To help GST take a quantum leap, keep it simple

It’s a fantastic piece of legislation. But it is imperative to understand that implementation of the GST law is dependent on an IT platform whose infrastructure is very crucial and provides the interface between the taxpayer and the government.

Most GST problems people are facing are due to poor design of filing returns. This is evident from the fact that the due date for filing of annual returns for 2017-18 has been extended many times and the Council has been facing criticism on this front.

It is better to exempt entities from filing annual returns for the said financial year to save the government from further embarrassment. Matching the input tax credit (ITC) is a key provision under GST to check tax evasion and this functionality is not yet enabled the way it was envisaged.

Considering the uneven tax collection trend, the government recently changed the rules relating to ITC for cases where the amount claimed as input is not shown by the seller in his returns. However, these are temporary fixes and both taxpayers and finance professionals need a long-term solution.

GST has affected service providers more than manufacturers or traders. The tax rate for them has increased, even the compliance burden is up exponentially. Manufacturers were required to file factory-wise monthly returns under the erstwhile central excise set-up, but service providers used to file half yearly returns only for their entire operations by way of form ST3.

Now, the service players have to file state-wise monthly returns, which has only increased the compliance baggage. Not only this, they now have to take care of assessments for each state separately, which were centralised earlier. The government may consider taking states on board for a single comprehensive return for service providers and a centralised assessment based on their principal place of business as applicable for the income tax purpose.

GST is often criticised for its multi-tier tax structure and people demand rationalisation. But it should be appreciated that the multiple rate structure is desirable for a country like us in which a majority belong to lower-middle class. Even the finance ministry’s considered view is it would not be proper to tax Mercedes and bicycle at the same rate.

Also, there are certain essential items which need to be taxed at a concessional rate or exempted fully from the tax net. There are some items on which a higher tax has to be levied to discourage their consumption -- sin tax, for example. India is a vast country, and having a single tax rate will not take into account our social structure. Analysis of VAT (value added tax) rates in various European countries also shows that there are multiple slabs in place.

The government is facing serious challenges in meeting its fiscal deficit target amid the economic slowdown, which requires public expenditure to go up. The Union finance minister is in a tough position, given the fact that states are raising their voice over a delay in settlement of their share. Considering the decline in demand, the GST Council has rightfully decided not to increase tax rates in the last meeting, which was held on Wednesday.

The Council has also given major relief by waiving the penalty for non-filing of returns since the GST law was enacted as long as these returns get filed by January 10, 2020. However, if policymakers want to augment GST revenue, they should focus on simplifying the operational part, along with improvements in IT infrastructure.

Shshank Saurav is a Chartered Accountant. Views are personal.