GST six months on: India's new indirect tax regime still a work in progress

Govt tightens grip as revenue falls short

The GST Council made a number of course corrections involving the rate structure, making life easier for SMEs, altering the timelines of the e-way Bill and putting in place an anti-profiteering mechanism. However, more correctives are needed

The goods and services tax (GST) is yet to stabilise six months after it was introduced with rules and rates undergoing frequent revisions. Lower than expected revenue collection has prompted the government to tighten enforcement. This could mean deferment of rate rationalisation and advancing the electronic way bill besides bringing back invoice matching and the reverse charge mechanism, to meet budget targets. “Compliance continues to be an issue. Given the falling collection, rate rationalisation may be deferred, e-way bills will be back to counter fears of tax leakage, leading to a further delay in getting the full benefit of GST to the industry,” said Bipin Sapra, partner- indirect tax, EY.

 

Anti-profiteering

The anti-profiteering mechanism kicking off in the absence of clear guidelines for the industry might create further complexity and lead to litigation, according to experts. Under the provision, the government has already begun sending notices to companies allegedly not passing on to consumers the benefit of reduction in tax. The screening committee has received at least 70 complaints, which could be taken up by the National Anti-Profiteering Authority.

Pratik Jain of PwC India said there seemed a trust deficit between government and industry on the issue. “We are likely to see widespread litigation, unless clear guidelines are set in quickly. Industry would need to be careful in pricing decisions and keep the necessary documentation, should there be a scrutiny. Besides, the financial risk and litigation, it is also a reputational issue for large companies,” he said.

The anti-profiteering complaint application form requires detailed information such as sale price (pre-GST and post-GST), taxes (pre-GST and post-GST), benefits of input credits, etc. A separate application will need to be filed for each good or service for which anti-profiteering is alleged, making the process tedious.

Rates and revenue collection

Since roll-out on July 1, the GST rates for over 300 items have been changed. Around 200 items saw a downward revision in the November meeting of the GST Council. Although Finance Minister Arun Jaitley has spoken about converging the 12 per cent and 18 per cent slabs, this could take longer, with the focus turning to revenue mop-up three months before the financial year ends. Early implementation of the electronic way bill will also plug loopholes and revenue leakage.

Evasion of taxes is set to become tougher, with officers beginning scrutiny of those not filing returns. Central Board of Excise and Customs chairperson Vanaja Sarna has asked officers to consider sending notices to those not filing returns. Finance Secretary Hasmukh Adhia, in a meeting on December 9, asked central and state tax officers to review revenue collection in the first five months of GST roll-out.

“It seems that postponement of measures under the GST regime such as matching returns, the e-way bill and the reverse charge mechanism has led to tax avoidance, which is reflected in the revenue for October. We are looking at revisiting these and tightening enforcement,” an official said.

GST revenue collection reached its lowest in November at Rs 80,808 crore.  According to the government's internal estimate, if the trend continues, there could be a shortfall of Rs 25,000-30,000 crore in indirect tax collection this financial year. The highest GST slab of 28 per cent was narrowed to 50 items in November but further reduction might be put on hold. Rates for 176 items, including detergents, shampoos, and beauty products, were reduced from 28 per cent to 18 per cent, and for two others to 12 per cent.

E-way Bill

Revenue slowdown prompted the GST Council to call an urgent meeting on December 16 and advance nationwide rollout of the electronic way bill on inter-state movement of goods from February 1 and for intra-state carriage from June 1. “Due to absence of border check posts, taxpayers were concealing income. Therefore, early roll-out of the e-way bill was decided,” said an official. 

 

E-way bills will help tax authorities track movement of goods. Tax commissioners or officers empowered by them will be authorised to intercept any vehicle to verify the way bill or the number in physical form for all supplies. A facility has been introduced for tax officers of all states and Union Territories to view the details of returns and ledgers.
 

The industry has been arguing this would lead to significant documentation and logistics challenges for business. “One would have hoped to see more consultation and debate before implementation of the e-way bill mechanism. While it is good that there would be a common system across all states, if not properly implemented, it could lead to supply chain bottlenecks and dilute the objective of ‘one nation, one tax’,” said Jain of PwC.

Saloni Roy, partner-indirect tax, Deloitte, said one could expect some bumps along the way, with e-way bills becoming mandatory, multiple return filings becoming the norm, anti-profiteering and other investigations.