MAY 21, 2020

By M G Kodandaram, IRS, Assistant Director, NACIN (Retd.), Advocate and Consultant

Objectives of GST

THE massive tax reform since Independence, the Goods and Services Tax [GST] paved way for a unified Indirect Tax Regime in our country. The GST era removed all the geographical barriers in businesses and commercial activities and transformed the entire Nation into "One Nation - One Tax - One Market- One e-way bill". The GST regime, being digitally driven, has increased the much-needed component of transparency and at the same time drastically reduced the administrative interference in the day-to-day business to a larger extent. However, it is a matter of fact that we have not yet succeeded in driving home the much-wanted 'voluntary compliance' which is an essential discipline in a self-assessed tax system. This is mainly, among others, due to two important factors, the first one being the unwanted complexities and confusion created in the GST law and procedures, and failure to provide suitable technological support for timely filing of returns, being the other. In a self-assessment regime, the registered taxpayers are mandatorily compelled to file a periodic report of their performance through filing of returns on time. The failure on the part of the tax administration to provide appropriate amenities has created the present disorder in the GST establishment. The technological barrier is not expected to be over soon as it is built on faulty legal framework, as could be realized on reading further part of the discussions. There is an immediate need to address the stated deficiency in the GST realm, so that we can move towards a simple, transparent and self-driven tax system.

Consumer - the Tax bearer

A Tax is stated to be a compulsory exaction of money imposed without the taxpayer's consent and such person cannot take the liberty of not paying the mandated tax. The purpose of levy is to collect revenue for public purposes and the same are enforceable by law. The above concept is fair as far as direct taxes are concerned, but in respect of indirect taxes, there is need to review the above position as the registered taxable person [herein after RTP] is only an intermediary, who forwards the tax paid by the citizen / consumer/ actual tax payer [hereinafter referred as 'tax bearer' for clarity] to the exchequer. I propose to use the term 'tax bearer' to indicate in clear terms, that in a democracy, such a citizen /consumer /supporter is the owner of her / his contribution, with a right to know how such taxes have been exacted and how it is being spent. There is need of having transparency in both activities to expand the confidence of the tax bearer, which is of paramount importance for enabling a successful tax regime. I always advocate that any law made for levy and collection of taxes from the bearers should involve them with fair amount of credence, which I call as 'Bearer Centric [BC] approach'. In our democracy framing of GST Law without considering the tax bearer, has lead to the current chaos, the author strongly feels. What is essential now is to adopt a 'tax bearer centric approach', rationalise the rates and procedures with a purpose to remove unwanted barriers, so that the confidence of the bearer, followed thereon of the intermediary are gained.

Bearer centric reforms

Let us resume the new approach by providing simple solutions / facilities to the tax bearers so as to gain their confidence. The bearer who endures the levy has every right to know the rates of tax she / he have to discharge when they receive the goods and services from various suppliers. As on date there is no updated tax rate list / information in simple format made available by the administration, for use by such owners. The complex method of rate finder is unsuitable for operation by a common man, who has little knowledge of the classification codes used for goods and services or definitions of goods, services or mixed supplies and composite supplies. Also rates for a particular product may vary due to a concoction of undesirable legal parameters we have created by the flawed approach in designing the legal framework. [Kindly read In pursuit of drinking water in GST regime ]. The administration has not published the rate list in a simple format, in their digital facilities or traditionally printed form and circulated. The earlier published information by CBIC in the web, even today contains old rates of taxes on goods and services. Therefore it is high time for the administration to come out with a simple publication and make it accessible to all tax bearers. When the bearer does not know the stipulated rate, how can we gain his confidence? By proper information, we will also avoid the intermediary taking undue advantage of the ignorance of the tax bearer.

This may be a difficult exercise for the lawmakers as the goods and service rates are irrational and vary, and may fail to convince the public. If this exercise is started now, then they can realise the requirement of validation of taxes, with bearer as a primary stakeholder. I believe that the most important element in a self-regulated tax mechanism is the recognition to the person who bears the tax and not merely the person who forwards [RTP] the collected money. The rate charts so prepared should be given wider publicity through the print and other virtual forums so that it reaches the common person. In a consumption tax, for success, the bearer's /consumer's needs are to be adequately met with.

