GST: Out of choppy waters, looking for smooth sail

A textile trader from Ahmedabad’s Manek Chowk market was among the first ones to register when the new unified indirect tax Goods and Services Tax (GST) was rolled out on July 1, 2017.

Today, he regrets the decision. He has been hounded by the tax officials since then for the slightest error or lapses in filing his returns on the online GST system.

He was hesitant to speak, fearing a backlash from the tax authorities. After much prodding, he opened up and spoke off the record.

“I registered on the GST system as I was told that I would benefit from it. But all that I have got is harassment. Those who have not registered are doing better. My profit is down 40% and revenues are lower by about 30%. We were charged huge penalties for not filing on time or accurately in the beginning but we got that reduced. Those who are not registered just pay a bribe and get away,” alleged the cloth merchant.

Archit Gupta, founder and CEO of ClearTax, has an opposite view.

“If the anti-profiteering clause in the GST is applied stringently then prices can go down by 3%-4% across the board. This will push up consumption by 7%-9%. And, with input tax credit (ITC) available under GST, costs can go down by 3%4% across industries,” he said.

The launch of GST has been riddled with initiation issues, missteps, highhandedness and a host of other such problems that have come in the way of its smooth take-off. The GST Council, a decision-making body comprising state and Union finance ministers and their representatives, has been able to sort out number of snags in the 27 meetings that it has held till now.

Among the major decisions taken by the Council till now to beat the GST into a better shape are rationalisation of tax rates, simplification of returns filing process, leveraging technology to rid the system of snags and putting in place checks and balances to prevent anti-profiteering and evasions.

Many believe that the new indirect tax regime is now moving towards stability and could finally see its benefits flowing in.

Praveen Khandelwal, secretary general, Confederation of All India Traders (CAIT), believes that the online filing of returns in GST has reduced “corruption to a great extent”.

“The e-compliance in GST has virtually ended the direct interaction of the traders with officials, thus reducing corruption to a great extent. One of the important advantages of GST is the availability of input credit which means no one has to pay the tax from his pocket except consumer as GST is destination-based taxation system and last consumer in the supply chain is liable to pay tax,” he said.

Khandelwal expects the government and business revenues to jump “once the GST is established as a stable taxation system”.

But he says that the government needs to address several issues before they can derive benefits of higher revenue collection. “Issues like filing of multi returns, refunds from the department, awareness and education about GST fundamentals and its compliance obligations are some of the issues which need immediate attention of the government,” said Khandelwal.

The total GST revenue collections have been volatile with the first few months seeing impressive GST collections of over Rs 90,000 crore and then a gradual slide to Rs 83,716 crore in December, post which it has again picked up. In April, it scaled to over Rs 1 lakh crore but has dipped to Rs 94,016 crore in May. The average GST collection for the last fiscal was Rs 89,885 crore.

A recent World Bank (WB) report on GST states that India’s GST structure was among the most complex in the world with not only one of the highest tax rates but also having the highest number of tax slabs; “comparing the design of India’s GST system to similar taxes on value-added across other countries, the (WB) note highlights that India’s GST system is relatively more complex, with its high tax rates and a larger number of tax rates, than in comparable systems in other countries”.

The WB’s survey found that the 28% GST rate on certain goods was the second highest among a sample of 115 countries which have a GST (VAT) system.

The international financial institution and advisor’s report says the multiple tax slabs – 0, 5%, 12%, 18% and 28% - was resulting in high compliance cost for India.

“High compliance costs are also arising because the prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate. Along with the need to apply the correct rate, firms are required to match invoices between their outputs and inputs to be eligible for full input tax credit, which increases compliance costs further,” noted the WB in its report.

Another GST report by a foreign agency – brokerage firm HSBC – said that one year after its implementation the new indirect tax is yet to deliver on the promise of “formalisation of economy”.

Gupta of ClearTax said there was a need to further simplify compliance process to achieve a higher level of formalisation.

