Three years of GST: Still a long way to go for 'Good and Simple Tax'

As the goods and services tax (GST) completes its third year on June 30, a host of issues, such as assessee-friendly compliance system and increase in tax collections, remains unresolved. To its credit, the tax has not turned out to be broadly inflationary. In its fourth year, information technology infrastructure needs to be strengthened, compliance eased, multiple GST slabs and rates rationalised, and the compensation mechanism for states reworked

At the launch of goods and services tax (GST) in 2017, then finance minister Arun Jaitley had hoped that the historic indirect tax reform would meet five broad objectives: Checking inflation, easing the compliance burden, making tax evasion difficult, boosting GDP, and bolstering government resources.

Since then, three of those are on shaky ground, but hopes on the other two — inflation control and curbing tax evasion —have not been entirely belied. However, experts say it has not turned out to be what Prime Minister Narendra Modi called it — “good and simple tax”.

In a nutshell, the mechanism of filing GST returns is yet to be finalised, and India’s economy slowed to an 11-year low growth rate in FY20 and is headed towards one of the worst recessions, though all of it cannot be put down on GST.

The GST Council is considering market borrowing to give the states the promised compensation for their revenue shortfall. Besides, the rates have been tweaked over 500 items so far.

To add to the structural complexities related to technology and multiple tax rates, the pandemic has thrown a new challenge, with business activity at a historic low. In the fourth year of GST, key areas of emphasis will revolve around strengthening the IT infrastructure, rationalising multiple GST slabs and rates, easing the compliance burden, and reworking the compensation mechanism for states, experts say.

Punjab Finance Minister Manpreet Singh Badal said a complete overhaul was needed. “Before GST was implemented, I had said that any GST is better than no GST. I genuinely believed that. But the way our GST has run I have changed my belief. There isn’t a single problem that isn’t there in this GST,” he said.

M S Mani, partner, Deloitte India, said while three years of GST had brought down several complications of multiple taxes such as tax cascading for businesses, some intended benefits such as tax simplicity, lowering the compliance burden etc should possibly be taken up. 

“In the present situation, where businesses are getting into revival mode, it is necessary to keep GST changes to the minimum and give maximum flexibility to businesses on input tax credit, refund, and compliance,” he said.

GST compliance has turned out to be a key trouble spot for taxpayers, causing loss of revenue for the government. In view of technical glitches on the GSTN portal, the government had suspended the detailed return forms — GSTR 2 (purchase) and GSTR 3 (sales purchase return) — in November 2017.

Union Finance Minister Nirmala Sitharaman has acknowledged there have been technical glitches on the GST Network.  

 

“… We are aware of issues of the system not being able to bear the load, and when more than 100,000 people tried to access the system, it either stalled or delayed or just did not respond,” she had said. 

Infosys Chairman Nandan Nilekani was called to a meeting of the GST Council in March to explain the technical glitches. The company provides the technology backbone for the GSTN. Expected to be introduced in July 2019, the proposed simplified GST form has been deferred many a time to later this year due to lack of technical preparedness. Rajat Mohan, partner, AMRG Associates, said taxpayers found GST compliance burdensome and tedious.  “Several notifications, circulars, and clarifications have not made life easy for taxpayers,” he said. 

Dinesh Wadera, an independent tax consultant, said the government had collected approximately Rs 6,070 crore as late filing fees between July 2017 and December 2019, and that should be refunded to taxpayers. “Filers should not be penalised for technical glitches at GSTN’s end.”

Harpreet Singh, partner, KPMG, said: “With e-invoicing, the new return mechanism, the centralised Advance Ruling Appellate Authority, etc, on the anvil, there is a lot to look forward to under GST 4.0. Industry would hope the implementation strategy of the government is well thought through.”

 

The compensation mechanism to the states has come under strain due to inadequate collection amid bleak consumer demand, which was there even before the outbreak of the pandemic.