DTNext looks at how Tamil Nadu rose to the occasion, vis-a-vis GST adoption and revenue collection.

It’s been a bumpy ride for India Inc after the much-talked about single tax reform, the Goods and Services Tax or GST came into effect two years ago on July 1, 2017. Finance Minister Arun Jaitley, the key architect of rolling out this nation-wide reform, was vocal about the Centre’s focus to evolve the tax structure towards a single rate.

“We are working towards a single national sales tax rate which could be a mid-point between 12 and 18 per cent,” he had said recently, indicating the intent to simplify the tax structure. The Centre set the range for GST from 28 per cent to 5 per cent on most items when the signature reform was introduced on July 1, 2017. “Multiple slabs were fixed transiently to ensure the tax of no commodity goes up radically. This contained the inflation impact,” Jaitley had said.

Even prior to the introduction, states like Tamil Nadu had felt that it would lose out. In 2016, A Sarvar Allam, the then Additional Commissioner, Commercial Tax, TN, had written “The proposed GST Bill will mean that states like Tamil Nadu, which have manufacturing industries, will lose out on own tax revenue collections. Instead of focussing only on indirect taxation reform, the Centre must also consider sharing direct tax administration with states, which has been the practice in other federal arrangements internationally.”

Since then, the GST has come a long way. Many concerns have been addressed though there are several aspects still to be ironed out. MS Bala, Chair, Southern Region, Nasscom National GCC Council, says, “The GST is structured to financially uplift the slowing services industry. But, it has added many complex compliance layers to IT companies/SEZs. Some software services which were charged 15 per cent under Sales Tax (ST) are now charged 18 per cent, thereby adding to the cost.”

The high point is that all taxes used in inputs towards exports are refunded. “Back office services have enjoyed this benefit even under ST regime. Accumulated ITC (input tax credit) can be claimed refund either by execution of ‘Bond or LUT’ i.e. without payment of IGST – Refund Method (or) on payment of IGST adjusting ITC – Rebate Method,” he sought to point out. Hurdles aside, GST removed various redundancies and discrepancies that were prevalent in previous tax structure. Policies like defined tax categorisation of software, unified tax structure, exemption and refunds turned out to be a boon for service providers and GICs.

Industry insiders cite the instance of the hurdles in export refund mechanism that was highlighted to the commerce and industry ministry last year. “But no headway has been made as yet in this regard,” says an industry veteran, who shared the concern.

Some of the other challenges include systemic issues pertaining to bill of entry, precise bifurcation of export or domestic and other documentation process. Such an experience in the first phase led the exporters to get into training mode in the H2, 2018. “The GST audit certification, applicable to those with a turnover of Rs 2 crore has hit the industry badly. CII had appealed to raise the upper limit for this slab to Rs 25 crore in August last year,” noted A Venkataraman, Convenor, TN Economic Affairs and Taxation Panel.

A host of issues faced by the small and medium enterprises include service sectors charging 18 per cent GST, working capital impacted on account of customers availing credit for longer durations. CII, in Q3 of last year, made a representation to bring the GST in service sector to 5 per cent, he added.