Reaping best benefits requires laws and compliance structures be made simpler GST
July, 18th 2019
In the recently announced Budget 2019-20 papers, lies buried a data point on the India GST. In a span of two years from its introduction, the initial euphoria and charm has faded away completely, and the GST numbers have been reduced to reflect a decrease in the expected collections. Yes, rates of many items were slashed and there were many course corrections made all along. The government needs to be commended for being flexible and agile on that count. However, there are symptoms which require urgent repairs. Falling GST collections is a matter of great concern for the economy, given that the GST is a consumption tax, and other things being equal, less tax means less consumption, which means lower growth of the economy.
It has been time and again noted that the GST , though simple as compared to the erstwhile indirect taxes regime, is still complex. Given the federal structure of our country, we were compelled to introduce a dual GST where the central and state governments have equal right to levy GST on supply of taxable goods and/or services on intra-state transactions. On the inter-state transactions and transactions involving imports, an IGST is levied by the central government, proceeds of which are equally shared between the Centre and the states. While this looks very simple as a concept, practically, it is the same old structure, where a taxpayer having a pan-India presence has to obtain as many SGST/UTGST registrations, and track all of them separately besides the one CGST and IGST. This was the case in the erstwhile VAT regime as well, where the same taxpayer was required to follow as many VAT laws. The only solace is that the SGST laws and procedures are uniform across the country, unlike the case with state VAT laws. Indeed, this has made life easier for the taxpayers, and has reduced the anxieties and uncertainties surrounding tax compliance procedures. However, payment of GST, filing of returns, etc. remain to be undertaken state-wise and not at one go, which has a shadow of complexity overhanging from the erstwhile VAT era.
Besides this, let’s see what other issues are plaguing the India GST structure. At the forefront, is the input tax credit mechanism. It is a known fact that the key highlight of any value added tax system is the ability of the taxpayers to claim input tax credit of almost all the goods and services procured for supplying taxable goods and/or services. The tax paid on the input side ought to be available as a set-off against the liability on the output side. Such is the simple theory which works wonders in other tax jurisdictions. We all know that the solution is simple. However, the process to arrive at that solution is extremely complex. This is applicable to almost 99% of the problems faced by Indian citizens. Rather than taking efforts to re-invent the procedures and policies, and adopt best practices, we end up spending time and money on following archaic rules and procedures, and then appealing in a court of law, which, with a large pendency of cases, itself is burdened. A simple provision allowing input tax credits of almost everything (with a small negative list) that businesses procure and the expense of which is debited to P&L account, will go a long way in putting to rest all the litigation and confusion surrounding the input tax credit claims.
The next area is the conflicting views taken by various state GST authorities on the interpretation of GST law while pronouncing the Advance Rulings under the respective state GST laws. While in the recent Budget, there has been an announcement of setting up of a National Appellate Authority for Advance Rulings which will roll out the procedures for filing of appeals and rectification of orders, there is an urgent need for having a National Authority for Advance Ruling in the first place, which will ensure uniform interpretation of GST law. It is too much of a task for a taxpayer to first obtain the Advance Ruling from various states on the same issue and then approach the National Appellate Authority for getting relief in the event of any adverse order.
A leaf may perhaps be taken from the book of a federal country which has introduced a VAT system recently. The United Arab Emirates (UAE) implemented VAT beginning from January 1, 2018. The Federal Tax Authority (‘FTA’) of the UAE recently announced their first year performance. They had rolled out a very simple VAT structure and followed it up with a simple VAT return form. The result was for everyone to see and applaud. They were able to collect around $7.35 billion as VAT, which turned out to be 2.25 times the budgeted VAT collection for the first year! The strategy to keep VAT law and VAT compliance simple has yielded positive results. And, this is just the beginning for them.
India’s rank in the 2019 Ease of Doing Business Report released by the World Bank jumped 23 positions to 77 despite the fact that the rank in Paying Taxes slipped from 119 to 121. While paying taxes is just one part of doing business in a country, the potential to improve India’s rank in Paying Taxes is immense. Hence, the government should not delay the implementation of a simpler GST return any further. The trade and industry, though at the receiving end, all along have been very supportive of the reform process and would continue to do so, provided relief is granted to them at the earliest.