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Tax Payment - GST Council needs to guillotine Multiple Ledger System

TIOL - COB( WEB) - 582
NOVEMBER 30, 2017

By Shailendra Kumar, Founder Editor

FOR the next few months the edifice of GST would continue to be on a sticky wicket. Woefully inadequate preparations which went into the operational design of the GST now stand fully exposed and widely vilified - a major setback for the otherwise business as well as consumer-friendly tax system. If one goes by the latest indicators from Gujarat it may not result in an electoral setback for the Modi Government but the teething problems have grounded the wheels of GST caravan into a quicksand-like turf! The GST Council has set up multiple expert committees, in addition to the existing committees, to find credible solutions to pull the GST-cart out of the quicksand. There is a committee headed by Mr Gautam Ray and it is to cull out inputs from the industry and trade. In addition to the existing Law Committee, another panel has been set up to review the GST laws and identify their sharp and blunt edges which may not fare well on a scale of fairness. There is another committee to review the business processes. And it is headed by the Acting GSTN Chairman.

The decision to set up multiple committees tends to indicate the seriousness and the sensitivity of the Government about the taxpayers' woes. Although exporters continue to cry over their stuck money in refund, the CBEC appears to be making desperate efforts to disburse the same at the earliest. If it is not possible through online means, manual option has also been activated. Even for the budgetary support scheme in lieu of the area-based exemption scheme, manual filing of refund claim has been notified. A detailed SOP has been put in place. Going by the hectic parleys among the Members of all these committees, it evidently appears that the officers and the trade representatives involved in the exercise do not want to leave any stone unturned this time. And whatever amendments are finally approved by the GST Council, they would not only last long but would also be widely acceptable to the taxpayers.

In this background I would also like to share a few suggestions for all these Committees' Members. My first suggestion is for the political leadership of the Govt. It is high time that the performance of key officials who played critical innings in the original roll-out of GST should be strictly scrutinised and the assignments of some of them should be changed. If this is not done, their original dogma about certain provisions or procedures would certainly come in the way to completely remove the irritants. It is a well-established theory that every human being is a prisoner of his or her psychological blocks and such blocks do not change overnight. If they are allowed to hold the rudder of the ship, their psychological blocks would certainly come in the way of major alterations in the design. This is not to say that they need to be punished. But the utility of their ideas and thought processes have perhaps outlived and do not go hand in hand with the ground realities in the economy.

Extending the same logic further, it is important that the report of the New Law Review Committee should not go to the existing Law Committee for further examination. If it is done, there may be a serious attempt to dilute the changes proposed, and the existing dogma would dilute the course-correction efforts. A large part of the present mess is to be attributed to the faulty thought process of the old law committee which has clearly not shared the modern vision of the political leadership for a New and Aspiring India. They have not exited from their hoary 'glass house' to realise that a healthy economy is the proven antidote for not only several social ills but also poverty. Given the population explosion and more than a million job seekers joining the job market annually, every political leadership is under tremendous stress to engage them gainfully. In this backdrop, all modern tax reform initiatives and tax laws need to be designed in such a manner that they encourage non-taxpayers to come under the tax net and contribute to the growth of a healthy Nation.

I believe the New Law Review Committee is seriously looking at the possibility of doing away with some of the troubling provisions like RCM, TDS and TCS. In principle, they are not bad. They are in fact needed in an economy like ours but they need to be implemented at the right time and in a right manner. The procedures need to be simple and easy to comply with. The sectors for their application need to be chosen carefully. These provisions should not be enforced across the canvas. They are to be used selectively as powerful 'missile' like Brahmos! Fastening them on the head of small traders or SMEs or even MSMEs is not a good idea. It must be remembered that ours is an economy of SMEs and traders whose numbers run in millions. They contribute to the economy in their own ways. They generate jobs for the unskilled and semi-skilled who need to be protected in every political dispensation. However, in a few years, the GST administration would be gathering valuable statistics to identify all such layers of taxpayers who may invite invocation of these 'Brahmos'. Till the time the GST reform process gets cemented, all such 'Brahmos' should be kept within the fold of laws as only precious 'armoury'.

Let me now make a simple suggestion to overcome the present mess of business processes. Invoice-matching is a good idea but it is a case of an idea being put to test prematurely and without matching IT platform. It requires a robust and extensively-tested IT tools. Then, it also calls for a selective or graded implementation schedule. It should not be applied across the taxpayers' canvas. Secondly, it should be kept in reserve for future usage. At present when the GST has earned so much of discredit, it would be more desirable to keep it dormant and merge the present two forms of GSTR-1 and GSTR-3B. What is there in the GSTR-1? Nothing more than details of sales invoices. All such data can be sought through the GSTR-3B which has gained wider acceptance and even the GSTN is more comfortable with it. So, what I am hinting at is that the Committee reviewing the business processes should deploy all its mental energy on this form and redesign it in such a manner that it contains all necessary inputs required for assessment and preventive audit to curb possible misuse of ITC.

Another key suggestion for this Business Process Committee is that it badly needs to take a hard look at the payment ledger architecture which has turned out to be a mega 'TRAP' for small taxpayers. How? Let me share one such instance which involves an SME. The taxpayer was to pay CGST and SGST but ended up paying IGST by mistake. The sum was more than Rs five lakhs. After realising the mistake the taxpayer wanted to discharge its tax liability but could not do it as it had no more funds in its account. And, the wrongly paid tax can come to his rescue only after a refund claim is filed as per the GST law. So, this is a case where there is a willingness to file return but one error which has parked his money in the wrong ledger of the Govt, makes him a defaulter as he is not left with funds to 'invest' similar sum for paying taxes. Such instances are many and the DESIGN is painful from the small taxpayers' perspective.

Let's take a look at the present tax payment ledger architecture. There are three major cash ledgers besides the Credit Ledger - the CGST, the SGST and the IGST. Under each head, there are sub-ledgers for penalty, interest and late-fee. In total, there are more than 15 such ledgers which a taxpayer is required to keep track of. As per my understanding the rationale behind such a complicated ledger architecture is to go for quick backend settlement of revenue between the Centre and the States. And to make it easy for the account controllers, the entire onus has been shifted on the taxpayers which is patently wrong from two perspectives - first, a good number of taxpayers or even their professionals are not adroit enough to avoid errors, and secondly, the Governments have more wherewithal to undertake such exercise of keeping track of tax being paid as compared to taxpayers.

Ideally, the Government should scrap the multiple ledger system and create just one CASH Ledger and a taxpayer should be allowed to simply discharge one's total tax liability by paying through such a ledger and the Credit ledger. So far as the issue of settlement of tax payments goes, it can be tabulated by the GSTN software on the basis of the details furnished in the GSTR-3B for CGST, SGST and IGST. Based on the declarations, the controllers can have auto-compiled data of revenue realised and the same can be distributed among all the stake-holders. Such a decision would make the system of tax payment quite easy and error-free. Secondly, it obviates the need to go through the drill of claiming refund of wrongly paid taxes. The present process is thoughtless and a proven instrument to waste valuable time of the GST Tax administration as well as taxpayers whose working capital also suffers a setback - whether it is a small or a large taxpayer.

Let's hope that these committees do not end up making another round of errors or not do anything about the flaws in the laws or the business processes. If it happens, the taxpayers who are now on the run from the GST system, may not pardon the political dispensation again. Building image and reputation for a reform takes many years but destroying it does not require even four months!!. So, it is important that the Committee Members take a cue from the ground realities and if they fail to, the political leadership should be sensitive enough to examine them based on common sense and common convenience principles so that the GST is widely accepted as a viable and good tax system!


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