DNA Edit: Rate relief

The GST council is all set to meet on November 10, and on the anvil is a possible rate reduction of a number of goods like furniture, plastic products and other items of daily use. Expectations from the upcoming meeting of the GST council are many and numerous stakeholders have their fingers crossed that the myriad complications that currently afflict the GST infrastructure will be resolved. This is easier said than done. The need of the hour is to push for a comprehensive, bottom-up review of the path-breaking tax. Undeniably, India on July 1 this year took the first small but momentous step towards a linear and simpler tax structure by launching GST.

However, the ground-breaking tax scheme has been designed in such a manner that there are massive variations vis-à-vis the versions of GST as implemented in European and other developed countries. What’s more, the ground-breaking tax has, to a marginal extent, failed to deliver on the promise of being a good and simple tax. The compliance burden on small and medium enterprises continues to be colossal. Unfortunately, the changes made in the last October 6 meeting has helped only small retailers selling their wares directly to the consumers and not to businesses that cater exclusively to other businesses. The in-built practice of voucher matching within the GST framework is a vexing requirement that could potentially spell disaster for the smaller suppliers in any business chain.

Large businesses that rely on small-scale suppliers are currently left with no option but to wait for the latter to upload their quarterly filings for their input credit to be honoured. Many larger businesses are avoiding this situation completely by opting for bigger suppliers who have been mandated to file monthly returns. Small suppliers can also choose to stay the course with monthly reporting, but this effectively undoes the relief introduced last month of making quarterly filings. Hopefully, in the meeting scheduled this week, the GST council would look deeply at the design flaw of voucher matching. If it fails to do so, it could be is a potential electoral disaster in the making.

In 2014, PM Modi came to power on the backing of the small trader community in India and with elections on the cards in a number of states, BJP  cannot afford to alienate this community. A way out from this labyrinth is to accept the proposal of the GST panel which has mooted that quarterly reporting be implemented for all. This will have the welcome effect of reducing reporting burdens and will streamline voucher matching across businesses, both big and small. Besides the compliance burden, GST currently has seven tax slabs, which only add to the confusion and must be reduced. Mysteriously, products coming under the same umbrella have been assigned different rates, which haven’t been done on a pragmatic or scientific basis. The GST council has done a great disservice by assigning rates that defy business logic. One hopes a committee to set right the excesses of the GST council will be formed.