been a groundbreaking step for the economy of India.