OCTOBER 9, 2019

By Vijay Kumar

Mr. Thomas Issac, Finance Minister of Kerala tweeted,

Record low GST collection is not only a reflection of economic slowdown but also the mess in GST administration. What compliance can you expect when even first annual return is yet to be filed? And also rates have been continuously slashed to less than revenue neutral levels .

Punjab's Finance Minister Mr. Manpreet Singh Badal called for a fresh look at the GST structure, saying the current system was "badly designed".

He added

Punjab has been consistently opposing the design of the current GST.

States and media were told that once GST comes in, tax collections would go up,exports would become competitive. It will actually simplify things and GDP will grow.

GDP has not gone up, tax collections are consistently going down, exports become cumbersome. Filing of tax returns has actually become a nightmare,

If I am not mistaken, in the last two years we have had almost 4,000 changes in the GST law, changes and amendments for which they have to go to Parliament and state legislatures. Can you imagine if there was a patient and was operated on 4,000 times would there be anything left of the patient?

Bihar Finance Minister Mr. Sushil Kumar Modi says,

Low GST collection is not because of slashing of rates but cyclical slowdown in auto & some other sectors are major contributors. Most rate cuts were in 2018 but from Nov 18 to March 19 growth of revenue was 14%. Kerala (was) party to every rate cut.

We have the best of bureaucrats, sincere Finance Ministers and a passionate Prime Minister, all determined to make the GST a good and simple tax that would keep the coffers full, but everything has gone wrong and all the powers be are pretending that everything's fine. How long can this drama go on? When a State Finance Minister says that filing returns has become a nightmare, all the concerned should wake up. What the minister says is the reflection of the nightmare of thousands of taxpayers who are only too willing to pay their taxes correctly and file their returns properly – if they are allowed to. Is it too much to ask that paying taxes and filing returns should be made a simple and easy task?

GST 'tried and tested'

Surprised? The Penang Chinese Chambers of Commerce has welcomed a proposal that the government (of Malaysia) revert to the goods and services tax (GST). He said GST was a "tried and tested" system in over 100 countries."GST is fairer as it allows everyone to contribute to the government's coffers.", he added,

"The concept is great, but the earlier 6% imposed proved to be too high for some. We ask the government to roll back to GST, but start off with 2% and go slow on increasing it," he said.

GST, introduced in April 2015 at 6%, was replaced with SST on Sept 1, 2018.

On Wednesday, the Malaysian Institute of Economic Research (MIER) said Government could re-introduce the tax in the 2020 Budget at a lower rate of 3%.

MIER chairman Kamal Salih described GST as fair to everyone, adding that the tax regime had kept the government afloat when crude oil prices declined to below US per barrel in 2015.

Prime Minister Dr Mahathir Mohamad, responding to MIER's proposal, said the government could bring back GST "if that is what the people want". But he retracted yesterday in Parliament stating,

The Malaysian government has no reason to reintroduce the Goods and Services Tax (GST) as frequent changes to the tax system will adversely affect the economy and lower investor confidence. Many types of taxes have been introduced, there have been many grumbles by the people about the GST as they have to pay tax twice.

Abolishing GST was in the main manifesto of his coalition during the general election last year, with the coalition calling it a regressive tax that "oppressed lower income groups". Supporting the 'return to GST', a reader wrote in the letters column of "the star online',

I would be very excited to hear Prime Minister Tun Dr Mahathir Mohamad say that there is a need to bring back this tax regime.

Let's not forget that businesses would have to bear the burden of reviving the system implemented in 2015. Bear in mind, too, that many essential goods were zero rated in our GST system. In a GST environment, one has to shoulder more burdens when one consumes more.

Has the Prime Minister forgotten his vision to turn Malaysia into a developed nation by 2020? If he doesn't have the political will to bring back GST, he may have to change his target to 2040.

Economists support the view that GST should come back. A prominent researcher stated,

The government of the day must learn from the mistakes of the past government namely on the implementation of GST tax refunds which must be done in an honest and transparent manner.

The delay in GST refunds was cited by most companies, especially the small and medium enterprises (SMEs) as affecting their cashflow.

This calls for greater transparency and governance structure in the audit process to ensure a timely refunds of GST credit to traders and manufacturers.

The extra revenue collected from GST along with the huge cost savings from the expenditure efficiency and good governance of spending would provide support for the government to finance public expenditure.

The weak enforcement of price surveillance during the GST implementation and inadequate consumer awareness or lack of information about the GST had caused unwarranted cascading price effects on consumers, especially hitting the pockets of low-income households though basic necessities were exempted or zero-rated,

Some still perceived GST as a form of regressive consumption tax with the lower income households paying more relative to higher income households spending on the same amount of goods and services.

The long list of exempted and zero-rated goods and services then had created a situation where certain industries lobbied for better treatment.

In this regard, the reintroduction of GST must take into account the simplicity of GST rate in terms of exemptions to ease the compliance cost and smooth implementation.

For a start, the GST rate should be set at 3%-4%, taking into its impact on revenue and its socio-economic impact on the targeted vulnerable groups.

Former deputy finance minister Datuk Seri Ahmad Maslan has offered to be a consultant to the government on matters related to Goods and Service Tax (GST).He said that if the government ever decided to implement GST, he was willing to be the man to explain the benefits of the tax regime to the people."I will be the happiest person if GST is implemented again", he said. The Prime Minister was not too ready to accept the offer and said, "The previous government got advice from a consultant who is not certified, and that's why they introduced GST."

Any lesson(s) for India?

The Good GST

Finance Minister Ms. Nirmala Sitaramansays that demonetisation and GST encouraged digitisation that will drive the country towards the open and transparent economy.

Tap The GST Potential:

The RBI Monetary Policy Report – October 2019, states,

Notwithstanding month-over-month fluctuations, the GST collections grew by 4.9 per cent (y-o-y) during April-September 2019. The share of State GST (SGST) collections in total GST revenue has been sizably higher than Central GST (CGST), attributable to the adjustment for input tax credit. After apportionment of integrated GST (IGST) collections, the share of CGST collections remained significantly lower than SGST collections during April-September 2018. They did move closer subsequently, before finally catching up in August 2019. There have, however, been large inter-state variations in SGST collections, with a few states not requiring the GST compensation cess. Plugging loopholes and mitigating information technology (IT) glitches such as putting in place an invoice-matching system to facilitate a system validated input tax credit, overcoming operational deficiencies of the payment module, alignment of system validations with the GST Acts and Rules along with alleviating system design deficiencies may facilitate tapping of GST potential.

SABKA VISWAS - No ERRORS PLEASE

The Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS) does not tolerate mistakes. While filing the SVLDRS-1, if you make any mistake, God bless you, there is no way you can correct it. You can make small mistakes in your name, PAN, address, Order Number, disputed amount – no, you are not allowed to make mistakes and if you do, what do you do? I asked the CBIC helpdesk for help and they informed me, " This is to inform you that, there is no functionality available to rectify/amend already filled SVLDR-1. For further clarification and intimation, kindly approach your jurisdictional office." And there is no way the declaration can be saved. If you try to print it, the columns misbehave.

Until Next Week