We have witnessed a decline in growth in the past quarter, and demonetisation, coupled with introduction of the Goods and Service Tax (GST), is blamed for the slowdown. Objectives of demonetisation were altogether different, which has already been discussed at various forums. The GST is the biggest tax reform of our country and its after-effects are visible now.
It’s been a little more than three months since the GST was implemented, and it’s too short a period for evaluating such a massive reform, but we can analyse the key indicators to understand the impact and see the direction.
Consumption
Demand and supply are the two factors which impact any economy. Consumption derives the demand, and if we go by the market data, then it clearly indicates that there is no negative impact of GST implementation, and all the key sectors have noted growth.
For example, the automobile sector has noted an increase in car sales, the e-commerce sector has seen an increase in the volume of trade, and similar trends can be seen in sectors like FMCG, electronics, etc. Apart from domestic consumption, exports are also rising, and it grew at 25.7 percent in September (YoY basis).
Production
Production saw a hit, initially, but now, it has moved southward and an increasing trend can be seen in all the parameters (refer table 1). It can be said that initial shockwaves in production data were, primarily, on account of two factors:
- Traders tried to minimise their stock on the transition date (ie 30 June) and as a result, the decrease in demand left the manufacturers with a large quantity of stock. Accordingly, production after GST implementation was down because the manufacturers cleared their existing stock.
- Initial disruption caused by the tax reform, which compelled the organisations to realign their supply-chain.
Inflation
Inflation is something which impacts the common man most and has always been a cause of concern for ruling parties. Historical records say that every country witnessed an increase in inflation after the introduction of the GST, and the same trend is visible in India as well. However, there is one aspect which needs to be mentioned that food inflation got slowed, while prices rose at a faster pace for housing, fuel, and clothing.
In other words, items which impact the common man are largely unaffected by the GST implementation. Traditionally, India is a high-inflation economy and despite the initial impact of the GST, the current level of inflation is still below the psychological benchmark of 5 percent.
Tax Buoyancy
Data for a longer period would be required to assess the impact over tax collection trend (net of refund and inputs) but it has taken off very well. Tax collection in each month surpassed Rs 90,000 crore, and the more tax base is increased, the more collection is expected. With an increase in the tax revenue, we can expect that the rate rationalisation exercise will be carried out by the government to reduce the tariff on some items.
Tax Compliance
Widening of tax base was one of the stated objectives of the GST. It was to be ensured with the help of integrated IT platform for all the taxpayers. Various functionalities like credit match, e-way bill, etc, are designed to check tax evasion and we can see gradual increase in number of return filers (refer table 3). Once the loopholes are plugged, then things automatically start falling in place and it can be seen in the form of increased tax payers.
GST law is still evolving, and the government is taking adequate steps to address the concerns raised by the industry. Three months is too short a period to pass a judgement on such a massive tax reform.
So far, as comments coming from the Opposition are concerned, it may be highlighted that each decision relating to the GST – be it constitutional amendment or drafting of law/rules – was taken unanimously and the Congress was a part of all these deliberations.
If they had any apprehensions, then the floor of the Parliament was the appropriate place to raise their objections. The Congress can’t take credit of giving a passage to the GST legislation in the Rajya Sabha, and at the same time, ridicule it as “Gabbar Singh Tax” for petty political gains.
(The writer is a chartered accountant and can be reached @shshanksaurav. This is a personal blog and the views expressed above are the author's own. The Quint neither endorses nor is responsible for the same.)
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