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GST - Sugar CESS - A Pause before Decision may serve better!

TIOL - COB( WEB) - 605
MAY 03, 2018

By Shailendra Kumar, Founder Editor

PATIENCE pays, and gutsy patience pays more! And such a mantra is well-reflected by the latest GST collections for the month of March. The total GST mop-up breached the milestone figure of Rs one lakh crore, and it was described by the Union Finance Minister, Mr Arun Jaitley, as a 'landmark achievement'. Though some industry experts may believe that there are many 'invisible' elements in the March month collection (April 20 was due date for payment) such as stock-clearances, arrear collections and late payments of past months with interest but it is equally true that the compliance curve has begun to show uptick. With the GST complex architecture increasingly settling down and the fear of anti-evasion measure like e-Way Bill coming into force, a large number of fence-sitters have woken out of their slumber to comply with the return-filing regime. That is how one may notice a marginal 0.5% increase in the compliance percentage to 69.5% in March as against 69% for the previous months. My guesstimate is that this percentage should be hovering around 72 to 73 per cent in the next two to three months. And one good reason for such high hope is not only the e-Way Bill but also the familiarity with the new regime, trickling down to small assessees.

Going by the statistics the data analysts in the GST Council may make some fury-stoking inferences about the recalcitrant response shown by the community of Composition Dealers but this is where more courageous patience is required. Out of a little over 19 lakh such dealers, only about 11.5 lakh have filed their quarterly returns and paid less than Rs 600 Crore to the GST kitty. The fact that most of such dealers are traders and they have natural political patronage of the ruling parties in the States, their compliance would always remain a spot of concern for the Council. It was a deliberate decision of the Council to leave assessees upto to the benchmark of Rs 1.5 Crore annual turnover under the jurisdiction of States, and low compliance behaviour was quite predictable right from the inception of the GST roll-out. The fact that a large number of service providers such as restaurant owners constitute an 'unknown territory' for the State GST officials, it requires longer duration patience before they start contributing to the revenue basket. In my view, the month of April (May 20 is the due date for return-filing) may turn out to be a bit more realistic 'barometer' for projecting the revenue trend in the current fiscal. And the budget estimates are not too optimistic if one takes the fast changing macro variables (Industrial production in April has picked up) of the economy in the final reckoning.

I am sure the GST Council is going to briefly discuss the revenue trend at its meeting tomorrow. But, besides such issues, the Council is expected to give its approval to solutions worked out against many weightier and ticklish problems. One of them is of course the much-talked about FUSION model of the new GST Return. With the GSTR-2 & GSTR-3 inevitably guillotined, the Council is likely to give its nod to a set of basic principles on which the FUSION model of the GSTR may be developed in close association with the software vendor. A lot would depend on the inputs and understanding of the coding team of Infosys which would require a few months to develop a SIMPLE single-page format but the same must incorporate the basic principles to be approved on Friday. And one of the principles is going to be a clear-cut LINKAGE of tax payment with the Input Tax Credit. Whatever shape or configuration may be outlined for the new return format, the Revenue is unlikely to sacrifice the 'umbilical cord' which would contain the 'real intelligence' to prevent undue availment of ITC. Let's wait for the curtain-raising event for more details.

The second major agenda item is going to be the ownership issue of the GST Network. If one goes through the tale of its birth pangs and the controversial file notings by then CBEC Members, it is a classic case of lobbying and counter-lobbying in the Ministry of Finance. But what prevailed finally, was the 'Ministerial' view which saw many VIRTUES in the private ownership of such entity. And one of such virtues which was recently reiterated by its CEO Prakash Kumar, was the handy hiring & firing policy (Rule 56(j) exists even in the Govt). Quick came the question - how many personnel have been fired by the GSTN so far? FOUR was the answer. At what level? Neither known nor disclosed! Another virtue which was vehemently hammered in the beginning was the salary package required to hire good talent from the market. But what one may see now is that it is full of talented and 'coded' government employees who do understand both the intricacies of internal working of the Governments and the technology. Secondly, when the entire coding is to be developed by a third party, such an argument, empirically speaking, stands on crippled legs.

What is more relevant in today's context are the twin reasons - the confidentiality of data which TIOL has been hammering for long (See my previous columns - GST - States for band rates and no DSA; GST Network 'nets' ownership controversy + GST Network & Data Protection - Shadow of SC Judgement + Do we have Plan B if GST Network fails? + GST Let Down by GSTN), and the owner-customer coordinates. Let me explain the second issue, first. In short, GSTN is an incorporated creature which is de facto if not de jure, owned by the Government and its statutory corporations and the ONLY CLIENT it serves are the Governments. In this backdrop, allowing the paper ownership to rest with others makes no sense particularly in the light of the first reason as stated above - the confidentiality of data which is now, globally treated as 'modern oil'! Taking a leaf from the on-going data leakage global controversies from mega social media players like Facebook and Twitter, the Union of India has finally understood the importance of protecting taxpayers' sensitive data. It now understands it well that any leakage of data from the GSTN Server may snowball into mega political crisis in the country. It would be akin to offering powerful 'explosives' on platter to the Opposition Parties. In this backdrop, it would be wiser for the GST Council to approve the proposal for complete takeover of the GSTN which may work closely in association with the DG, Systems of the CBIC.

Though the change in the ownership may not guarantee complete data protection but then the onus falls on the Government which may either opt for the block chain technology in future or set up many firewalls. A fool-proof matrix of safeguard software would indeed be required to ensure that no data pilferage takes place. Such an issue cannot be underlined better if one goes by the CBIC Chairperson's latest communication letter circulated among the field formations. She notes: "... As you are aware, Information Technology has become the platform on which all our activities are based. In this context I would like to underscore the importance of adhering to Information Security best practices in respect of locally procured standalone computers being used by the field formations. Several instances have been reported where unprotected desktops were connected to the internet resulting in data pilferage to command and control centres located abroad and controlled by unknown, possibly malicious entities. I urge all CCs/DGs to take concrete steps to spread cyber security awareness in all formations under their charge ..."

This brings me to another sensitive issue of resuscitation of much-maligned SUGAR CESS! It took several decades for the Union of India to bury this CESS by allowing GST to subsume it. Now, it has sprung back on the Council's agenda as the Union Government is mulling over the recommendations of the Rangarajan Committee Report and needs to create a FUND to finance any gap arising from payments to farmers by cane price mills. Though the intention of the Govt is noble but the method chosen is likely to be distortionary. When the primary objective of the GST is to neutralise cascading of taxes, going by a specific Cess so early for the new regime is certainly not a mature idea! The GST is a system based on value addition and cascading is neutralised through the input credit apparatus. This clearly means that all such taxes which may result in non-creditable levies, should be avoided. If a little extra fund is required, it should be carved out of the actual collection by increasing the tax rate from the present 5% to whatever rate the Council may decide. Any decision to go for CESS may give ideas to even the States which may soon clamour for specific levies if they run out of their own ill-managed finances..

In a nutshell, if the Council decides that the levy of sugar cess is inescapable (Union of India not in a mood to share revenue with States), it should be limited only to non-industrial consumers as no ITC means tax on tax for the industries - certainly not a desirable development. Or, it may be made a part of the Compensation Cess or allowed as set-off of sugar cess against compensation cess to the industries. Besides sugar cess, it's also time now for the Council to review the tax rates on certain goods which continue to bear the 28% burden. Cinema ticket could be one of the few services which bear the burden of highest tax rate. For doing so, the Council needs to go by the feedback given by the various sectoral industry associations and if it finds merit in their demands, it may be revised downwards so that the feeling of being 'burdened' could be eased in the larger public interests.


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