GST Council to set rules on future tax rate revision
October, 04th 2017
Revenue secretary Hasmukh Adhia, in an interview ahead of 100 days of GST, says the experience so far gives reasons for optimism that the goods and services tax will deliver the promised economic benefits
Revenue secretary Hasmukh Adhia has been deeply involved in the design, drafting and implementation of the goods and services tax (GST). The mammoth task of replacing the country’s entire indirect tax system with a new one is testing the limits of policymakers’ real-time responsiveness, the resilience of infrastructure and taxpayers’ ability to adapt to a more disciplined compliance regime.
Will the tax reform deliver the promised economic benefits or will it get derailed by the transition glitches? Adhia says the experience so far gives reasons for optimism. Edited excerpts from an interview:
Are you satisfied with what has been achieved?
Policymakers need to take a lot of satisfaction in implementing GST, a reform that has been discussed for so many years and is badly required for the businesses in our nation to succeed.
GST is a long-term structural reform, the benefit of which will be long-term while the transition pain is immediate and short-term. Ever since the constitutional amendment was passed, we have been able to achieve every single milestone which we had set for ourselves, except a small delay of three months in implementing GST. That delay was also called for with a view to give more time to taxpayers to prepare themselves for the new tax regime.
On the whole, it has been a big mission accomplished.
How will GST, an IT-driven tax system with built-in self-policing mechanisms, change the character of the indirect tax administration at central and state levels? Will technology take care of regulatory oversight?
The design of GST is such that it tries to make tax administration faceless and IT-driven. Therefore, for businesses which are transparent and want to disclose all their transactions, there would be complete ease of doing business.
Also, most of the mistakes or deliberate avoidance of tax will be captured by the computers. Therefore, there may not be much need for inspector raj.
However, there would still be a need to oversee compliance particularly in respect of those taxpayers who have not filed their returns.
Many people did anticipate technical glitches and readjustment of business activity in the transition phase. How long will these last? What do the GST revenue collection figures say about whether business activity has normalized?
Businesses did anticipate initial readjustment problems because it was a tax system in which a new learning has to happen. Also, the readjustments in the IT system had to be made based on the problems faced by taxpayers. We are confident that these transitory issues will get sorted out by end of the current financial year and it should become smooth sailing in the next financial year.
The revenue collection figures are satisfactory as of now. However, the better compliance in terms of 100% taxpayers filing returns will result in upside to revenue.
Is GSTN’s IT system robust enough to handle the transition?
Robustness of an IT system is seen from robustness of programming, IT infrastructure and its security. As far as robustness of infrastructure is concerned, the GST system has been designed as a highly scalable system which has been tested for very high levels of throughput. On 20 September, 2017 when 13.78 lakh returns were filed, the server utilization was only 10%.
Keeping in view the threat perception, elaborate cyber security measures have been adopted while designing and implementing the GST systems. Robustness of programming depends on skills of developers, business processes and legal frameworks and time available to the development team. Infosys Ltd, the second-largest software firm in India, is developing the software.
The issues encountered by taxpayers and tax practitioners are being resolved quickly and the result can be seen from the smooth filing of GSTR-3B return (that captures the summary of transactions) of August. In the last three days of return filing, more than 24 lakh returns were filed and more than 70% of total month’s tax collection been paid.
Industry, especially the automobile sector, has raised the concern of frequent tax changes, which they said will affect manufacturing activities. What would be the broad guiding principle for any revision in tax rate or cess in the new federal indirect tax framework?
As far as automobile sector is concerned, there has not been any increase in tax compared to pre-GST. The only thing is that the mistake, which was committed by the government in fixing initial rates of taxes for high-end automobiles, has been corrected subsequently, which appears like a flip-flop.
The changes made in other products are either in favour of the taxpayers or the consumers and they are based on logical principles. A concept paper is under discussion in the GST Council, which will lay down broad guiding principles for rate revision in future.
If GST revenues in the initial months meet the targets, could we expect the items left out in the system—crude oil and select petroleum products, electricity and real estate—getting included in GST in the near future?
The inclusion of petroleum products can happen whenever GST Council takes stock of the situation after a few months of implementation. The Council members need to satisfy themselves about the long-term trend of revenue flows coming out of GST.
Does the initial trend show revenue of consuming states going up? Have manufacturing states managed to retain their projected revenue growth?
Based on the figures of two months, it is too early to make any analysis of revenue trend state-wise. But, in general, it has been noticed that while consumption states are getting better revenue, some of the manufacturing states also have got high amount of consumption and, therefore, their revenues are not adversely affected.
However, in order for us to make any trend analysis, we need at least six months’ time.
A large section of the registered assessees have not been able to meet the deadline for filing summary returns and pay taxes in the first two months of GST implementation although many are complying after the deadline. Does this trend worry you?
The phenomenon of some taxpayers not filing return in time is a matter of concern. This could be partly because of not being aware that under the GST regime, even if one has got no transaction during the month, one is supposed to file the zero tax return.
We do not expect that taxpayers who have not filed return would have significant number of transactions to report, out of which there would be lot of taxable income which is still due. However, we have requested the central and state government authorities to identify the reasons for non-filing. We do hope that situation improves as time goes by.
For the month of July, out of 60 lakh taxpayers who were expected to file returns, more than 52 lakh have already filed. For the month of August, this figure is 42.82 lakh up to 30 September.
What is your message to taxpayers?
GST is for the long-term benefit of the economy. The initial difficulties are only transitory in nature and as long as the GST Council and the governments are willing to make changes, these difficulties would be got over within no time. We expect all honest persons to support GST because GST system puts a premium on honesty.