The potential for tax evasion and avoidance needs to be minimized while keeping counteracting measures proportionate to the risks involved.
- Rajat Mohan
In the world of digitized supplies and electronic commerce, one of the fundamental principle that any jurisdiction wishes to adopt is effectiveness and fairness in the taxation system thereby acting as a support for businesses. In addition, the potential for tax evasion and avoidance needs to be minimized while keeping counteracting measures proportionate to the risks involved. In the above context, the framework, administration and compliances under the Goods and Services Tax (‘GST’), is expected to achieve a fair balance of ‘minimum government and maximum governance’ to develop as a progressive system of taxation. Let us look at some key aspects of compliances as proposed in the GST Law in the backdrop of requirements prescribed by some nations where GST has already been implemented.
As followed globally, Indian GST also has a basic registration limit for registration purpose. Most of the provisions in respect of voluntary registration and mode of registrations are on the same lines as globally. Categories prescribed for registration in countries such as Canada and Australia are linked to business status for income tax/business tax purposes e.g. charities & public institutions, public service bodies, non-residents, etc., whereas India has prescribed different criteria for registration, in form of state-wise registration limits, composition scheme for small tax payers and sale of goods or services. This kind of slicing by Indian legal framework as added a nuisance value to the taxation system of the country.
Indian the law has adopted the feature of compulsory registration and compulsory tax payments in case of a non-resident taxable person. An entirely separate set of tax rules has been prescribed for non-resident taxation in the country which includes, compulsory registration, pre-payment of taxes and separate forms. This shows the level of distrust that the country has towards the non-residents in the matter of tax contributions. Whereas Canadian law provides a threshold for such non-residents for obtaining registration.
Tax Payment/ Credits
An interesting element incorporated under the current GST regime for credit availed to the buyer is, that payment of GST should have been made by the supplier. Making it be a deviation from the practices adopted by nations such as Canada, UK and Australia which do not prescribe such stringent condition for availing of credits to the bonafide buyer.
If we look at return filing related procedures around the globe, it is evident that GST evolved nations such as Canada and Australia provide for slabs to determine the periodicity of the return. Another interesting feature added by the Canadian system is that of an optional reduction of periodicity for taxpayers, i.e. an annual return filer can choose a quarterly or monthly filing upon request to the revenue authorities. Further, UK VAT has prescribed a fixed quarterly periodicity of return to build a compliance convenient structure for businesses.
India following the global practices, has allowed filing returns quarterly for taxpayers having turnover up to a certain amount. India has further made compulsory monthly return filing for all taxpayers (except few) and in addition also made applicable other returns such as for tax deduction at source, input service distributors, etc. It has increased the compliance burden for businesses, in a bid control the rampant tax evasion practices followed across. Further Indian GST Law envisages a year-end reconciliation and audit certification which would ensure timely validation and rectifications in reporting.
One of the important features which has been currently missing in the GST of India is the facility to file a rectified or revised return. A country like Canada facilitates the taxpayer to make a request in this regard through online mode or by way of a letter. UK VAT/Australian GST system enables an amendment/rectification in return in certain circumstances within 4 years.
Indian GST law provides a mechanism to file refund claim in prescribed situations such as export of goods/ services, inverted duty rate structure, pre-deposits. Such refund claims are required to be filed within two years from prescribed dates. On similar lines, rebate provisions are available in Canada whereby instances such as the amount paid in excess than a liability, the amount paid in error on goods/ services procured, goods exported out of Canada, etc. are covered. The timeline of two years is provided for claiming such a rebate. Thus, it can be observed that Indian law has adopted certain best practices from GST evolved nations whereby the current one-year limitation period for refund claims have been liberalized to a longer time frame.
In the context of the above discussion, it is worthwhile to mention that the OECD framework urges its member nations to adopt principles of good tax administration. One of the guiding principle in this regard encourages revenue authorities to ensure that the compliance costs are kept at a minimum level and at the same time ensuring optimum administration to avoid tax evasion. While some of the compliances under GST law appear to be aligned to international practices, there are significant exceptions to mitigate risks of tax evasion. Further, it also appears that some of the compliances are prescribed with a mindset to minimize non-compliances and evasion. The GST processes being completely automated, the pitfalls of the manual regime can be easily curbed. The Government thus may need to move away from the earlier mindset of designing processes to prevent tax avoidance and adopt international best practices for a modern and automated indirect tax regime which would significantly increase India’s status amongst the nations which have implemented GST.
(The author is a Senior Partner at AMRG & Associates. Views are the author’s personal.)