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Introduced on July 1, 2017, the Goods and Services Tax (GST) enters its fifth year today. It was implemented with the objective of providing a complete overhaul to the erstwhile indirect taxation regime and to that end, some of its main objectives included simplification of indirect taxes including compliances, digitisation of processes, rate rationalisation, and seamless credit to businesses.
GST’s journey has given its stakeholders some significant victories and causes of celebration, but also moments of worry — as is to expect of any transformation of this magnitude and intricacy.
Let’s look at how GST has fared against some of the goals that it originally set out to achieve.
Digitisation Of Processes
One of the triumphs of GST has been its journey towards an automated indirect tax ecosystem. The online GST ecosystem has reduced personal interface in the processes and brought transparency in operations for taxpayers.
An online GSTN platform has been introduced for the entire country covering e-way bill, e-invoicing and a real-time, reporting-based GST return compliance platform.
E-invoicing is a gateway for digitisation of business processes as it ensures universal machine-readability, interoperability across various Enterprise Resource Planning (ERP) and tax systems and, it also helps tackle the menace of phony invoicing.
The e-way bill system has completed two years now and deserves special mention. Lesser hindrances for logistics, and use of technology has provided for smooth movement of consignments and fewer confrontations with the tax officials at check-posts.
One looks back at the initial teething issues that accompanied the introduction of GST automation, and it makes the current smooth implementation that much sweeter.
While a digital push in compliances was much-needed and greatly-appreciated, this has presented taxpayers with a dichotomy because with GST the burden of compliances has also increased multi-fold. While compliances have become automated, the multitude of filings and processes remain a cause for concern.
Having said that, it is also worthwhile to acknowledge the government’s efforts to support taxpayers by announcing relaxations of compliance timelines, such as for GSTR-1, annual return and audit, etc.
To further ease the process, recently, the government replaced the requirement of an annual reconciliation statement between annual returns and financial statement by a chartered accountant with self-attestation. However, companies must take note that this would put a higher onus on them since appropriate reconciliations would have to be reported and certified by them.
GST has lived up to its objective of ‘One Nation, One Tax’ as the GST rates across states remain uniform. That is why today, unlike in the pre-GST times, the tax rate is not a key criterion for a business while determining where it wants to set up operations. A business can base its decision purely on commercial considerations and fiscal packages that states offer to promote investment.
However, the core theme of the ‘One Nation, One Tax’ may get diluted if states continue to levy cesses, like as in the case of the Kerala flood cess at up to 1 percent. Following suit, Sikkim had also proposed to levy a COVID-19 cess — however, this was ruled out by the Group of Ministers (set up by GST Council). A decision that must be lauded.
The industry is also hopeful of further rate rationalisation measures, and the expectation is that the government may reduce the number of rate slabs from current four to three or two, or even consider having a single rate for all products and services across India.
Seamless Credits To Business
With the advent of GST, input credits were liberalised to a large extent, and GST paid on business-related expenses were made creditable except when specifically disallowed under the GST Law. However, a fundamental issue which needs immediate attention is denial of input credit to honest taxpayers due to default at the end of suppliers. This is a little harsh and unjust. The recovery mechanism, in such cases, should be directed only towards such defaulting suppliers.
This was taken up by the Madras High Court recently, wherein it was held that the recipient cannot be denied credit due to a default by the supplier. The industry is hopeful that the government will amend these provisions and provide respite to honest taxpayers.
There are also some changes India Inc is looking forward to—like, the inclusion of petroleum products (starting with at least natural gas). This seems even more important now considering that prices of diesel and petrol are touching the Rs 100 mark in most states.
Businesses are hopeful that the government will continue to take measures to mitigate the cascading impact of taxes on account, reduce ambiguities in the law and rationalise legislation.
It would not be misplaced to say that in the times to come we could see further evolution of GST going on to achieve greater success.