“As a country, we should keep compliance processes simple for the future. Definitely, there is propensity or tendency to complicate the law. I feel like the bureaucracy has the propensity to over-specify the law. This leads to complexity and citizens are not able to fully comply. Simplicity will bring more people into the formal economy,” he said.

According to him, more businesses in the formal sector will widen the tax base and result in lower tax rate, which in turn will spur higher consumption.

And despite the government’s effort, its goal of better compliance has remained elusive. Today, of the 1.14 crore businesses registered on the GST portal only 55-60 lakh were filing returns every month. This means that over 45% of the taxpayers are yet to completely come into the GST fold.

Introduction of e-way bill and simplification of returns and filing processes are expected to improve compliance and check evasions. The GST investigation wing of the Central Board of Indirect taxes and Customs (CBIC) detected evasion of Rs 2,000 crore in two months. Its analysis of GST data has revealed that just 1% of the total number of registered businesses were paying 80% of taxes.

Traders’ lobby body chief Khandelwal feels there was a lot to be done to improve compliance.

“India has adopted GST to a great extent though still much has to be done to simplify and rationalise the tax structure so that even a common man can easily comply with the system,” he said.

According to him, one of the benefits of the GST was that traders were relieved from the burden of multi-compliance and multi-authority scrutiny.

ClearTax’s Gupta says that with the government trying to be business-friendly, they have been a little lax on driving up compliance rate.

“I think it is just a matter of time. It is a big change – how things were done in the past and how things are being done now and how it will be done in the future. Businesses, which are perhaps not adequately equipped to file returns or are still in the process of becoming compliant are taking time. Also, right now since the government has been very business-focused and business-friendly, they cannot charge steep fines or penalties for lack of compliance. They are giving businesses time to learn and fix their system and come online. Once the government becomes more stringent with deadlines then more people will come on board,” he said.

The government data shows improvement in compliance in April with 62.42 lakh businesses filing returns on the portal of GST Network (GSTN), the information technology (IT) infrastructure firm for GST, compared to 60.47 lakh filings in the previous month.

Since the GST was launched, GSTN has handled 11.5 crore returns and processed 376 crore invoices. The government is looking at making many changes in the IT backbone of the GST to derive better compliance efficiencies.

A B Pandey, chairman of GSTN, said niggling system issues had to be tackled by both the GSTN and its users for stabilisation in the filing processes.

“Issues were there because certain problems had to be addressed from the GSTN side and people also needed to understand and get fully familiarised with the system so that they get used to it,” he said.

He said since January processes were more or less streamlined, there was a need to achieve further simplification to close the gap between the number of businesses registered on GSTN (1.14) and those filing monthly returns (55-60 lakh).

The World Bank report said the key to success of GST would be “a policy design that minimises compliance burden”.

“For example by minimising the number of rates and limiting exemptions with simple laws and procedures, an appropriately structured and resourced administration, compliance strategies based on a balanced mix of education and assistance programs and risk-based audit programs is required,” the global financial institution recommended.

Khandelwal suggested if the current monthly returns filing system was replaced with a quarterly filing system, the compliance could improve.

“Also, for one more year it should be one returns form (GSTR-3B) only. It is also suggested that refund process should be directly credited to the bank account of the traders. The (Harmonized System Nomenclature) HSN code should be made applicable only on the manufacturers and not on traders. Instead of taking registration in each state, one registration number should be allowed pan India. Those traders who do not have computers should be provided subsidy by the government to equip with computers” elaborated the CAIT head.

Gupta of ClearTax aptly summed up the one-year performance of GST; “It is not the best start but it is going in the right direction”.

NUMBER GAME

• 1.11crore No of registered taxpayers on GST system
   
• 62.42 lakh No of returns filed for April up to May 31
   
• 11.5 crore Returns handled by GSTN since launch
   
• 376 crore Invoices it has processed
   
• 17.61 lakh Businesses have opted for composition scheme under GST