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Business Processes have failed GST! Council needs to 'Reboot' it!

TIOL - COB( WEB) - 579
NOVEMBER 09, 2017

By Shailendra Kumar, Founder Editor

YESTERDAY was the first anniversary of the Demonetisation (DeMo) Policy of the Modi Government. And, with the polls scheduled for two of States in the coming weeks, it was expected to be an eventful day. The Opposition parties did their job dutifully by observing it as 'Black Day' and the ruling BJP marketed it as 'Anti-Black Money Day'. Certainly this is plain politics but both the mega disruptive economic reforms initiated by the Modi Government, today stand caught in the eye of the election-driven political storm. Realpolitik may be mercurial by character but it is certainly not good for economic and fiscal decisions taken for the good of the economy. One live example is the demeaning politics being played over the long-jump India has taken in terms of improving its ease of doing business rank. It is a global fact that the World Bank's parameters largely remain the same and India has done well for itself by undertaking eight major reform processes as listed by the Report. And, every Indian should take pride in it but the Opposition parties have once again failed to make a distinction between what is good for the country and what is really good for their future!

Anyway, the GST, the second mega reform, at one point of time, had indeed surged ahead on the goodwill of cooperative federalism but after four months of its implementation, it has lost the goodwill. With the taxpayers feeling caught in impractical business processes designed by the law makers and venting their grievances to the Government, the Opposition parties at the Centre and the regional level have let loose their 'manchala' tongues to settle their political differences. The president of one regional party went to the extent of describing it as 'Great Selfish Tax'! A national party leader urged his party-ruled States to forge a common front at the next GST Council meeting to make certain demands.

If we leave aside the changing shade of the much-talked about cooperative federalism, the GST which was expected to pick up the thread from the point where the DeMo had left it, is unlikely to realise this goal. Netizens may recall that the GST was designed to be a policy response to curb the practice of cash generation by encouraging the informal economy to join the organised sector. But, going by the experience of the past four months, the GST has reached such a point of backbone-breaking debacle which now calls for a fresh set of initiatives to make it look like 'nicely rebooted'!

Let's now examine some of the announcements and official initiatives taken on the GST front before I draw a conclusion so as to call it 'rebooted'! Prime Minister Narendra Modi early this week said that the recommendations of the Group of Ministers (GoM) are going to be accepted by the GST Council to ease the hardships confronted by the small taxpayers. Union Finance Minister Arun Jaitley hinted at mega slashing of the highest bracket tax rate of 28% for a large number of goods. I congratulate both the leaders for their announcements but is the prevailing set of problems specific to small taxpayers? Are the key patrons of the revenue kitty, the large taxpayers, very comfortable with the present goings-on? Isn't the industry looking for some changes in the GST laws?

I am indeed aghast to find that the Union Finance Minister and the GST Council members have taken four months to realise that the 28% slab was not designed for the commodities of mass consumption. Right from the beginning it was designed to be the 'eternal punishment' for the demerit and sin goods. Then, on what basis, did the Council approve the no-homework-done recommendations of the Fitment Committee when it proposed more than 200 items for this slab. Why did the Central leadership take four months to diagnose this faux pas? Anyway, better late than never is a time-tested axiom and let's welcome it.

Let's now analyse two surreptitious developments of the last week. The Govt is believed to have set up two Expert Panels - one for taking feedback or looking into the representations of the industry and trade, and the other for glancing through the legal provisions of the GST laws. I am surprised by the fact that a social media friendly Govt is yet to issue an official press release about the constitution of such committees. The GST Council Secretariat should have done it to make the nation aware of such committees and their terms of references. As per my inputs, one committee, headed by former Joint Secretary, TRU, Gautam Ray, is to collect inputs from the industry and trade and then make some recommendations. And the second committee, headed by also former Joint Secretary, TRU, Mr Vinod Kumar (he is now Chief Commissioner), is to do crystal-gazing through the GST laws.

The fact that the Govt has failed to set up a committee on the most vital issue of REVIEWING the cruelly disruptive 'Business Processes', it evidently shows that the Govt has failed to diagnose the disease correctly. If we leave aside the 'pain points' in the laws, the real irritants presently, are the complex return-filing processes. It may give the impression that the entire architecture of GSTRs was designed under the influence of either forces of ignorance or architects of a large Compliance Industry which has today become not less than a Rs 6000 Crore industry (Too many GST BPOs have com up in many parts of the country). I fail to understand why shouldn't the Govt simplify the processes to such an extent that this neat sum of Rs 6000 Crore comes to the Exchequer's kitty and the life of the taxpayers becomes truly simple. I am sure Revenue Secretary Dr Hashmukh Adhia, who feels for both the taxpayers as well as the Revenue, will agree with me!

The present sequence of return-filing - the GSTR-1, 1A, 2, 2A & 3 - is not working. The valiant attempt to capture all possible information through these FORMS and then invoice-matching has done a great deal of damage to the cause of GST as a reform. Theoretically speaking, there is no flaw in it as a concept. But the flaw lies in poor preparations and equally poor timing. No new tax reform, driven by tax technology, should be implemented with such a complex business process. This is more pertinent for a country like ours where the IT literacy and the diversity among the taxpayers are too sharp. Then comes the behavioural pattern which can be amended only through carefully designed psychology-tinged policy tools. But, ignoring all these ground realities, the design-makers, driven by their self-praising thoughts, wanted to score success overnight! They also forgot that the revenue is the real oxygen for the Institution of State. That is why they linked the tax payments with successful return-filing of GSTR-3. Now, what has happened is widely known to all - a good number of taxpayers want to pay taxes but since they did not get the support of the GSTN to file their returns, they failed to pay taxes. Thus, the revenue kitties of the Centre and a good number of States have run dry.

Because of the fact that the GSTN did not get enough time to design the complex business processes, a good number of taxpayers failed to file their returns. This was bound to trigger litigation and create sustained doleful cry. To assuage the ruffled feelings of the taxpayers, the GST Council went on granting relief after relief. This was the second bout of mistakes as each amendment or change made in the procedure or law required a fresh beginning for the GSTN coders who went on experiencing their clocks being reset too often. Rather than diagnosing the actual problems with the business processes, the election-driven political leadership is busy replacing the 'bricks' of the GST's original edifice. I am not sure where it is going to end but what I am sure about is that the GST's original architects would not be able to recognise their own 'creation' in months to come!

My only suggestion for the GST Council would be to admit to the Nation that the Business Processes have failed the GST, and a high-powered committee should be set up including representatives from the industry & trade, a seasoned jurist, an economist and a couple of taxmen to redesign the same. Only with a simple return-filing module the GST should be officially 'rebooted' for generating a feeling of a good and simple tax. If it is not done, the poor disruptive reform which is burdened with the task for kick starting the economy again (let's not forget about two per cent additional growth rate), may finally end up 'disrupting' the entire society with the job markets going dry!


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