The Goods and Service Tax (GST) regime, that was launched on 1 July 2017 with great fanfare, has now completed one year, during which time there has been considerable upheaval in the Indian economy. A year is rather a short time to evaluate a complex, disruptive and transformational tax reform like the GST.

Only a naïve person could have expected that creating a country-wide, unfragmented and unified market by eliminating the cascading of taxes and freeing the movement of goods and services throughout the country by removing all entry barriers would not exact its price.

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These came in the form of disruptions and inconvenience to various sections of dealers, manufacturers and exporters, numbing pains in the informal sector everywhere, a decline in economic growth, soaring of inflation in the immediate aftermath of its launch and several shocks to the economy.

All these are essential attributes of the creative destruction process a transformational reform that fuels innovation and growth entails everywhere; these were not unexpected and fortunately proved to be temporary.’

The past year indeed has seen many more downsides than upsides for the new indirect tax regime and has incurred constant criticism from the political opposition as well as others, but by now everyone has probably realized that GST has come to stay, and will not be rolled back as happened in Malaysia, though for different reasons. Since the old order has changed irreversibly, it is time to look back, take stock of the implementation glitches, and formulate pragmatic and appropriate strategies for the future.

Experts and even government officials have stressed the urgent need to effect various changes in the GST architecture like doing away with the 28 per cent tax bracket and moving towards fewer tax-slabs by converging 12 per cent and 18 per cent rates, bringing in petroleum products, the real estate sector and electricity under its ambit in a phased manner and simplifying the compliance by doing away with so many returns to be submitted at so frequent intervals, besides improving the robustness of anti-evasion measures.

All these are desirable, but it may be easier said than done. However, some issues need urgent attention if we are to leverage the potential of GST to accelerate the growth of our economy in short to medium term, even though India’s biggest tax reform will remain a task in progress for quite some time yet.

The compliance has been simplified to a large extent by dispensing many of the returns originally envisaged, but it still faces the problems of refund and the steady accumulated sums under the Integrated GST (IGST) levied in respect of inter-state trade and imports (exports are zero rated under GST).

Although 13 returns (12 monthly and one annual) are prescribed under the GST, there are basically three monthly returns (GSTR-1, 2 and 3), plus an annual return GSTR 9, meant for most resident taxpayers.

While GSTR-1 includes the details of outward supplies of taxable goods and services, GSTR-2 includes the details of inward supplies of taxable goods and services for claiming input tax credit (ITC).

GSTR-3 is an auto-filled return generated by the software system after matching the details of GSTR-1 and GSTR-2 returns and forms the basis for refund and adjustment of ITC.

Since matching of data between GSTR-1 and GSTR-2 was plagued with various problems, primarily arising from incorrect entries by dealers and buyers that made matching impossible, for making the transition to the new tax regime easier for the taxpayers, a simple return in the form of GSTR 3B was introduced as a temporary measure while keeping on hold the requirement of GSTR-2 so that refund of ITC could be made by using GSTR-1 and GSTR-3B.

But the problem was not resolved and compliance still remains incomplete without matching between GSTR-1 and GSTR-2. The Government is now thinking of making the return system simpler. One possibility being considered is to switch over to annual returns instead of monthly, but the details are yet to be worked out.

Part of the problem is the GST Network (GSTN) which provides the technological backbone of the GST architecture that drives the new tax regime, which apparently is yet to develop its full capacity to respond to problems in real time and to handle the volume of transactions that it is encountering.

The Union Finance Secretary admitted as much when, speaking at a session on “One Year Journey of GST” organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), he said that technology had failed us rather than people.

FICCI in fact has just conducted a survey of enterprises on their experiences through GST implementation, according to which 59 per cent of the respondents were not satisfied with the capability of the GSTN portal and 96 per cent respondents wanted improvements in it, pointing to various deficiencies like lack of robustness and volume handling capacity of the GST Portal, delayed reflection of updated data as well as payments, absence of effective mechanism to resolve issues, inability to make corrections after submission of returns in case of errors, etc.

The government has envisaged over Rs 90,000 crore a month to make up for the revenues earned under the earlier indirect tax regime and to compensate the states for any losses due to the new GST regime.

Though the Union Finance Minister had expressed the hope that the collections would exceed Rs 1.1 lakh crore every month in the new fiscal ~ a 20 per cent rise in the average monthly collections as of now ~ to meet the budgetary target of Rs 13 lakh crore, it will not be easy to achieve this objective. He will need to widen the tax base, rationalize the tax structure, and strengthen enforcement to check evasion.

GST may have eliminated the odious Inspector Raj of the previous tax regime, but it has not ended tax evasion as was anticipated earlier. Indians in general are clever enough to beat any system when it comes to payment of taxes.

Checking evasion is precisely the objective behind introduction of e-way bills and the proposed introduction of the reverse charge mechanism from October 2018 that will help track transactions. These two steps together are expected to boost collections under GST by 25 per cent.

The e-way bill system was launched on April 1 for all inter-state movement of goods worth Rs 50,000 and above. The requirement of e-way bill for intra-state movement of goods was launched in a phased manner beginning April 15.

Introduction of e-way bills will enable the states and the Centre respectively to track intra and inter-state movement of goods and hence check evasion; to clamp down on cash-based trade will be one of its targets.

As regards the other measure, usually it is the seller of goods or service who pays the tax. But under the reverse-charge mechanism, the receiver has to pay the tax and the chargeability of tax gets reversed.

The mechanism was originally envisaged under the GST Act to help small suppliers who may be unregistered but supply goods and services to registered dealers who are unable to claim the ITC as they are buying from unregistered dealers, but by paying the tax on behalf of their unregistered supplier, they become eligible to claim the ITC.

The problem is that the tax is to be paid upfront by the buyers but credit claimed later, leading to blocking of working capital and distorting the seamless flow of input tax credit through the GST system.

But the absence of such mechanism would threaten the survival of the small units that will be forced to register with the GSTN, which will raise their compliance costs enough to eat into their small margins.

Under protest from traders, the government had suspended the move till March 31. This was extended to September. The Government is now thinking of finally introducing it from October, but for successful implementation, the genuine concerns of small dealers, traders and manufacturers need to be addressed.

In fact, the suspension of reverse charge and invoice matching, as well as a deferred rollout of e-way bills, are reckoned as reasons for bringing down the GST collections sharply in November and December 2017 from the levels seen immediately after its launch.

READ | A year after GST ~ II

The writer is a commentator and also the lead author of the book, GST and Its Aftermath: Is Consumer the King?; Sage 2018. Opinions expressed are personal