The exporters community has been hit very hard, especially the service exporters as they have been mandated to comply with submission of either a bond or a letter of undertaking for every export if they choose to export services without payment of IGST
The disruption caused by the implementation of the GST has been grossly underestimated. While trade and industry are limping back to normalcy, the jury is not yet out on the final impact on the economy and the overall revenues of the Centre and of the states. The early macroeconomic indicators are certainly not very encouraging as there is a slowdown in the rate of growth of the GDP and the revenues from GST are not as per the initial calculations. Also, the government is worried about huge refund claims filed by trade and industry on the transition stocks and field formations have been sounded to verify high-value claims. Already, discussions have started about reducing the expenditure outlay given the poor tax collections. We will have to wait for the final word on this which, again, is going to take time, given the trend seen in the case of demonetisation.
Looking at the way things have gone about in the early days of GST, one is reminded of Murphy’s law: anything that can go wrong, will go wrong. The genesis of the issues that are being faced lies in the very imperfect structure of GST that we have chosen to implement. The dual GST structure itself has weakened the administration of the new tax where the energies are divided between two levies. Within a span of just 90 days, more than 120 notifications have been issued (CGST + IGST + UTGST + Compensation cess) by the Union government, not counting the ones issued by the state governments to reflect the changes made in their respective state GST laws/regulations. Adding to the chaos is the multiciplity of GST rates on goods and services. We now have more than 12 GST rates (including the compensation cess), and this is very disappointing. In fact, GST rates of close to 50 commodities have been already been revised post the implementation. While it is certainly a great sign of a nimble and agile handling of tax matters, the overall system has become very fragile wherein taxpayers are struggling to keep up with the pace at which the changes are coming in.
At the 21st meeting of the GST Council held recently, the states were vocal about the issues faced by the taxpayers in filing the GST returns. The technical snag developed in the GSTN portal has added to the agony causing a lot of heart-burn and redoing of work given the frequent extensions for filing of various returns/data. In the run up to the GST, very less time was available to test the new system, including the stress test given the tendency of taxpayers to file returns at the very last moment. The government has relaxed the return-filing due dates which certainly has brought lot of comfort to taxpayers. Also, a high-powered Group of Ministers (GoM) has been constituted to look into the issues relating to the GSTN portal. The mandate to the GoM is to identify and address all the concerns raised by the taxpayers concerning the functioning of the GSTN portal.
The exporters community has been hit very hard, especially the service exporters as they have been mandated to comply with submission of either a bond or a letter of undertaking for every export if they choose to export services without payment of IGST. The case is the same for supplies made to SEZs. Further, for those who have exported either goods or services after paying the IGST, there is no clarity on the timeline by which they would get their refunds from the government. The pressure for getting higher tax revenues certainly will have a negative impact on the refunds processing, exposing exporters to a very large working capital requirement. In today’s competitive world, there is a threat that their margins would simply get eroded by the cost of deploying incremental working capital. The government has constituted a committee under the chairmanship of the revenue secretary, consisting of various central and state government officials to look at the issues faced by the exporters. The committee would recommend quick strategies and remedies to the GST Council to address the issues faced by the exporters. It is hoped that the committee quickly gives its recommendations and provides much awaited relief to the exporters.
In view of all the above issues, a thought crosses one’s mind that why is it not possible for us to adopt a very simple tax system. Or is it that if it’s simple, it can’t be Indian? All these years, we have been used to operating in a very complex and complicated indirect tax environment and hence implementing a very simple and straightforward tax regulation is perhaps not our cup of tea. Maybe we have to learn from other federal jurisdictions where the framework is simple to understand and easy to follow. Some of the countries in the Gulf Cooperation Council (GCC) are proposing to implement a VAT (both on goods and services) in their respective countries in the year 2018 and they have released their draft regulations. A very small list of exemptions and a single rate of 5% has been proposed on almost all the goods barring the de-merit goods such as tobacco, alcohol, etc. Indeed, these countries are not as large and as diversified as our country, and, hence, it could be easier for them to implement simple tax laws. However, we should not shy away from embracing simpler rules and regulations which will ultimately ease the doing of business in our country.
Managing director, Acuris Advisors Pvt. Ltd
Views are personal