The Goods and Services Tax (GST), which took decades in the making, was rolled out in a midnight ceremony in the Parliament on July 1, 2017. The country’s biggest post-Independence tax reform was aimed to abolish multiple levies and unite a country of 1.3 billion people, 29 states and 22 official languages under a “one nation, one tax” rubric. It was exp¬ected to transform the way business is done and help the government—both the Centre and states—to mop up more revenue by expanding the tax net, and to check parallel or black economy.
So how has it worked out? Has this ambitious tax perestroika shown any signs of fulfilling its promise? One year later, what is the score?
The beginning was messy and chaotic although GST was introduced with optimistic prospects from industry, pertaining to reduction in overall prices of goods and services, free-flow of credit, simplified compliance procedures, ease of doing business and hassle-free movement of goods across India.
A year later, while the tremors may have subsided, the aftershocks remain. In line with the intent of ensuring a business-friendly tax regime in India, the government needs to fetch following key policy-related changes to slacken the hiccups faced in the ‘One Nation, One Tax’ regime.
1. Simplified compliance procedures
The complex compliance procedure coupled with technical glitches may be revamped by increasing periodicity of return filing (from monthly to quarterly), real-time uploading of invoices and availability of input tax credit, without pre-condition of matching invoices to ensure a hassle-free GST return filing process.
2. Ease in generation of e-way bill for barrier free movement of goods
While check posts are eliminated, the key objective of barrier-free movement of goods can be accomplished by implementation of smooth and standardized e-way bill compliance procedure.
Few points to be considered include assigning responsibility of obtaining e-way bill to one party, generation of single e-way bill in the event of multiple invoices being transported in a single vehicle, upgradation of IT system and alignment of practices followed by the Centre and states.
While government may justify its decision to implement e-way bill procedure, to monitor movement of goods to tackle evasion and detect revenue leakage, the blanket authorisation given to tax authorities to intercept vehicles and inspect movement of goods anywhere, shall act as a barrier to free movement of goods. Such blanket authorisation would result in mobile check posts and thereby, defeat the purpose of enabling trouble-free movement of goods across India.
3. Free flow of credit Seamless flow of input tax credit can be attained by trimming the negative list of input tax credit eligibility. Expansion of tax base by bringing petroleum products and alcoholic beverages in the GST net shall lead to utilisation of stranded taxes and ensure free flow of credit.
GST charged by hotels to business units located in different states is not available as credit, though used for business. This results in incremental tax cost for business organisations only because they do not have GST registration in each state where their employees stay for business. Such anomaly needs to be corrected by changing place of supply from location-based to recipient-based.
4. Centralized registration
Possibility of obtaining a single registration at pan India level shall be explored to avoid taxation on self-services between branches of the same entity.
5. Administrative changes and legal ambiguities
Establishment of a centralised Advance Ruling Authority can curtail divergent views of state authorities and ensure minimal litigation. GST law being at nascent stage, is encompassed with certain ambiguities. There is need for quick clarification to ensure certainty on tax position.
While efforts like finalisation of rates to keep it aligned to earlier ones and introduction of the anti-profiteering clause have helped in reduction of inflation and would render scores of either ‘meeting or little below meeting expectations’, implementation of policy changes would help achieve the far reaching impact of making it a ‘Good and Simple Tax’.
Anoop Kalavath is senior director, Deloitte India. Vikesh Doshi is manager and Lakshita Shah is assistant manager, Deloitte Haskins and Sells LLP.