Goods and Services Tax: How govt can set the indirect tax structure right in Budget 2016
February, 27th 2016
It is more or less certain that the GST bill- 'biggest tax reform since independence', which was being pressed by the government for a while, will miss the much sought after 1 April 2016 deadline. Coupled by an unstable political environment and repeated bottlenecks created by the opposition, the importance of much needed growth oriented economic reforms has yet again taken a backseat. But with the current impediments that the government is grappling with on GST, there is still much that government can do to bring the current indirect tax structure closer to GST.
It is firmly believed that implementing GST will foretell intrinsic growth and do away with the prevailing 'tax on tax' structure, even though inherent challenges such as amendment of constitution, arriving at a revenue neutral rate ('RNR'), robust IT infrastructure, training of government personnel etc., still exist for implementing GST smoothly. Furthermore under the current regime there are multiple issues such as an indented tax credit mechanism (VAT cannot be offset against Excise/Service tax and vice versa), non-uniform exemptions and incentives across the indirect tax statutes which increasing the tax cost burden on assesses. It is expected that Budget 2016 will provide more clarity on the ease of compliances and do away with the cascading effect of indirect taxes. Accordingly, it is suggested that the government should come up with a roadmap/guidelines, for amending the central laws in order to ease the transition into a robust GST regime.
The government should ensure that the Union Budget 2016-17 aims to streamline the central laws further, keeping in mind the GST framework. This includes convergence/aligning of the existing Central Excise & Service Tax laws by allowing seamless input tax credit across the supply chain for manufacturers and service providers; prescribing common threshold limits under the Central Excise & Service tax laws for transition into GST; removal of multiple tax burden such as VAT and Service tax on work contractors, restaurants, real property etc; and implementing rational provisions for determining the point of taxation and place of supply rules, especially for the software and film industry. In total, the need of the hour is a clear and definitive framework, to overcome anomalies and simultaneously converge into the GST regime.
Furthermore, keeping with the ease of compliance intent proposed under GST, it is warranted that a unified Central Excise and Service tax return be proposed. Such filing of a single return, for Central Excise and Service tax, would be a significant step towards convergence into GST. Further, aligning a common procedure with respect to, registration, assessment procedure, migrating towards refund mechanism and a common dispute resolution mechanism, would further facilitate such unification of Central Excise and Service tax laws.
Augmentation in human resources would be necessary to handle large number of taxpayers scattered across the length and breadth of the country. Capacity building particularly in the field of accountancy and Information Technology, for the departmental officers, needs to be undertaken for smooth transition into the GST regime. The scepticism and pressure, regarding technological upgradation, needs to be sedated by ensuring proper training to the departmental officers for complete understanding of IT enabled software's for - assessing electronically filed returns, online settlement of refund claims and most importantly real time availability for catering to the needs of assesses. Further, the existing laws should entail minimal manual intervention and reduced paper work, for an effective IT regime.
Under the current laws, enormous litigation is pending on account of interpretational and factual issues. It is desirable that a common authority be set up for resolving any interpretational issues at the commissionerate level, for reduction in litigation.
The above initiatives would surely go a long way in winning the confidence and interest of Industry at large despite GST timelines having been missed several times. It would also help in settling some of the existing distortions in statutes and identify conflicting areas for reporting to the government. Further, afore mentioned initiatives would also allow government to redress the shortcomings of the current provisions, in the GST regime. In a nutshell above reforms can be said to "Interim measures - On the move to GST".