“The future depends on what you do today” — Mahatma Gandhi.
On the fourth anniversary of GST, a historic tax reform, these words of wisdom hold great significance to policymakers and administrators. India has crossed several important milestones over the last three years of GST. The monthly revenue collection has crossed the Rs 1 lakh crore mark for the last eight months in a row. Is this not an opportune moment to introspect as to what needs to be done now to make GST a sustainable and dependable revenue stream in the future?
Tax administrations across the globe seek to mobilise revenue in a way that does not impose an unnecessary compliance burden on taxpayers. Since the launch of GST in India, a host of taxpayer services have been enabled—ranging from online registration to e-payment and e-filing of returns and refund applications. The filing of E-Way Bills and e-Invoices has been streamlined. Of late, several GST-related compliances have been relaxed to mitigate the impact of the pandemic, especially on the MSME sector.
However, there is a great deal more that can be done to reduce the compliance burden, either in terms of simplification of the tax policy framework or easing the administrative obligations under GST. Some of the steps to ease the compliance burden are outlined below.
Tax certainty and predictability are important cornerstones of any tax system. Taxpayers are often faced with ambiguous or conflicting legal provisions—with not much guidance from the GST administration. They are now relying on the judiciary to obtain certainty on a host of issues such as those relating to IGST on ocean freight and price reduction under anti-profiteering measures. Simplification of such provisions will assist taxpayers in complying with the law. Setting up the GST Appellate Tribunal as well as streamlining the Advance Ruling mechanism will provide much-needed predictability.
The multiplicity of rates has been a matter of debate since the inception of GST. As recommended by the Fifteenth Finance Commission, the rationalisation of the GST rate structure into a simpler one with a gradual reduction in exemptions will lead to a simpler tax system and improve the ease of paying taxes. The issues of inverted duty structure need quick resolution.
The rising cases of fake invoices and misuse of Input Tax Credit are a matter of great concern for tax administrators who have triggered a spate of statutory changes as well as procedural complexities in their anxiety to plug revenue leakage. Amended provisions like Section 16(2) and Rule 36(4)—both relating to availment of credit in GST—have resulted in a higher compliance burden, including working capital blockage and the need for more intensive reconciliation with vendors. These restrictive provisions may be revisited to reduce the compliance burden.
Tax laws and procedures should be geared to promote voluntary compliance while deterring and punishing wilful evaders. Stringent actions like freezing of bank accounts or blocking the ITC credit ledger do not appear warranted when the taxpayer is willing to remit the dues. In fact, merely ‘nudging’ the taxpayer and highlighting the consequences of non-compliance could catalyse compliant behaviour.
With the increased availability of real-time data, the authorities can embrace robust risk-management practices and deploy data analytic tools to ease the burden on the compliant taxpayers. Integrating the principles of design thinking in the GST compliance processes by way of pre-filled returns, simpler forms, easy-to-navigate websites, compliance rating of taxpayers etc., will be a potential gamechanger.
In keeping with the global trend of cooperative compliance, the GST administration should foster mutual trust and understanding with the taxpayers. Also, the GST Council, the prime Constitutional body responsible for formulating and implementing the GST laws, could consider setting up a Business Advisory Committee with relevant stakeholders to listen to the voice of the taxpayers. In the long run, partnership and co-designing with the taxpayers will lead to greater transparency and accountability.
In the current scenario, most discussions on GST revolve around cooperative federalism or compensating the States for the revenue shortfall. The role of the economy or the enforcement actions by the tax administration dominate these debates. In this entire discourse, the most important stakeholder, the taxpayer, deserves to take centre stage. There can be no better time than now for a re-orientation of GST with a strong focus on the taxpayers so that their concerns are brought to the fore.
—S Ramesh, is a retired IRS officer and a former Chairman, CBIC. The views expressed in the article are his own
(Edited by : Ajay Vaishnav)