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Brittle GST escapes the Hammer! - Centre, States need to ring-fence it for higher tax collections!

TIOL - COB( WEB) - 736
NOV 05, 2020

By Shailendra Kumar, Founder Editor

AFTER a toxic trail of avoidable 'fistfights' between the Union of India and the States, here comes the respite for the troubled GST from the rough-and-tumble politics! The revenue collections for the October month leapt beyond Rs one lakh crore with over Rs 8000 Crore in the compensation kitty. Though skeptics may attribute it to the on-going festival season and may view the buoyancy unsustainable in the coming months but such a bounceback in tax mop-up is seemingly not a universal phenomenon valid for all the economies. It has a definite nexus with the strong fundamentals of the Indian economy. A similar bounceback, contrary to the much-touted views of many pandemic-riding pessimists, has been recorded for the US economy. Though a conventional dip in the future collections of GST need not be ruled out but strong macro indicators point towards a 'rocket ship' rebound trying to achieve the escape velocity! Many critical sectors of the economy which had turned moribund during the initial COVID months, are back on feet! With the necessary policy support and the much talked about fiscal stimulus, these sectors like automobile, FMCG, exports, tourism, banking and many others, may experience acceleration in their journey of recovery. Prompt policy support would stymie furloughs from turning into permanent layoffs - One of the priorities of the NaMo Government!

Lustrous green shoots are now, indeed, unmistakably visible in the economy. Though Union Finance Minister has been talking about it for quite some time but 'pedestrian' eyeballs believed that the Finance Minister was trying to pull the wool over their eyes! Anyway, the economy is rapidly backpedalling to the pre-COVID level! And a word of comfort for foreign investors and the domestic industry should have come from either the Prime Minister or, at least, the Finance Minister. However, intriguingly, it has come in the form of widely-reported interviews of the Finance Secretary! Is it a case of jumping the gun? Is it a covert attempt by the Finance Secretary to repair the 'loss of face' resulting from the U-turn the Union Finance Minister had to make on the singeing issue of compensation cess?

Right from the beginning, the Finance Secretary who is also the Member Secretary of the GST Council, had displayed unvarnished toughness and given a shove to the States to choose between the twin options crafted by his team. His proposal evidently had baleful effect on many States which decided to lock horns and knock at the doors of the judiciary. These threats apparently did not move even an inch the Centre's wall of steel! Then came the 180 degree turn like unsuspected winter rains! It was probably the secret sauce of the PMO which turned the wheel. The Secretary, Department of Expenditure, assumed the helm for a risky truce and the Union Finance Minister wrote a nerve-soothing DO Letter to all the States. The Centre proposed to manage the entire borrowings at 4.42% interest rate from the RBI. It definitely rescued the fragile wrappers of cooperative federalism from a ruthless hammer which had escalated the issue to a fathomless scale! A lasting solution would hopefully enable all the stake-holders to take substantive decisions for future reforms of GST.

One such decision should be a well-articulated roadmap for procedural reforms. Instead of piecemeal steps of which many are still born like new returns, the Council should approve and release future roadmap for at least one year such as GSTR-matrix, ITC 'bottle-corking' and online filing. This would give advance notice to the industry to align their ERPs with the new formats. It would also enable the GSTN to work on the technical glitches and remove them prior to the implemention of new changes. Of course, GSTN would entail fresh infusion of capital which should be approved by the Council. Construction of a new architecture to subsume e-Invoice and e-Way Bill data for auto-populating millions of invoices in the GSTR-1 would require a state-of-the-art technological mainframe! A change in the GSTN leadership seems to be fructifying!

Another piece of good news for the GST is that the e-invoicing system is now one-month-old and no voice for further deferment has been heard. In 31 days, the NIC has reported generation of 495 lakhs e-invoices by close to 25,000 taxpayers. It is indeed a healthy inception of a long journey. I am sure that the initial success would embolden the Govt to bring in assessees with lower turnovers under its sweep at the earliest. But, before it is done, a proper analysis of initially-projected 48000 assessees who were expected to be on board, is required to provide a few valuable clues for fine-tuning the procedures. A step in haste may go waste in corking the ITC frauds which are more endemic in the bracket of Rs five Cr to Rs 500 Cr. Once a water-tight homework is done, the threshold-lowering should carefully be staggered. The NIC should also come up with free tools for small and medium assessees who may like to share ERPs or other tools integrated with the NIC server.

A word of caution is also required to be emphasised for the new concessional scheme approved by th GST Council for the small assessees. This is called QRMP - Quaterly Return Monthly Payment Scheme wherein an assessee can pay 35% of one's last quarter tax liability by an online payment challan for two consecutive months before filing GSTR-1 and GSTR-3B for the quarter. This has been billed as a concessional scheme. Under no circumstances, it should be pushed down the throat of small assessees who may like to continue with their monthly GSTR-1 system. It should be notified as optional and let the taxpayers choose for it rather than making it mandatory unless a taxpayer opts for the existing return system. Going by the number of payment challans (PMT-06) and also the facilitation form (IFF) requiring upload of all invoices, it would enlarge the burden of compliance more than the existing one. Another flaw in this option is that if invoices are to be uploaded on quarterly basis, it would deprive the recipients from availing ITC on monthly basis. My hunch is that there would be sparse takers for this Scheme!

Before I conclude, a major point which the policy makers should keep in mind before further granting extension of the GSTR-9 and GSTR-9C is that rather than extending the due dates, a waiver of late fee should be granted. How does it help? Extending the due dates impliedly also extends the limitation period for issuing show cause notice. Secondly, a good number of assessees have already filed their GSTR-9 & 9C and for no fault of theirs, if the limitation period is extended, an ounce of injustice is being done to them for better compliance track records. May be the Govt should consider bringing back the limitation computation pattern of the Central Excise days so as to give a level-playing field to the assessees who file their returns on time. Thirdly, assessees below Rs two crore threshold are not liable to file GSTR-9C. Even for them, an extension of due dates leads to extending the limitation period. Such brazen implication of extension of due dates should be nixed at the initial discussion level itself! I sincerely hope that the GST Council would take note of all such cautions and safeguards to bring back the GST caravan on track!