Arjun Raghavendra M
In the context of the Goods and Services Tax (GST), the art of impossible got ratified twice. First, on July 1, 2017, with its introduction and second, on May 23, 2019, with the return of the Modi sarkar, defying the global trend of governments enacting GST and losing the next immediate election.
The first ever audit report on GST, tabled on July 30, acknowledged the magnitude of the tax transformation and offered constructive criticism to realise the full potential of the reform. The report highlights concerns, including the incomplete task pertaining to the non-intrusive e-tax system, slowdown in revenue growth (10 percent drop), the declining trend in the number of returns filed (April – December 2018), issues surrounding the IT network GSTN, lack of coordination between various arms of the government, operational deficiencies in the payment module, problems in IGST settlement, input tax credit (ITC) frauds and delay in the processing of refunds.
“On the whole, the envisaged GST tax compliance system is non-functional,” stated the report.
A road map for GST 2020 may look like a jigsaw puzzle. Going forward, the tax structure, in line with the spirit of Rig Veda, must be open to a cross-flow of positive thoughts to make it even better and more efficient.
First, as economist Richard Thaler explains, there is a need to integrate economics with psychology, in order to facilitate simple GST compliance mechanisms. The audit report points out that the short-filing of the mandatory GSTR-1 returns and the continuation of stop-gap GSTR 3B arrangement is a serious concern. Even after two years, completion of one full returns cycle has not been possible (GSTRs 1,2 and 3). It is uncertain as to whether the new GST returns - Normal, Sahaj and Sugam - to be made applicable from 2019-20, shall ease the procedural burden. The quantum of information being sought in these returns is not inspiring! It is time to introspect about the feasibility of experimenting with “invoice-matching” till GST completely settles down to success.
Second, though the Union Cabinet cleared the proposal to convert GSTN into a government entity on the recommendation of the GST Council, the IT network is still not being implemented by the officials of the Centre and states. This sync between policy making and systems, as and when implemented, shall begin a new episode in streamlining the process. The conclusion in the IT audit report that the GSTN must adopt system-based techniques to plug ITC frauds, prioritise development of various functionalities and strengthen root cause analysis and testing process, should be taken seriously.
Third, a unified litigation management system for GST must be codified. In order to purge the advance ruling mechanism of revenue bias and size -- there is an authority in every state -- one authority must be notified for the whole of India consisting of judicial and revenue members.
This will end the confusion caused by conflicting orders. A national and only five regional benches of the GST tribunal -- as against one in every state -- may be immediately constituted to avoid filing of writ petitions before various high courts. The Economic Survey (2018-19) states that nearly 45,000 indirect tax appeals (as on 31.03.17) were pending before the Commissioners of central excise and service tax across India, at the first appellate stage. This must not repeat in the GST era, as timely justice shall remain the sole factor in promoting ease of doing business.
Fourth, tax administration is the key to the success of any tax reform. Though GST has survived the initial bottlenecks in implementation, there is scope for chaos in areas including enforcement and litigation by way of separate administration of GST by the state and central authorities. Also, it is only a matter of time before petroleum products, alcohol, electricity and the real estate sector are subsumed under the GST network. The creation of an All India Service for tax administration by merging all the existing services could be a feasible way forward.
Finally, what the GST project urgently requires is a “feel good factor” and the first step in this direction will be to shift the focus from “revenue” to “workability of GST”. Abolition of anti-profiteering, placing in abeyance the ‘arrest’ provisions, dilution of closure proceedings -- especially in the absence of alternative remedies like Settlement Commission -- simplified refund process (in cases other than exports), convergence of rates leading to reduction in the slabs and an overall business-friendly tax environment may be considered.
No measure to fix GST issues shall be difficult for a government that has twice made possible, the impossible. In a cricket-crazy nation, a hat-trick in tax reform is a necessity for a new economic boom.
Arjun Raghavendra M, a Delhi-based lawyer, previously worked for the Government of India. Views are personal.
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