- By Vivek Jalan
It has been two years since the historic indirect taxation reform was implemented in India under which the Goods & Services Tax (GST) subsumed a host of diverse multi-level taxes. The new taxation system that initiated the first ever fully digitized tax filing process has stabilized to a large extent with a majority of businesses becoming conversant in the process.
Increase in revenue base & greater formalization of the economy
Without doubt, the biggest achievement of the GST regime has been an increase in taxpayer base for the government and a move towards greater formalization of the economy. The taxpayer base increased by as much as 84% over the past two years, with the number of taxpayers registered under GST increasing from an initial 65 lakh to 1.20 crores. This is no mean feat. It implies that tax evasion has been reduced and the government is now receiving greater revenue from indirect taxes than ever before. The average annual revenue collection per month increased by 12 per cent in the 2017-18 period and further spiked 10% in 2018-19.
Transitional Credit to be allowed as a substantive claim
Hundreds of Businesses have filed writ petitions in High Courts across the country wherein they are denied transitional ITC running into hundreds of Crores. Such ITC is denied due to delay in filing of TRAN Forms. Subsequently Govt. came out with an instruction to allow transitional ITC to only those businesses who could not file TRAN Form due to system error. Transitional ITC is a substantive claim and should not be denied due to procedural lapses. It is expected that the Government would give a one time relief to all such Transitional ITC claims and reduce the litigation for the same.
Greater rationalization of rates required
Even as the filing and refunds process has stabilized, there continue to be constant changes and modifications to the rules as well as filing mechanisms. Understandably, most of these changes have been in response to taxpayer feedback and to make the process smoother and more amenable to the taxpayer. Not just the process of filing, but the classification of goods and services and the GST rates have also seen multiple changes in the past two years. In the words of Finance Minister Nirmala Sitharaman herself the government is “committed to greater simplification of the process” which is expected to continue for some more time to come.
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Yes, there needs to be greater rationalization of tax rates which are currently divided into five brackets. As mentioned by Mr Arun Jaitley the Government must merge 12% Rate and 18% into a single 15% rate. It is to be noted that the Revenue Neutral GST Rate calculated in 2016 by The Government itself was 15%. While the process of further simplification is welcome, the constant work in progress does create uncertainty and disturbance in the business community.
Frequent rule modifications are a headache
One of the major downsides of this transition has been the frequent changes and notifications that keep coming at regular intervals. From the introduction of new forms to repeated changes in the process of filing different GSTRs to modifications in composition scheme, amendments have continued to introduce new features and changes at regular intervals. Constant changes in tax rates as well as filing processes have much wider repercussions than most of us imagine. They have a significant bearing on the workings and long term strategic decisions undertaken by businesses. It also impacts the viability of some projects.
The entire purpose of shifting to GST was to subsume a cascade of taxes and allow producers to claim credit for all the taxes paid on inputs across the value chain. The purpose was intended to make the process simpler and cost effective by making production more efficient. Unfortunately, if businesses are constantly embroiled in dealing with changes in laws, it serves to impact their long term decisions with the uncertainty also dampening their spirits. No wonder, a series of writ petitions challenging different sections are pending before Courts. In two years, the industry would have expected the GST system to reach a point of stability which still seems elusive.
Even as I write this, the government has announced the trial launch of a new return filing mechanism which is expected to be rolled out from October, 2019 for big businessmen and from January, 2020 for small businessmen. It is imperative that the government doesn’t rush into implementing the new mechanism in the middle of a financial year and continue with the trial for a longer period of time until taxpayers become comfortable with the process.
Ensure a zero glitch system
System glitches as well as mismatches between self declared summary returns and the auto populated versions have affected a large number of taxpayers over the past two decades. Constant changes in rules have also impacted the awareness generation drive among taxpayers. One of the most important challenges in front of the government as well as the GSTN is therefore to establish a system that is glitch-free and causes minimum inconvenience to taxpayers on account of technical problems. The basis of the GST filing system has been the seller buyer matching mechanism which has continued to create problems and caused issuance of regular notices by tax department for minor mismatches. For GST to become the simple and easy tax regime it was intended to be, ways need to be found out to iron out these wrinkles.
Vivek Jalan is Co-Founder, Tax Connect Advisory Services. The views expressed are the author’s own.
