India GST Implementation – An Update


After 11 long years, GST has finally become a reality in India. Implementing GST provides an opportunity to remove (or at least mitigate) the weaknesses that both the Centre and States faced with the existing indirect tax structure. With GST, the cascading of tax will almost be eliminated and compliance costs will be minimised -- first by reducing the multiplicity of taxes and then by bringing in technology for taxpayers and taxmen to interact. Transportation and logistics costs will also be drastically reduced, and inter-State check posts will be removed, thereby providing a country-wide Common Economic Market. Finally, GST is a destination-based consumption tax that will pave the way for industry development through improved infrastructure, road networks, and power stations expected to be built with the extra revenue that will go to the States.

Dual GST Model

India has opted for a Dual GST Model, where revenue will be shared 50-50 between the Centre and States, and policy decisions will be made by the newly created GST Council (consisting of the States’ Finance Ministers as its Members and the Union Finance Minister as its Chairman). It is important to note that in this Dual GST Model, neither all the States together, nor the Centre alone, can change any decision unilaterally. Thus far, all Council decisions have been unanimous -- a living example of functioning cooperative federalism.

Initial Stage of Implementation

It was clear from the beginning that the GST administration would depend heavily on the proper functioning of the IT infrastructure: the GST Net. The GST Net should have been fully operational and well-tested before implementing the GST . However, the urgency of the 1 July deadline meant that such “testing” did not happen. Thus, on 1 July, the GST Net was not fully operational and experienced several technical glitches. The Government, of course, waived certain stringent compliance requirements and allowed manual operations in certain areas so that business could be conducted.

With the recurring GST Net glitches, the GST Council formed a Group of State Finance Ministers to “monitor and resolve the IT challenges faced in the implementation of GST.” The Group of Ministers met on 16 September, and an action plan is currently being finalised.

As for other aspects of implementation, the Government should be applauded for the speed at which it has been issuing FAQs and other circulars/clarifications on critical issues. These have indeed helped both the taxpayers and the tax authorities.

GST Impact

While two months is insufficient to assess the GST’s impact on the economy, other impacts, including an initial increase in price, difficulties faced by small businesses, etc., have been as expected. In the long run, GST will bring down inflation through reduced cost of goods and services; it will promote manufacturing across the country, including even the industrially backward States; and it will make the country one Common Economic Market. Another collateral benefit is the ‘ease of doing business’ through extensive use of technology and procedural simplifications.

Sumit Majumder is former Chairman of the Central Board of Excise & Customs, India, and currently an Advisor to the International Tax and Investment Center. He is also the author of the forthcoming book, “Know Your GST – GST Unraveled.”