Problems, Problems & Problems - What should GST Council do to handhold taxpayers?
TIOL - COB( WEB) - 574
OCTOBER 05, 2017
By Shailendra Kumar, Founder Editor
JUST before the implementation of the Goods & Services Tax (GST), the Prime Minister Office (PMO) had substantive inputs from various political quarters that it would do political wonders for the BJP's electoral fortune. And, there was indeed no element of untruth in it. The only element of 'True Lies' in the entire gamut of preparations was that the IT Platform i.e. GSTN, was also ready for the take off! Another element which TIOL has consistently been highlighting right from the days of publication of the Draft Business Processes, is relating to empirical flaws in the conceptual compliance matrix designed for the tax payers to follow right from the first month. And, after three months, I am sure the PMO must have moved away from the surreal to real ground-level assessment. And it is undisputed fact today that the GST has ended up making the Modi Sarkar highly unpopular and may take a serious toll on its electoral fortunes in at least two of the immediate State Polls scheduled in the months of November and December.
The Problem No 1 is the 28% tariff imposed on a large number of goods. Given the reality that no mind was applied before placing too many items under the 28% heading, hue and cry was tunneled from all the corners of the country to the Lutyen's Delhi. And a realisation has finally dawned on the Union of India to take a fresh look. The fact that the States have left a large canvas for the North Block to do the homework except for sending their periodic inputs, the Ministry of Finance has indeed been shouldering uneven workload and also allegations in the same proportion, of being too insensitive to the needs of small businesses and traders. Too many commonly consumed goods have been bracketed as 28% items. At the Hyderabad meeting, the GST Council had, to some extent, removed the distortions but there still exists a significant room for rate correction.
In this regard, it appears that the TPRU (Tax Policy & Research Unit), attached with the Revenue Headquarters, had done some sort of quick study but the TRU of the CBEC, which had done the initial homework, probably found itself at tangent with the findings of such a Study. Anyway, the final call is to be taken by the GST Council which is scheduled to meet through video conferencing on Friday. I sincerely hope that with the economy contracting and even our own RBI scaling down the growth projections for the current and next fiscals, the GST Council would not disappoint the VOTERS, aha!, the tax payers.
The second major flaw has finally been admitted even by the PMO. And it is the faulty design of the Business Processes. Asking for truckload of data through GSTR-1 and matching such data with 'tracker-load' of information through GSTR-2 and then populating the filtered data in the GSTR-3 and finally enabling taxpayers to file returns and pay taxes. It may create an optical illusion as it involves only THREE-STEP but the kind of homework burden which these two FORMS put on the heads of a taxpayer who is too keen to pay taxes and shrug off a major load from its head and move ahead with what it is good at - that is nothing but only the business or creation of economic activities which would fuel the cycle of tax payment next month. I still wonder where was the need to experiment with such a gigantic goal right in the beginning. If the Union of India had internal inputs about large-scale misuse of the CENVAT Credit system, it had all the powers and the ingenuity to curb such practices in the then prevailing Central Excise Regime. I presume it was probably the tax technology of the GSTN which gave a wrong idea to the Draft Committee which pinned very high hope on paper calculations. And now that some of the decisions have gone awry, the GST Council should take a bold view and defer some of the system-debilitating provisions of the laws and rules and make it simple for the exporters, small taxpayers and the traders.
Given the fact that the growth of the manufacturing largely depends on the efficiency of the job work sector, it is important that a simple regime must be created for them. For small job workers and SMEs, there is no harm in experimenting with the Composition Scheme. This is a wonderful scheme but its wings have been artificially clipped. I personally feel that the GST Council should make better use of this scheme by liberalising it and easing the burden of the taxpayers who stand harassed today. In fact it would be highly desirable to allow quarterly return for small assessees till the time the GST regime stabilises.
The GST Council should immediately consider deferment of e-Way Bill till April 2018 as its implementation may cause a fresh bout of setback for the GST.Even the provisions of Section 9(4) which give a feeling to small and unregistered businesses, of being wronged by the GST, may be deferred for six months or a year. Retention of this provision will be a good option as it can do wonders for the economy by roping in all sorts of supplies within the boundaries of accounting for larger GDP figures in future. It can also be ingenuously used to expand the tax base of the direct taxes. But, at this stage, right in the beginning, it should not have been given wings.
What portends well for exports is the fact that the GST Council's top leadership is fully sensitised about the exporters' problem and the CBEC has already taken a couple of steps to ease the pain. In place of bond and Bank Guarantee, the LUT option has been made available to all exporters of goods and services across the spectrum - small, medium and large. And the validity of such LTU will be one full financial year. It is now to be furnished on one's letter head and executed by one of the working partners or MD or Company Secretary or the proprietor of a firm. The CBEC has also clarified that all transactions with EoUs will attract GST. There is no special dispensation for EoUs under the GST regime. It has also been clarified that the LUT will work even for supplies of goods to Nepal or Bhutan or SEZ Developer or SEZ units irrespective of whether the payment is made in Indian Currency or convertible currency as long as it meets the RBI guidelines. The same will also apply to export of services.
Before I conclude let me touch upon the comments made by the GST Council's Chairman, Mr Arun Jaitley, at the passing-out parade at NACIN. He said that the GST rate slabs could be rationalised but only after the tax collections reach the level of revenue-neutral plus. And his worry is understandable. On the one hand, the direct tax collections are below the benchmark and the government's borrowings have reached 96% of the annual targets. On the other hand, any rationalisation effort can be made only after the GST laws stabilise and produce the desired results which it would. But it needs time to settle and produce bumper yields. Any talk about merging two slabs at this stage can at best be worth only a debate, no action.
But there are rooms where action is required. Apart from the taxpayers, the Ministry of Finance needs to strengthen the hands of the tax administration also. To implement the IT system and to help taxpayers approaching them, the CBEC field formations need to be given proper infrastructure. Most of the field offices have been starved of even bare minimum funds. Their electricity, vehicle and stationery bills have been piling up. Whatever little funds they have received in the recent months, that was barely enough to clear their outstandings. Their internet and broadband connections do not work. Thanks to BSNL in most cases! Division offices located even in district towns find it difficult to get a hang of the GST system except newspaper advertisements and some magazines. If the tax administrators themselves are not fully equipped, how can they cope up with the queries received by the taxpayers. How can they be prepared for the next round of mega work - audit and enforcement. Let's hope the PMO would give equal attention to all the stake-holders necessary for sure-shot success of the GST regime!