If the policymakers want to augment GST revenues they should focus on simplifying the operational part and work on improving the IT infrastructure to curb tax evasion.
By Shshank Saurav
Insolvency and Bankruptcy Code (IBC) and Goods & Service Tax (GST) were major structural reforms during previous tenure of the Modi government. There are some delays in resolution of cases, but IBC has gained momentum and various important amendments have been made to address the operational issues raised by stakeholders. The Supreme Court judgment in the matter of Essar Steel has also settled various open issues and scope of litigation has reduced.
GST was biggest ever indirect tax reform. It was aimed to improve the ease of doing business by having a common set of law across the nation. It was also expected that GST will improve tax collections and curb evasions.
While GST is, indeed, a game-changer, it is important to understand that its implementation is dependent on an IT platform. This IT infrastructure is the interface between taxpayer and the government. A majority of problems, thus, stem from poor design of GST returns. That is one of the primary reasons that the due date for filing of annual return for FY 2017-18 has been extended many times. It would be better if entities are given exemption from filing of annual return for FY 2017-18. Matching the input tax credit was a key under GST to check the tax evasion and this functionality is not yet enabled in the way it was envisaged. Considering the uneven trend in tax collection, the government recently changed the rules relating to input tax credit for cases where amounts claimed as input is not shown by seller in her return. However, these are only temporary fixes, and both the taxpayer and finance professionals need a long term solution.
GST has affected service providers more than manufacturers or traders. It has not only increased the tax rate for service providers, but compliance burden has also increased exponentially. Manufacturers were required to file factory-wise monthly return under erstwhile central excise regime, but service providers were filing half yearly return for their entire operations in form ST3. Now, service providers have to file a state-wise monthly return, thereby increasing the compliance burden. Moreover, the service provider has to take care of assessments for each state separately, a divergence from the centralised system of filing followed earlier. The government must consider taking states on board for a single comprehensive return for service providers. A system of centralised assessment based on the principle place of business as applicable for Income Tax purposes needs to be established.
GST is often criticised for multi tier tax structure and people demand rationalisation, but a multiple rate structure is needed for a country with large lower-middle class population. Besides, there are certain essential items which need to be taxed at concessional rate or exempted fully from tax net. India is a vast country and having a single tax rate will not be in consideration of the social structure. Besides, an analysis of VAT rates in various European countries shows that there are multiple tax rates in place.
The government is facing an uphill task to meet the fiscal deficit target amid economic slowdown, as it requires public expenditure to go up. Union finance minister is in a tough situation given the fact that state governments are raising voice over delay in settlement of their share of cess collections. Considering the decline in demand, GST council has rightfully decided not to increase tax rate in the last meeting, held on Wednesday. Council has also given a major relief by waiving the penalty for non-filing of return, if these returns get filed by January 10, 2020. However, if the policymakers want to augment GST revenues they should focus on simplifying the operational part and work on improving the IT infrastructure to curb tax evasion.
(The author is a chartered accountant)