GST needs overhauling: The need now is to shift to a simpler rate structure

Published: March 20, 2020 3:30:55 AM

Bring oil, real estate under GST; the need now is to shift to a simpler rate structure.

Nearing three years of the GST in India, rather than tinkering with the existing structure, it is time the GST system was overhauled for efficiency and efficacy.Nearing three years of the GST in India, rather than tinkering with the existing structure, it is time the GST system was overhauled for efficiency and efficacy.

By Rahul Renavikar

The decisions concerning the GST Law and Procedures, taken at the recently concluded 39th GST Council meeting, were on expected lines. The due date for filing FY19 annual returns was postponed to June 30, 2020. Elsewhere in the world, there is no concept of annuality in VAT / GST. An annual return is a direct taxes concept where a taxpayer is assessed for their annual income. For consumption taxes like VAT/GST, each return filed for a particular tax period is an independent submission summarising the sales & purchases the tax registrant undertook in that particular tax period. Post-this, the tax registrant is not required again to file the same information again as part of the annual return. The annual return for GST is unique to India, given the sheer number of tax registrants in the country and the need to correct any omissions/errors in filing the periodic returns during the year. As a first-level assessment, the annual return needs to be certified by either a practicing chartered or cost accountant. Both, the annual return, and the accountant’s certificate, are the legacy of the erstwhile state VAT regime, and are the final touch point overall GST compliance for a fiscal.

Another decision taken at the aforesaid GST Council meeting was to defer the start-date for e-invoicing, as also for introduction of the simplified GST return to October 1, 2020. While this brings some relief to the trade and industry, it dilutes the resolve to embrace best practices at the earliest, and frustrates those who had prepared well in advance. This has been the case since inception of GST—so much so that, now, trade and industry assumes the deadline will certainly be pushed!

Nearing three years of the GST in India, rather than tinkering with the existing structure, it is time the GST system was overhauled for efficiency and efficacy. One objective of replacing the complex erstwhile indirect tax structure in India with the GST was to boost economic growth. Due to many reasons, this objective hasn’t been achieved to any great extent. The key constituents of the economy—viz. oil & gas, electricity, real estate—have not yet been brought under GST.

Hence, the cascading effect due to levy of excise duty, VAT, stamp duty, etc, continues to add to overall costs. This needs to change, so that everything (excluding alcohol for human consumption) is taxed under a common statute. The government can frame the input tax credit (ITC) rules in a way that protects revenue.

Further, rationalisation of GST rates must happen at the earliest to reduce complexities because of multiple rates, and to deal with the inverted duty structure in some cases. While mobile phones were moved from the 12% slab to the 18% (effective April 1) at the aforesaid GST meeting, decisions on other products (viz. garments, fertilisers, etc) were deferred, pending further deliberation.

Industry expected lowering of rates for mobile-manufacturing inputs rather than increasing of the rate for supply of mobile phones. A two-rate GST structure should be put in place, with inputs/raw materials taxed at a lower rate, and finished products taxed at a higher one, thereby completely eliminating any inverted duty structure for business. With low rates, evasion of taxes would diminish to a very large extent as a smaller quantum of tax would be involved. This will also result in less working capital blockage for businesses. The plethora of exemptions can be pruned to do away with the cascading due to non-availability of ITC.

With lowered tax rates, compliance is expected to rise, resulting in better tax revenues.

India’s GST regime is still a work-in-progress, and timely interventions by the government have saved taxpayers much hardship. With further simplification of the rates and compliance requirements, India’s rank in the paying-taxes index can significantly improve. While its overall 2020 ease of doing business rank has significantly improved to 63rd (out of the 190 countries), the rank for paying taxes is a low 115th. A significant improvement in this can propel India into the top-50 list!

The writer is Managing Director, Acuris Advisors Pvt Ltd, Views are personal

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