Slowly but surely, the government is pushing for the introduction of the goods and services tax. GST is a game-changer for businesses and the country as a whole, and a lot of work has been accomplished to firm up its background. An important step in this direction has been to put before stakeholders the Reports of the Empowered Committee (EC) related to the procedures to be followed in the administration of GST. The registration of a dealer being the alpha and omega of tax administration, the EC had constituted a Joint Committee of State and Central officials on April 7, 2014, to recommend suitable procedures for the registration of a dealer under GST.
Proposed registration method
As recommended by the EC, all dealers under GST have to be registered with the tax department of the Centre as well as in the states where they operate. This would be mandatory to collect GST from a customer and claim its input tax credit. However, as is the case with the current tax regime, the registration would be mandatory only if the gross turnover of a dealer reaches a particular threshold. A person below the threshold will have to obtain voluntary registration if he wants to be a part of the credit chain. Also, if a dealer has any interstate supply and/or is liable to pay GST under reverse charge, he will be compulsorily required to be registered. Such persons will not be eligible for an exemption threshold as well as for a compounding scheme. In addition, it is proposed that a relatively high threshold on an all-India basis would be recommended for compounding, i.e. these dealers would pay tax at a specified percentage of the turnover without entering the credit chain.
A major job for the states and the Centre would be to give a unified GST registration number (a state-wise PAN-based 15-digit number)—GST Identification Number (GSTIN)—which will be allotted to all the existing registered dealers under any of the tax statutes being subsumed in GST. This would be done by an independent agency called GSTN through the “GST Common Portal”, which would have back-end integration with the respective IT systems of the Centre and the states.
The dealer would submit an application for registration through this common portal. The supporting documents will be scanned and uploaded on the portal. The state/central authorities can raise a query within three days, failing which the system will generate a registration certificate.
A taxable person would be required to take a separate registration for each state. Multiple registrations within one state for business verticals of a taxable person would be permitted subject to all the verticals being on the same scheme of tax treatment. The current scheme of Input Service Distributor (ISD) may continue for distribution of credit of GST paid on services. It would be an exception or deviation in case of services only.
This procedure for registration, as enunciated by the EC, indicates that efforts are being made at bringing IT into the taxation process and achieve efficiency in overall tax administration. It would be a good attempt at furthering the prospect of Digital India.
In addition, the new process would aim at reducing interaction with tax authorities. A cursory look at the existing procedures indicates that most states have prescribed procedures that call for direct personal contact/interaction between the taxpayer and administrators. This gives the taxpayer the opportunity to collude with the tax official to reduce his tax liability. The new procedures would, thus, help in checking corruption caused by interaction with tax officials.
The way ahead
In spite of having the forward-looking feature of being IT-based, the proposed procedures do not introduce new ‘academic’ thinking in the overall system of administration. These procedures seem to be an aggregation of the existing tax processes followed by the CenVAT and StateVATs (in different states).
First, the threshold limit has not yet been decided by the EC, which is a critical parameter for the administration of GST. The EC points out the threshold would be “calculated on an all-India basis.” While this would be useful, the peculiarities of the existing system are worthwhile taking note of. Existing threshold limits suggest that the threshold under StateVAT is very low (maximum R15 lakh in some states) compared to the threshold under CenVAT (R1.5 crore for small-scale industries), and that the threshold under StateVAT varies considerably (R1 lakh in some northeast states like Meghalaya to R15 lakh in developed states like Maharashtra, Karnataka etc). These peculiarities have to be kept in mind while deciding on an all-India threshold limit for GST.
Second, it is imperative to have as simple a process as possible. This can be achieved only when there is an attitudinal change among tax authorities. The forms proposed in the Report do not indicate this. The registration forms for GST are lengthy, covering six pages, as compared to a one-page form in Belize and a two-page form in New Zealand. In many countries, different forms are used for sole proprietor, partnership firm or company. This reduces the length of the form and the requisite data for the concerned dealer are effectively captured. The need of the hour is to ask for the minimum basic information needed to bring the dealer into the tax fold. Those who are aware of the evolution of VAT in India would recall that some of the academicians (on behalf of the government) used to address seminars and hold workshops to suggest to the business community that the new forms would be of a “post card” size for registration. Could that be a reality in the times to come?
Third, the process of registration does not seem to care about further verification of a dealer, once he/she comes into the registration fold. The general philosophy of tax administration all over the world is to first have the dealer in the net and then undertake field verification at a later date. This does not exist in the proposed process.
In some states, like Maharashtra, under the StateVAT there exists a provision that if all the documents submitted by the dealer are in order, the registration certificate is issued on the “same day”. Under the proposed procedures for registration, it effectively takes four days (three days except for the day of submission). Are we trying to achieve efficiency or go backwards?
The author, former member-secretary, Empowered Committee of State Finance Ministers, is director, Foundation for Public Economics and Policy Research, New Delhi