GST 2.0: Why two-rate structure is needed

Published: June 11, 2018 2:59:10 AM

As the Goods and Services Tax (GST) completes one year of existence, the time is opportune to refresh and introduce sweeping changes in the existing structure, procedures and processes to make it more flawless and simple.

GST, goods and service tax, GST reform, GST regime, GST return, GST network, economy, economic policy, currency ban, note ban, federal system, narendra modi, independence 1947The e-way bill provisions have been made mandatory across the country with effect from April 1, 2018.

As the Goods and Services Tax (GST) completes one year of existence, the time is opportune to refresh and introduce sweeping changes in the existing structure, procedures and processes to make it more flawless and simple. While the efforts put in by the Centre and state governments, from its conception till its successful rollout, are quite commendable, decisions to simplify the GST further need to be taken quickly.

First, inclusion of petroleum products in the ambit of GST—for which no Constitutional Amendment is required, and only a consensus in the GST Council is sufficient—should be taken up on priority. As the state governments have been Constitutionally assured of their possible losses on account of introduction of GST in the first five years from the date of implementation being made good, they should not hesitate in agreeing to structural changes in this period.

The GST paid on inputs, input services and capital goods is not available to be set-off against the output excise/VAT levied on petroleum products, resulting in a significant cascading of taxes and increase in costs. No wonder , then, retail prices of the petroleum products are on the rise, the fluctuations in the international price of crude oil notwithstanding. The Centre should continue to play the important role of ensuring that cooperative federalism is functional and at its best. Once this is done, electricity and immoveable property also should be brought under the purview of GST so that the inefficiencies and cost escalations due to exclusion of these sectors from GST can be put to rest, once and for all.

The next is the GST rate structure. While a single GST rate is the international norm, given India’s diversity and the need to have a differential tax treatment for “must have” and “nice to have” goods and services, a two-rate GST structure should be adopted leaving no room for any incorrect or inadvertent interpretation for classification.

Additional taxes on demerit goods can continue with, but the overall tax-rate structure needs to be simplified to a great extent. In one of the countries in West Asia, where Value Added Tax (VAT) akin to GST in India was recently introduced (January 1, 2018), for the first month of filing of VAT returns, the percentage of VAT return filers was a whopping 98.8%, the majority of whom had filed the VAT return within the filing due date. This was a culmination of a simpler VAT structure, aided by a single rate of VAT and a simple return filing process. India perhaps can take a cue from this experience and take bolder steps to make the GST much simpler.

The next area is the GST processes. GST has been hailed as “one nation, one tax” since its inception. Indeed, the current GST is in line with the “one nation, one tax” concept as there are no other taxes levied on supply of goods and services that are under the purview of GST, and the state GST rates are, thankfully, uniform across all the states and Union Territories (UTs). However, businesses operating in many states and UTs have to obtain GSTIN for each of the states/UTs, and file state-/UT-wise GST returns on the GSTN portal, using as many number of usernames and passwords as the number of states/UTs they operate in.

This can be unified and a single login and password facility can be provided to the businesses having multi-state operations. This will at the least save them the effort of logging on to the same portal more than once for filing of the GST return. Again, taking a cue from the West Asian country having a federal structure where a VAT has been introduced and a single VAT registration number has been allotted to businesses having operations in different parts of the country governed by local governments, the trade and industry’s long-pending demand for a single GSTIN applicable throughout India should be revisited and evaluated from the perspective of making the system more simple.

The e-way bill provisions have been made mandatory across the country with effect from April 1, 2018. While the requirements of e-way bill concerning the interstate movement of goods is uniform across the country, the requirements for intrastate (within the state) movement of goods differ from state to state. Gujarat has made the generation of e-way bill mandatory only for a select few products, while Maharashtra insists an e-way bill for intrastate movement of all products above the prescribed threshold of `50,000 per consignment.

Tamil Nadu has enhanced this threshold limit from `50,000 to `1,00, 000 only for the intrastate movement of goods and has kept the threshold at Rs 50,000 for interstate movement of goods. One can only imagine the plight of the IT programmer dealing with the logic of generation of e-way bills! This and many such examples have made the GST a “one nation, one tax, with many acts and different tax processes” in less than a year’s time!

The original idea (conceived many, many years ago) was to have only one direct tax and one indirect tax which is uniformly applied across the country. The GST structure that has evolved in India—laced with compromises made for getting consensus—is still complicated, though the indirect tax regime that we have today is much preferred to the earlier excise, service tax and VAT regime.

What is intriguing, though, is that we Indians—the preferred IT service-providers to the world, and hence experts in business process simplification—struggle so much when it comes to the tax processes in our own country. All this should change for the better if we have to take a quantum leap in improving our ease of doing business rank. It is simply not enough to be in the top 100 when the ambition and the potential is to be in the top 10!

By Rahul Renavikar

Managing Director of Acuris Advisors Pvt Ltd. Views are personal.

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