It is time GST contributed its share to the GDP growth and brought in ease of doing business in the country
The Goods and Services Tax (GST) has been one of the biggest tax reforms in India since independence. With its launch on July 1, 2017, GST was envisaged as a 360-degree tax reform that transformed India’s taxation landscape to overcome irregularities inbuilt in the erstwhile indirect tax structure which primarily involved reducing multiple taxes, multiple compliances, eradicating high tax rates and its cascading effects and the creation of a common market. The introduction of GST ushered in an era of transparency and technology and in an era of automation, commensurate with the best practices globally.
Despite continuous efforts put in by the government to streamline the law, GST remains a work-in-progress with changes/ improvements/ amendments required in every aspect, namely, monthly returns, refunds, input tax credit etc. Initially, the government brought in many substantial amendments in the law to streamline it and provide relief to the taxpayers. However, in the last two years, only ad-hoc changes have been introduced.
In order to make GST reform truly effective, both the Central and state governments must recognise the need to streamline law, procedures and compliances. One of the major challenges today is that the compliance portal of GST viz. GSTN is yet to achieve its true potential. Given the magnitude of the change, GSTN is still in the process of automating returns and has not been able to achieve the ability to match the invoices from a credit perspective. This is one of the primary reasons for credit frauds and fake invoices witnessed across the country.
Furthermore, many interpretations of GST laws given by the government officials are conservative (in favour of revenue), leading to many litigations. This number will only move upwards when GST assessments will be conducted by the authorities in the coming years. Such an augmentation of litigations under GST was surely not the intention of the lawmakers while implementing GST in 2017.
On the technology front, many actions still need to be completed to make the system fully automated. The most talked about feature of invoice matching is still not in place. Further, for a taxpayer, the availment of credit of taxes paid by them to vendors is contingent on vendor reporting the invoices in their GST return. Such a law puts the taxpayers in a disadvantageous position wherein they would lose their credit due to the non-compliance of the vendor.
To the extent, the taxpayer has a valid invoice, paid the GST component to vendors, cost is eligible as credit, then the input tax credit should not be denied only on the basis that the vendor has failed to file its GST return. This mechanism introduced by the government results into huge credit blockages for the taxpayers and an increased compliance cost in the form of multiple vendor follow-ups.
Thus, automation in compliance is the need of the hour to ease the burden on the taxpayers. In this regard, e-invoice was made effective by the government for certain selective taxpayers only who have aggregate turnover more than 50 crores. For these taxpayers, the details of outward supplies get automatically populated for compliance purposes. However, since, e-invoice is made applicable for only certain taxpayers, there is a difficulty in monitoring the proper document for availing the credit by the buyer. Since most of the evasion is centred around B2C invoices (Business to Consumer), which in turn lead to fake invoices and credit frauds, it is important that due mechanism be created for monitoring and reporting of these invoices.
Apart from compliances there is still a need to streamline law and processes. While centralised registration seems a distant possibility, centralised assessment or audit is a necessity, given that taxpayers with registrations in multiple states have to be audited by various state and central GST formations and apart from the sheer physical work of supplying documentation, the disparity in interpretation of law is frustrating.
The government should have a clear vision as to how they plan to streamline the law and provide relief to the taxpayers. Making GSTN fully functional, seamless invoice matching, simplification of laws and a uniform application of e-invoicing to all would go a long way in making the system and processes better. In the last four years, on the demand of businesses, GST Council has changed rates for various items, extended deadlines for filing of returns, introduced various exemptions, and debated on possible beneficial scenarios.
These are surely signs of an open and receptive government and this is how we believe the system will become more robust. The Central government in collaboration with state governments should discuss the changes and roadmap for a flawless and smooth functioning of taxation ultimately making India a better place to do business in.
On those lines, it is pertinent that a two-year and a five-year roadmap of GST needs to be created and that should remain the guiding principle for all changes. This will allow industry to plan its businesses going forward. Similarly, certain sectors require relook at how they are being taxed. In this regard, the recent setting of GOM for online gaming industry is a welcome move and help this sector grow, and further incentivize people to bring money into the formal digital economy.
The potential of GST to make India an industrial and service hub are immense and need to be tapped. After four years of implementation, it is time to take stock to broaden the tax base by bringing more sectors in the GST folds, the ad hoc mechanism of lowering tax rates and restricting credits need to be done away with to build a true credit chain and finally the tax rates and notifications need to be rationalized to converge to a two rate structure. It is time GST contributed its share to the GDP growth and brought in ease of doing business in the country.
—Swati Saraf, Senior Tax Professional, EY also contributed to the article.
—The author, Bipin Sapra is Tax Partner, EY India. The views expressed in the article are the author's own
(Edited by : Ajay Vaishnav)