An uphill drive in GST’s first 100 days

An overview of the key changes made to the GST laws in the first quarter after implementation

The Government should collect taxes like a honeybee, which collects just the right amount of honey from the flower so that both can survive, said Chanakya in his Arthashastra.

India’s Goods and Services Tax (GST), in its first quarter of implementation, has proved to be a Garden of Simple Tax implementation issues (GST issues), where neither the honeybee (tax technology) is skilled in collection nor was the flower (trade) ready to be slurped.

Not everybody knows that it took six years, 4,200 hours and 7,20,000 attempts for Alan McFadyen to click the perfect picture of a diving kingfisher bird. This only indicates that there is always scope for development, no matter what.

But we are not expecting an identical situation in tax laws. No such precision is warranted. All one needs is a simple mechanism for levying and collecting taxes in the interest of both the State and the taxpayers.

The first and most significant change made after July 1, 2017, was calling the state of Jammu and Kashmir part of the GST regime. Ordinances were passed to effect this. Prior to GST, the State had its own legislation relating to taxes except central excise (a duty on manufacturing) which uniformly applied to the whole of India. The ordinances were then converted into Acts and all GST related legislation now applies to Jammu and Kashmir as it applies to any other State in India, except for a few minor changes.

In the absence of this, there could have been serious litigation around treatment of supplies made to and from J&K, should they be treated as inter-State supplies or not, as the GST legislation did not extend their applicability to J&K but included the state of J&K within the meaning of ‘India’ for GST purposes.

The second big change is that of GST rates on several goods and services being turned upside down. In one of the meetings of the GST Council, the Union Finance Minister revealed that the principle of equivalence was adopted for fitment of commodities into multi-tier GST rate structure.

Numerous representations were made by trade and industry and the government was therefore required to take a fresh look at the GST rates. Consequently, GST rates of around 50 commodities were revised post GST implementation.

Make the changes at one go

It is a good indication that the government is in listening mode and, wherever required, quick intervention is made. However, this leads to another issue — the overall tax system becomes fragile and tax payers struggle to keep pace with the rate change. Interestingly, within a span of 90 days, the Union Government has issued 120 notifications. This does not include the large number of notifications issued by each of the States. It is extremely difficult for the taxpayer to keep track of so many changes.

It is understood that there are still a large number of commodities which the government has to analyse from rate perspective. It is strongly recommended that a full study be carried out by the tax fitment committee, though it may take some time as the products may be many. But the changes should be announced at one go and not at very frequent intervals. This will help in bringing stability and certainty.

Another aspect which the tax fitment committee should consider is the number of rates under GST. Today, as we speak, we have more than 12 different GST rates (including the compensation cess). Now clearly this could not have been the vision for a simple tax regime. With 12 rates, clearly we are proceeding towards a regime which will face huge challenges on classification of goods and services. The way forward warrants fewer numbers of rates.

The third in row, but first in the minds of taxpayers, is returns and compliances. The drum beats of three returns per month per registration in each State are still echoing in the ears of taxpayers. The transaction level data required to be populated in the return is humongous.

The mindset of the policy makers could have been to ensure detailed information flow through the return so that at a later point in time (may be during tax audit), the information seeking from taxpayer be kept at minimum. However, considering that GST is a new tax regime and trade will take time to understand the nuances of the law, it is strongly recommended that the data asked to be reported in returns should be kept at the minimum for the first 12 months.

Since the data upload on the GSTN portal was so enormous, the logical consequence was that the portal was sluggish. Also, the portal was new for the users and therefore, it was a real challenge to understand the finer aspects of working on the GSTN portal, coupled with the technical glitches the system faced. Considering all this, the government decided to go with a summary return (GSTR 3B) for initial two months but realising that there was no scope for immediate resolution it extended it for another four months till December 2017.

Now this is a good decision but the ask of the trade and industry here is to do away with the detailed return filing for 6 to 12 months. It is sincerely requested that the government indeed accede to this request so that the industry focuses on the business and not get drowned by compliance requirements. This would mean that the tax would be paid on a monthly basis along with filing of summary return and trade is not burdened with pulling out gigantic data.

The fourth most surprising aspect has been the letters issued by tax department for verification of the transitional credits. The latest information is that notices have already been issued to over 500 companies. To give a context, with the change in law, a taxpayer is eligible to carry forward the past credits subject to certain declaration and time bound filing of forms (TRAN 1). Once done, it was expected that the tax payer has followed the procedure laid down by the law.

But a physical verification by tax officers (invoice/inventory checking) was not at all anticipated. This has resulted in a very time consuming task (both for tax payers and tax administrators). Considering that we are at an initial stage of GST implementation, this is an additional burden on the trade and industry. We hope and expect that this manual intervention by the tax department does not lead to any harassment of taxpayers.

The fifth and most astonishing thing which has come up is thelegal cases filed in courts. Immediately after the launch, the legislation saw various writ petitions in High Courts and Supreme Court. Several writ petitions are filed before the Court, few adjudicated and few adjourned. The Courts have passed interim orders in various cases, namely allowing utilisation of clean energy cess credit against compensation cess, allowing import of goods without payment of GST against advance authorisation licences obtained prior to July 2017.

The workability and features of the common portal are also put to litmus test and the Court wants to know why, when the law provides a certain facility, the portal is not able to facilitate it.

Overall, the experience of the implementation quarter has been no less than a mountain drive where, besides the terrain difficulty, you never know when there would be a landslide or heavy rains blocking your journey ahead. But you keep driving, hoping to reach the destination.

With inputs from Preetam Singh, Assistant Manager, Indirect Tax & GST, PwC

The writer is Partner – Indirect Tax & GST, PwC

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