Towards a Foolproof Goods and Services Tax

Archives

TOPIC: General Studies 3

• Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
• Inclusive growth and issues arising from it.

The GST Council met again and before time to revisit compliance rule and discuss structural changes in the new national tax regime, acting on feedback and complaints from business. The review comes amidst the way GST has been implemented. Most prominent among them being GSTN- the portal is finding to be difficult with registrations and return filing. So there is considerable anxiousness in mind of tax payers as to how to go about compliances. Reporting each and every transaction and three returns every month is a challenge as most of the businesses are small.

How to have a simpler GST regime?

Economists have been in favour of GST- good and simple tax. The simplicity has somehow been lost while complying with GST. The government should not do everything at once. The change is impacting the economy, a large part of which is highly unorganised. They have never paid taxes either legally as they were evading it or they were not taxed.

For instance textiles. The logic was if yarn is taxed, there is nothing to tax downstream. This was the idea of simplification. The textile traders are now agitated as earlier they just paid tax on yarn.

Also, a large number of people in trading system were not involved in highly sophisticated system of tax-assessment, payment etc. They were not fully computerised in their own accounting. So compliance through a fully automated route with too many deadlines made it difficult for them to run a business as their priority.

The tax structure should be made less complicated. It involves simplifying the tax structure and bring in the goods and services that are left out.

The government is decentralising tax compliance. For this, the business system need to be sophisticated. The B2B transactions are expected to match each other and then technology should be applied. If turnover less than 75 lakhs, traders can compound tax and pay it. But 75 lakhs on a 10% margin is 7.5 lakhs. So, a businessman which earns roughly 8 lakhs when has to go through a complicated system as this, hire accountants, regularly check for compliances etc. it becomes cumbersome.

The technology is the key interface between trader, exporter, tax payer and government. When the GSTN portal was crashing under the pressure, the people involved in setting up the technological platform and government should have thought it through to take this kind of pressure and intensity.

Issues with GST

• Reverse charge mechanism- It means that it is liability of receiver of goods or services to pay the tax instead of supplier.
• HSN code- it is coding of commodities which have been processed by various people
• Filing- the invoices/transactions not uploaded by opposite part results in losing the ITC. As well as crashing of portal while filing return results in unsolicited penalties.
• Tax slab- there should have been lesser slabs. When looked at global GST regimes, there are lesser slabs, mostly one tax rate with two different rates for demerit goods and essential goods. India is expected to go to that status gradually where rates will get rationalised.

Conclusion

This complicated structure has emerged as government wanted revenue neutrality, not just aggregate but for each state and each product.

The 28% GST rate creates a large return problem. Earlier, the manufacturing states used to pay excise duty and the trader used to sell without the bill. This evaded the sales tax payment. Now, if the product is sold without bill, there is huge tax evasion as even excise duty is not paid. This process needs to be accounted for while making GST more simplified.

The stricter deadlines can be counterproductive. Instead, the people have to be made realised what is beneficial to them in long term. Moreover, the traders could have been consulted a little bit more so that their opinions would have been atleast taken note of. Not involving them entirely means that they can outrightly oppose a good idea.

The bureaucracy and people behind GST need not get stuck on what decisions made earlier. They should change as per need to bring in more compliances over a period of time.

Connecting the dots:

• The first quarter of GST implementation has provided some valuable insights to the government. Critically examine these insights.