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GST - Is mod se jaate hain syndrome continues ...

TIOL - COB( WEB) - 588
JANUARY 11, 2018

By Shailendra Kumar, Founder Editor

THE most radical tax reform of India, the Goods & Services Tax (GST), today stands at such a mod (मोड) that it tends to remind most of us about a very popular Bollywood film of 1975 - 'Aandhi', which literally means a hurricane. And, going by the GST's typhonic impact on the informal as well as formal sectors of the Indian economy, including the health of the Central as well as the State treasuries, it also tends to remind us of one of the most foot-tapping songs of this movie - is mod se jaate hain ...!! For the law makers and the GST Tax Administration it may sound so true and realistic that every reform has to perhaps go through such mods (मोड) before (churning of) the new tax system really matures and provides relief to the taxpayers as well as the exchequers.

Now, the larger question is - Are we really through with all the painful mods of evolution and the days are not too distant when India will have a truly easy compliance framework with easy-to-administer GST laws? Who can answer these questions with a degree of definiteness? None but the GST officers and the GST Council. Both are scheduled to meet to take the final call on a large basket of technical issues along with a new GSTR format. The senior officers of GST from the Centre and the States are scheduled to meet today in New Delhi. They will discuss a large number of issues such as a gunny bag of possible amendments in the GST laws as recommended by the New Law Committee headed by the Bangalore CGST Chief Commissioner, Mr Vinod Kumar; the tentative formats of the GSTR and some of the tax rates where serious representations have been received from the industry and trade.

In a nutshell, this meeting would largely set the agenda for the half-day meeting of the GST Council on January 18. Since the Union Finance Minister may like to avail this opportunity to discuss some of the possible contours of the Union Budget 2018 with the State Finance Ministers apart from the GST-related issues, it is highly unlikely that the possible amendments in the GST laws are going to be vetted by the Council at this meeting. In that scenario, the GST Council will have to meet again either late this month or early next month to finalise the amendments which can only be tabled in the Parliament as a separate Taxation Amendment Bill. Secondly, all such amendments should be made public for quick reaction from the industry and trade so that they are later not found to be falling short of the constitutional substance.

Meanwhile, let me discuss one of the strangest mods (मोड) which none of the stakeholders had accounted for! When the GST Design was finalised with electronic cash and credit ledgers, a purely IT-driven tax payment system, it was largely believed that the ills of the previous indirect tax regime would not be imported into the 'modern machine'. What are these ills I am hinting at? This is widely known among the taxpayers as the 'Q4 Revenue Shortfall Ill'! Traditionally in India, since the revenue targets have always been higher than what the tax administration could collect at the ground level, the most common practice used to be to persuade some of the top taxpayers to deposit tax in the PLA and not to avail CENVAT Credit so that the zonal revenue targets stand achieved for the tax administrators. And when April and May come, the first two months revenue mop-up takes a dive as the 'friendly' taxpayers are given full 'cooperation' for utilising accumulated credit in the books. But, can a similar system be replicated even in the GST regime? Its architects may perhaps say nay but the inputs received from some of the States which are hit by the lower GST collections in the past few months, have clearly shown that these tactics have been resorted to - of course, on a friendly note!

But, how does it work? It is learnt that some of the States have prepared a list of their top taxpayers who contribute richly to their kitties. Only senior officials make calls to only senior corporate honchos to put some hard cash in their Cash Ledger with the GSTN. Obviously, such cash is deposited only through the SGST Challans so that when the backend distribution of revenue is taken up, such money directly goes to the SGST kitty of a particular State. Thankfully, the taxpayers were given the option to adjust such advance tax payments through cash ledgers against their monthly liabilities arising from the GSTR-3B but the moot issue is - if the revenue collections continue to be dismal even in the coming months, what stops these States from 'requesting' the taxpayers not to utilise their electronic credit ledger and continue to pay in cash till March 31, 2018. Worse, unlike the Central Excise and the Service Tax regimes when the Ministry of Finance used to notify that the taxes collected in the month of March must be paid by March 31. In the GST scenario, the GST collected in the month of March is to be paid only by April 20 as the tax payment is inextricably interwoven with the GST returns. This would further complicate the revenue scenario for the States as well as the Centre. But the larger question is - what is the fun of designing an IT-driven electronic ledger when the transactions through such ledgers are going to be artificially regulated to suit the health conditions of the treasuries? Secondly, the GST Council also needs to assess how badly such a practice bruises the inherent strength of the GST system i.e the seamless flow of input tax credit. Even if it is a temporary measure only for this year which I strong believe so, it is important for the GST Council to safeguard its 'Original Concoction' against all possible distortions!

Let me now discuss the issue of alleged abuse of transitional credit facility. As per the internal analysis of the North Block, the GST collections are substantially down in November month because of possible large-scale availment of transitional credit. It is quite possible that a few thousands of taxpayers may have done so! But the reasons for doing so could be two-fold - 1) out of less than optimal understanding of the GST laws; 2) making a hay while the sun shines - taking advantage of the freeze on coercive steps or a friendly compliance milieu. So far as the second category goes, STICK is perhaps the only tool to straighten the 'KINK'! But, for the first category, rather than resorting to large-scale GST administration driven campaign, the GST Council should consider one more OPPORTUNITY to REVISE TRAN-1. December 27 was the last date for doing so. I am sure a good number of taxpayers would like to correct the errors identified by them only after revising the TRAN-1. If such taxpayers are given one more chance to do the needful, it would help the cause of revenue by immediately garnering more taxes and also putting less strain on the administration which appears to be busy issuing Notices or letters or communications to large taxpayers and setting impossible deadlines to meet in terms of production of voluminous documents justifying the claim of credit utilised. The field formations would always behave like this if the top layer of the revenue leadership is driven by what the Congress MP Shashi Tharoor refers to as 'farragoes'! Since the GST top leadership has demonstrated truly Gandhian patience in educating the taxpayers, it would be more desirable to nab the wrong-doers by giving them one more chance to correct themselves before the STICK may be allowed to exhibit its 'magic'!

Before I conclude today's Column, I would like to caution the GST Council on the issue of rampant invocation of anti-profiteering provisions. Though the concern of the GST Council about the welfare of the common consumers is laudable but there has to be a method in 'sadness' about some of the taxpayers not passing on the benefits of tax rate reduction. In fact, it is one of the GST provisions which required much more meticulous preparations in advance. But, while in a hurry to roll out the GST, the interests of the consumers were overlooked for some months. And they came to the surface only after the Council felt the need to shift a good number of commodities from the higher tax slab to moderate tax bracket. But then, there was a need for a guidance note as to how the Revenue is going to determine the offence of profiteering. The Rule states - "... benefit of input tax credit should have been passed on to the recipient by way of commensurate reduction in prices ..." But such an expression has come to be seen as banal definition. Clarity eludes it. It may cause hardship particularly to MSMEs or enterprises manufacturing multiple products. Since their books do not distinguish certain expenses product-wise, it would be more difficult to decide the costing. Then, it is true, there can be many more reasons such as removal of certain market barriers, lower logistic costs and higher efficiency. In this scenario, rather than locking horns with the taxpayers, the National Authority should deploy more manpower to come out with Guidance Notes which would help taxpayers in ensuring compliance with such rules rather than vaguely work out certain reduction in the prices of their products and later hike the same. I am confident that with a bit of extra care, patience and enabling environment, a much higher compliance level can be achieved in the coming months on this front!