GST: A year of learning and attainment

Two key issues that will engage the attention of policymakers are the tax rates and the dispute settlement mechanism

It’s been a year since the goods and services tax (GST) came into force, though, the nation surely has come a long way from the uncertainty and doubts permeating the political climate and business circles last year, being unsure of what the GST would bring. A wholesale replacement with a harmonised tax regime, consistent across the country, is undoubtedly a pioneering movement towards a “single national market” of goods and services for levies and movement. The manner in which all states have adhered to the grand design and in return the Union making good its promise for timely compensation is a testament to the cause of “cooperative federalism”, which lies at the core of the GST model. Such attainments were unthinkable, given the pressure groups that dominate policymaking, and thus, on this count alone, the first year of the GST’s implementation can be labelled a remarkable feat.
 
The acceptability of the regime can be gauged from the fact that both consumer and government have been debating subsuming petroleum products in its chain, a step that would lead to large-scale efficiencies for businesses and governments. Incidentally, it pivots an extensive wish-list for the next GST milestones. Given that the GST revenue collection trend has reflected a steady rise to alleviate concerns of the states on revenue buoyancy, there is indeed a compelling case for the GST Council to revisit the exclusion of petroleum products, electricity, real-estate transaction-related stamp duty levies, etc. and bring them within the GST fold. It is expected that this will be an area of focus for the GST Council in the coming year.

Illustration by Ajay Mohanty

While the policy perspective may require moderate tinkering, the benefits of the GST in the initial months was diluted by inefficiencies of its technological backbone — the Goods and Services Tax Network (GSTN). For several months, the due dates for filing returns were extended owing to the inability of GSTN to carry the load of the overwhelming information fed by businesses as part of periodic compliances. The e-way bill mechanism, an integral part of the policy tool to address evasion in inter-state trade, was recently implemented and that too in a staggered manner, again owing to GSTN’s inadequacy. Given an expansive tax base of the GST, evident from the number of registrants and that the law mandating the interface between taxpayers and revenue to be technology-driven, the GSTN preparedness fell short of expectations. This underscores an imminent need to invest in GSTN and simplify interface and matching transactions.
 
Besides technology hiccups, businesses witnessed gaps in the GST sensitisation programme in the initial months. Extensive amounts of goods were intercepted in inter-state movements and detained with often inconsistent approaches by the field administrations. The Allahabad and Kerala High Courts have been flooded with writ petitions challenging such detentions. The judiciary’s response reveals a culpable revenue administration overzealously guarding evasion, with taxpayers sharing the blame for failure to comply with appropriate documentation under the new law. It’s only towards the latter part of the year that the Central Revenue Board intervened with a series of instructions to field officials to rein in and adopt procedures to reduce possibilities of dispute. The second avoidable glitch which hit headlines was the impact on the export community as tax refunds came to a virtual standstill for the most part of the year. This was partly due to a complex formula for computing refunds and partly a lethargic approach at field level to scrutinise and sanction claims. It’s recently that the policymakers took charge to organise refund-fortnights for expediting claims. Delays in refunds for exporters, who have been reeling from other pressures, have led to working capital blockade and avoidable dissatisfaction. This is an area that requires attention to ensure that genuine refund claims are processed within stipulated timelines because they have a direct bearing on our country’s export competitiveness.
 
The year’s experience carves out two major policy areas that will occupy the mind space of policymakers in the immediate future; first, the rates, and, second, the dispute settlement system.
 
GST rates: Three intertwined features of the GST — availability of input credits, frequent rate rationalisation by the Council, and the possible fear of penalties by the anti-profiteering authority — ensured the allaying of the initial fears that the GST could lead to inflation. Still, with seven tax slabs for goods and five for services, besides the compensation cess on demerit and luxury goods, there is a scope for rate and slab rationalisation. Further rate stabilisation would also address classification disputes, which are beginning to emerge.
 
Dispute settlement system: The GST is no exception to an Indian litigious mindset — be it the ingenuity of Indian business or government being the biggest litigator. Several petitions have been filed in various high courts on diverse issues relating to the new law. Even if one were to exclude disputes relating to the detention of goods and those arising on account of non-functioning of GSTN, several policy actions have been challenged. Though a few uncomfortable questions have been flagged by the judiciary, there is no major reported decision upsetting key aspects of the GST design. The credit goes to the implementation and design of a tax policy that is compliant with judicial standards, a welcome trend where the tax administration takes the responsibility of addressing shortcomings instead of burdening the judiciary with policy matters. As a next step, appellate tribunals must be made functional in addressing ground-level issues which have started being adjudicated upon.
 
The real benefit of the GST from the point of view of unearthing parallel economy is yet to be felt. Beneath extensive compliances required from business underlies an approach to deploy tax-technology tools and analytics for analysis. With states gradually implementing the e-way bill mechanism, directed to ensure that all transactions of goods above a specified threshold are reported on a real-time basis, tracking movements across Indian territory is an automated exercise for lawmakers. Intensive data collated by GSTN will be reconciled with compliances under income tax and other public filings, offering extensive leads to tax investigations. The year has already witnessed arrests of tax evaders, particularly those engaged in dubious documentation, reinforcing the message that with GSTN stabilising, the country’s tax base is likely to expand in the medium to long term and tax defaulters would be dealt with in a stern fashion. 
The writers are Partner with BMR Legal and Advocate, respectively. The views are personal