Kudos to GST Council but more needs to be done!
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OCTOBER 12, 2017
By Shailendra Kumar, Founder Editor
THE 'foursome' developments on the GST front early this week are - 1) After meeting top honchos of oil and gas sector, the Prime Minister has firmed up his mind to persuade States to bring petroleum under the GST regime; 2) the Union Finance Minister during his tour to the USA said that the bid to derail GST by some opposition parties was foiled, 3) the GST Council made a series of recommendations as part of its course-correction package; and 4) the DIPP notified the budgetary support scheme in lieu of the Central Excise Exemption granted to the units set up in the hilly States. And all the four mega events would play critical roles in shaping up the future of the GST in India.
Let me start with the first and the latest development. After interacting with the CEOs of global energy companies the Prime Minister, Mr Narendra Modi, is fully convinced that the time has come for the States to take a fresh look at the possibility of bringing petroleum products under the GST regime. So far this job was being done only by the Petroleum Minister, Mr Dharmendra Pradhan, who has consistently been urging States to cut VAT rates on petrol and diesel and bring petroleum under GST. Energy is a mega component of business expenditure for any industry. And keeping it outside the GST purview is akin to artificially barricading the benefits of GST from percolating down to the common man. Of late, a nationwide hue and cry was heard against the high prices of petrol and diesel causing serious holes in the wallets of the common man. So far as the industry is concerned, its captains have patiently been urging the Centre and the States to bring petroleum sector under the GST regime as fast as possible. Such a step would undebatably enable the industry to reduce their production costs in a big way and pass on the benefits to consumers. And once it happens, that would be the ultimate impact of the GST for the consumers. But, as we all know the States continue to be skeptical about their revenue loss and that is why they continue to collect about 45% of their total tax collections from VAT on petroleum products.
But, with the GST predictably expanding the tax base by more than 25 lakhs and about 68 lakhs existing tax payers migrating to the new system, there is a strong element of hope that the GST system would stabilise in the next six months. And that would be the right time to bring petroleum sector under the purview of GST. There are chances that the Budget time may hasten this process and it can be notified from April 1, 2018. Even NITI Aayog favours such speedy inclusion. By January I am hopeful that the GST revenue collections in two quarterly cycles would stabilise and the data may lend confidence to both the Centre as well as the States to agree to an amendment in the GST law. Secondly, since the Centre has legally committed to provide 14% growth in the States' revenue besides compensating them for any losses, the States may not lose anything if they agree to such a proposal.
The second mega development is the statement coming from Mr Arun Jaitley who came out public with his disclosure that some opposition parties were trying to derail or delay the GST implementation. And he gave credit to the State leaders of such parties who could see the benefits coming their way from the GST implementation. Going by the GST Council's rapid response or 'disaster' management system, there is a thick element of truth in Mr Jaitley's disclosure. The State Governments have truly been highly cooperative and the Modi Government is rightly thankful to them for adopting national perspective rather than fractured regional party politics. All States have done their best to help Centre create COMMON MARKET for the Indian economy. And the days are not too far when the States would realise that SGST legislations are of no use or help to the market. When the goal is to create 'ONE INDIA ONE MARKET', where is the need for separate registration in each State. To further reduce the cost of doing business, a centralised system is certainly more desirable. And all such changes in the Dual GST Design would be a giant step forward towards a unified SINGLE GST in India. But it would certainly take time.
Meanwhile, what the GST Council has done at its previous meeting is indeed laudable. It toted up all the representations and feedbacks received from the industry and trade and quickly decided to grant relief to the sectors which felt burdened under the GST system on account of its faulty business process design. Ideally, all such designs should have been rolled out incrementally rather than right in the beginning when the taxpayers are trying hard to educate themselves and also educate the consumers who are the ultimate burden-bearers. Since the initial GST design did not make any distinction between large and small taxpayers in terms of spelling out the compliance burden, a good number of small taxpayers collapsed on way to comply with the complicated IT-driven processes. In fact even the IT Platform GSTN also went kaput as it was not fully prepared for such a gigantic data upload and huge traffic on the portal at any given hour. That has been one of the reasons for filing of only 40 lakhs GSTR-1 for the month of July. Even the GSTR-3B which was introduced as a bridge for two months as a relief for the taxpayers as well as the GSTN, turned out to be a complicated form to fill up. However, things appear to be stabilising with the GSTN being monitored by a Group of Ministers and extra pressure being put on the vendor - the Infosys. And the GSTN has shown marked improvement in the past two weeks. And let's welcome it.
