GST ‘makeover’
The decisions taken by the Goods and Services Tax (GST) Council in its 57th meeting have been largely welcomed. Economists believe that they reveal two distinct changes in the attitude of the tax administration: increased trust in the taxpayer, as well as reduced anxiety over tax revenues. If it happens, this will be a big change from the system in place so far, where taxpayers have been bogged down by compliance requirements, and tax enforcement has used this complexity to try to extract every rupee it can. On the face of it, in its 10th year, GST is finally starting to look like what it should have at the time of roll-out. But the moot question is whether the government and its tax machinery really let go of the revenues to fill the budgetary gaps at the end of the financial year.
While the GST Council, which comprises state finance ministers, needs to be complimented, the government too can pat itself on the back for steering the deliberations to a conclusion that will ease major areas of discontent. For a government recently roiled by student protests and the agitation for the Chief Election Commissioner’s removal, the good news has come as a shot in the arm.
According to the latest data trends, gross collections have not often deviated significantly from the mean over the last two years. After nine years, taxpayers have also become familiar, if not comfortable, with the tax filing system.
As the previous meeting had rectified most rate-related issues in GST and even reduced the number of slabs, a major driver of the complexity of the tax system, the government felt the time was ripe for a significant overhaul of the processes and administration of GST. The latest reforms address complications in the entire chain of GST paperwork, from registration and return filing to refunds and litigation. The thrust is to reduce human discretion in these processes by automating registrations, reducing the number of times small businesses have to file returns, handling refunds through computer-based verification and significantly reducing the powers of GST officers. In essence, trust the taxpayer to comply, and crack down only when non-compliance is demonstrable. That is the way it should be, instead of a ‘guilty until proven innocent’ approach.
Looking at ITC
While all the simplification measures are welcome, some specific ones deserve special mention. So far, taxpayers were denied input tax credits (ITC) until their suppliers had filed their returns. This meant that thousands of genuine businesses that had received supplies and paid taxes on them were denied ITC, leading to a drying up of crucial working capital. The GST Council has tasked a committee to find a solution that can be implemented by 1 April.
Removing the arrest powers of GST officers is another step that will significantly reduce harassment, as will tightening the rules around inspection, searches and seizures of consignments. The Centre has also used this opportunity to introduce a faceless assessment system for Central GST registered companies, along the lines of the popular faceless system in income tax. The decision to review rates only once a year, and implement rate changes only at the start of financial years, removes significant uncertainty that usually arises each time the Council meets.
According to officials, the process reforms will be implemented in phases, with authorities focusing on simplified registration for e-commerce sellers, a streamlined registration process and faster refunds in the first phase. The ministry for finance will also share draft GST returns on the ‘myGov.in’ portal on 1 November for public comments till 30 November in a bid to incorporate industry feedback and minimise the sources of mismatches that account for nearly 80 per cent of notices issued at present.
“Based on the industry responses, we are modifying the GSTR 1 form and improving the invoice management system, so that the need for editing (GSTR) 3B does not arise,” says Gaurav Singh, Commissioner (GST Policy Wing), Central Board of Indirect Taxes & Customs. “If the need does not arise, there won’t be any case for notice based on mismatches. We will put the forms on ‘myGov’ for comments on 1 November with a 30-day window”. If reforms in the GST returns system can be implemented successfully, the integrity issues in the supply chain get resolved, Singh said. “This would be the foundation for further reforms,” he added.