GOODS & SERVICES TAX – Paddling Along the GST
There has been much collective groaning since the goods and services tax (GST) was implemented on July 1. Even before it was rolled out, many cribbed about the implementation date being `rushed’. The manner in which the 2016 Constitution amendment was undertaken, GoI didn’t have any choice but to implement GST before end-September 2017, making it perfectly logical -and legal -to choose the quarter beginning in July .
Returning for another Constitution amendment would have made little political sense. More importantly , 2010 was the year GST was scheduled to be rolled out. India’s credibility as a reforms-driven country was at stake if it had delayed the tax law any further.
Given the first principle followed by the GST Council to keep different rates of GST for different categories as close as possible to the rates under the extant law -ensuring minimal inflationary impact to the common man, coupled with claims that states can make under the guaranteed compensation -rate determination was driven to push as many goods towards the 18% and 28% levels.
There has been a course correction since on the vexed issue of rates, given the decisions in the last two GST Council meetings. The applicability of a sin tax rate of 28% on so-called `luxury goods’ needs review. Also, some goods need to `move down’ from the 18% basket to a lower rate.
Otherwise, there can be an overall review of the revenue-neutral rate soon. This will not be an easy exercise, as it has a direct impact on the Centre’s fiscal deficit. It will be an especially tough choice, with industry now having started singing the `fiscal stimulus’ tune to boost demand. In an ideal situation, the GST Council would wait for the rest of the three quarters of the year before embarking on any exercise to revise downward the revenue-neutral rate.
The council’s recent decisions as regards to increasing the threshold for composition schemes, deferring the reverse charge mechanism for purchases from unregistered suppliers, quarterly compliance from monthly filings, and deferral of e-way bills are bound to come as relief to businesses, in particular to small and medium enterprises (SMEs). The council could have been bolder to indefinitely defer the reverse charge, further enhance the threshold for the composition scheme, and make the currently required monthly filings to half-yearly ones.
Measures for monthly filing could have been reviewed in the next fiscal year, by which time the SME sector would have reached a level of awareness and IT literacy , while glitches in the GST Network portal to process volumes of data would also have been largely addressed. Greater clarity on the applicability of the anti-profiteering law and reining in over-enthusiastic state revenue officials are other areas where directives can be issued by the council.
Various writ petitions accumulating in jurisdictional high courts can be consolidated and heard expeditiously in one nominated high court to clarify interpretations of the law in a consistent manner. A refund mechanism for exporters will shore up their confidence in the textiles, garments and leather industries, besides freeing up their working capital.
Most countries have experienced hiccups with the introduction of GST VAT (value added tax). The difficulties, however, have been addressed to a large extent by the support and tools provided to small businesses to help pay correct taxes, and by providing online help services. The identification of taxpayers outside the system through a matching exercise can be achieved with data analytics tools.
It is vital that voluntary compliance is encouraged through targeted campaigns. Globally, tax administrations have made use of target-specific areas, such as locations and sectors typically prone to not complying with the rules. In Britain, for instance, the trade of second-hand cars was detected in the Midlands region with data analytics and IT tools to track delinquent taxpayers. Policymakers here in India will have to make big bets and invest in tools and data analytics to assess, track and investigate tax evaders.
India will experience at least two or three quarters of transition time with businesses facing GST-compliance teething troubles. The GST Council will play a pivotal role in addressing these challenges. The newly constituted group of ministers (GoM), which appears to be like a truncated GST Council, has been set up to ensure that decision-making is speedier and will cut through the red tape.
So, the recent slew of changes in GST announced by Finance Minister Arun Jaitley earlier this month is neither a reboot nor a pre-Diwali dhamaka. It’s merely resetting the GST agenda as businesses and government deal with a moving target.
The writer is founder, BMR Legal. The views are personal