Other possible reforms

The 13th Finance Commission in its report at para 5.42 (iii), on proposed GST, had the following remarks, which needs to be valued to set right the aberrations we have invited. "Para 5.42 (iii) a single rate across all goods and services will eliminate classification disputes and make tax assessment more predictable. The harmonisation of tax assessment , levy and collection procedures across states proposed under the GST will reduce compliance costs, limit evasion, enhance transparency and improve collection efficiency". Much against the recommendations, we fixed the GST rates taking the incidence of tax on each commodity prior to GST as the basis, which is totally off the mark in consumption based taxation. The rates so fixed were trimmed many a time as per the requirement of the industry and not on the needs of the bearers. Here also no thought was given to make it a bearer centric approach, thereby we have landed in the confusion, where no one can guarantee the rate of tax fixed for a particular product or service. The insertion of classification of services, prepared in a hurry without any consultation and application of mind, in this confused condition, into the realm of HS classification of goods caused undue hardship in implementing the law. [Kindly read Classification of services - a GST nightmare?.] This created a huge void in filing of returns are concerned as no one is sure of how to determine classification, whether the activity is to be charged as goods or service, or preparing classification wise details etc. There is also no scope for revising the return once filed. The sudden adoption of return in Form 3B, as administration could not finalise the monthly return format, is a clear indication of the damages the law makers did to new system of taxation, in the beginning of the regime. Authorities further failed to prescribe a simple annual return [in Form 9C], which had to be altered many a times before finalizing and restricting it to particular set of assessees. This shows the wrong methodology adopted in the whole scheme of things. In this digital age, is it possible to verify returns with the invoices in the hands of the bearers, needs a serious consideration? Sometime back, the author had suggested a method [Kindly read Journey towards the Trust Based GST Regime] to move towards a trust based tax system. As we move towards e-invoice and new return system, this is the right time to use this idea. I reiterate my earlier writings - "It, therefore, is necessary to devise a digital mobile tool, which could be used by all consumers. Added to this there is need to evolve an automated measure so as to compulsorily verify of such documents sent by the consumers. The consumer should also be intimated electronically the results of such verification so that he can take an active role in the collection of taxes. Consumer must be treated at par with any tax administrator so that they will play a proactive part in strengthening the wealth of the nation. In a democracy a citizen should be empowered so that 'rule by the people' becomes a reality. A nation is made only when the taxes are paid".

The classification disputes continue to flourish in large scale as we did not follow the recommendation of the Finance Commission to reduce the rate gap between goods and services. Any activity now needs to be classified as service or goods and the quest for particular code continues as was in earlier regime. The concept of mixed supply or composite supply further aggravates the decision making as more possibilities could be carved. Therefore, the litigation galore continues much against the conclusions of the commission.

Prepare the tax bearers

Added to this, there are no efforts made by the administrators to educate the tax bearer, highlighting the need of timely payment of taxes. The common tax bearers should be made aware of asking/demanding for a valid (not fake) GST invoice from their suppliers. These simple issues brought to the notice of the bearer count more when it is the question of gathering the goodwill for a transparent tax system. No conscious efforts are being made to alert the bearers in this regard. Probably the administrators feel that it is sufficient to reach out to the tax forwarders [RTP] and not beyond. Even today fake invoices rule the game, cheating both the tax bearer and the treasury. We should never allow such open leakage to exist, when implementing a transparent tax regime. Is it not the duty of the government and the administrators to prevent this leakage by proper awareness programmes for the tax bearer so that such illegal efforts are defeated at the initial stage itself? Can we not use the Consumer Welfare Fund for this purpose, with a specialized wing promoting this effort, which is of utmost importance?

Conclusion:

In a democracy, the Sovereignty resides in and flows from the hearts of the citizens/people. The people have a right as well as responsibility to be a part of the transparent governance.

[The views expressed are strictly personal.]