Strategy | 25 March 2019
The 20 months of the GST regime
Key trends in the new era
Around 20 months ago, India ushered in the Goods & Services Tax (GST), which is billed as
one of the biggest indirect tax reforms in the country’s history. This was a major step
toward simplifying taxation and facilitating ease of doing business by rationalizing tax
rates, improving efficiency in the system and shifting trade in favor of the organized
segment. Although it is still early to evaluate whether the GST is really a ‘good and simple
tax’ – as reforms are said to be slow boring of hard boards – we, in this note, have
highlighted some of the key trends of this new tax era.
The Indian government over the past two years has taken many proactive steps to
streamline the GST by providing procedural relaxations and clarifications. However,
this has led to a deferment in the implementation of a few important anti-evasive
measures, and thus, the shift in trade toward the formal economy has been slower
GST collections have increased YoY in FY19 (until February), but the monthly average
collection is lower than the target, slimming the prospects of achievement of the full-
year target. However, in our view, collections should improve once the anti-evasive
measures are put in place.
In the new tax regime, the manufacturing sector has witnessed an increase in working
capital requirements, while the services sector has had to comply with increased
state-level compliances and seen higher tax rates.
Clarity on including petroleum products and gas under the ambit of GST and anti-
profiteering norms is still awaited.
Please refer to our report on
Thematic report GST, July 2016
GST collections increase but still below target
Average monthly GST collection in FY19 (till February) stands at ~INR974b. This
is higher than the FY18 monthly average (August-March) collection of ~INR899b
but falls short of the monthly collection target of ~INR1,063b for this fiscal.
We attribute the shortfall in the targeted collection to (a) the deferment of anti-
evasion tax measures, such as bilateral validations of tax invoice, reverse charge
mechanism and the lack of on-ground surveillance for e-way bills, and (b) rate
cut on various products, mainly for those under the higher tax brackets.
Nevertheless, we believe that GST collection should improve going forward, led
by the rising compliance level from the broadening tax base and the
government’s increased focus on implementing anti-evasive tax measures.
We note that companies have been facing some teething issues in the GST
transitional phase due to their lack of preparedness, the technological glitches in
the GST platforms, and the lack of clarity about certain procedural issues.
However, the government over the past few months has provided clarifications
and procedural relaxations in a timely manner to facilitate a smooth transition.
Corporates face increased working capital, compliance requirements
Sandeep Ashok Gupta – Research Analyst
(S.Gupta@MotilalOswal.com); +91 22 6129 1551
Research Analyst: Umesh Jain
(Mohit.Baheti@MotilalOswal.com); +91 22 6129 1525
8 August 2016
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