What may help or expedite the process of stabilisation are the recent changes of enhancing the limit of Composition Scheme to Rs One Crore; making it quarterly return-filing system for businesses upto Rs 1.5 Crore turnover and the deferment of many of revenue-leakage-plugging provisions of RCM, TDS, TCS and e-Way Bill. All these provisions can wait and may be notified in a phased manner. Meanwhile, there is an acute awareness about the GST at the ground-level and the GST Council should capitalise on it by granting timely relief to the small taxpayers who anyway account for only 5% of the total GST collections. But, their number is gigantic and important for the economy which is being digitalised and formalised at a rapid pace. All these developments are desirable but the PACE is the only concern for a large chunk of businesses which need time to transform or re-arrange their economic activities. Unlike the large enterprises they lack in vision and foster dogma for continuity of the old system. So, forcing them to change the way they conduct their businesses, should be a supportive function of the State rather than with the brute force. Allowing them to do business inter-state would be a natural thing to do. This issue has been referred to the Group of Ministers headed by the Assam Finance Minister who is going to host the next GST Council meeting on November 10, 2017. The GoM should realise that the law should not dictate the way a business should be done. It should rather reflect the business process that exists on the ground. In this case, whether one is a small trader or a large corporate, if the ultimate goal is to have a common market in India, stopping the Composition dealers at the boundaries of States would be nothing less than a decision in conflict with the GOAL!
Secondly, if the intention of the Council is to give relief, it should not look like half-hearted generosity. The turnover from the supply of exempted products should not be clubbed with the turnover taken into account for determining the eligibility for the Composition Scheme. In this regard, the Council has clarified that the interest income from Fixed Deposits with banks may be exempted from being clubbed with the turnover. Let's wait for the notification as more than the small taxpayers, it may spell worries for large corporates. But why? Given the unimpressive health of the capital market, large corporates have no choice but to keep their large funds in the form of FDs with banks. And if the interest income is going to be exempted, the Revenue may decide to ask for proportionate reversal of Input Tax Credit!
Another vital decision of the Council was to give relief to exporters. Apart from granting IGST exemption to imports and domestic sourcing, it has rightly reduced tax rate to 0.1% for merchant exporters. The Council has also talked about introducing e-Wallet system where the Govt would put some virtual currency, notionally calculated, in the account of each exporter and allow them to pay all taxes through this virtual money for sourcing inputs required for exports and once exports are done and refund is sanctioned, the same is to be set off against such notional funds. It sounds hugely complicated and given the preparedness of the GSTN and also the taxpayers, it may create serious technical glitches. Anyway, such a system may come only from April but my hunch is that the relief granted to the exporters may neutralise their grievances and there may not be any need for an e-wallet system.
Let's now go to the budgetary support system which has been rolled out in lieu of the excise exemption scheme granted to the hilly States. There appears to be too many flaws in this scheme which may prompt taxpayers to rush to the court. One obvious flaw is that when such a subsidy scheme has been notified now in October, it should not deny proportionate benefits if the supplies have been sourced from Composition dealers with effect from July 1, 2017. Since none knew about such a restriction, it does not do justice with its retro effect. Secondly, this scheme does not prescribe any time limit for disposal of refund applications. Thirdly, denial of the benefits during the period of investigations that may be initiated on some ground, would be too harsh as it is also not clear whether the benefits of all the years or just the pertinent financial year would be suspended. Fourthly, there is no clarity about when would the States come out with their own subsidy schemes for 42% of their share. When the GST Council system is in place, the Union of India being the torch-bearer for the GST, should have persuaded the States at the Council meeting to spell out a deadline for such a scheme. And the last but not the least, is the missing clarity about the adjudication of refunds. How are they going to be handled. Worse, if there is any violation of any other laws, such benefit may be denied. It is indeed a very sweeping condition. If the intention of the Government is to honour its commitment given in the past, it should not change the rules of the game in the name of GST when the industry has cooperated with the entire drill of change. Let's hope all these issues are taken up at the right level, and a sense of justice is created for the industry to stabilise the historic reform quickly but certainly not at the cost of minimum-right-stakeholder i.e the taxpayers!
|With this Column turning 11 today, I would like to take the opportunity to thank the readers for their cooperation and constructive criticism which motivated me to successfully run this Column for all these years.