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GST turns 3: The journey, challenges including COVID and the road ahead

GST turns 3: The journey, challenges including COVID and the road ahead

GST turns 3: The journey, challenges including COVID and the road ahead
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By CNBCTV18.com Contributor Jul 2, 2020 6:33 AM IST (Updated)

July 1, 2017, will forever be etched in Indian history. Three years ago on this day, in a midnight session of Parliament, our president and prime minister unveiled the Goods and Services Tax (GST) - the most comprehensive and important indirect tax reform since Independence. With this one announcement, ‘one nation one tax’ became a reality. We subsumed the multiplicity of indirect taxes levied by the centre and the states and truly became a common market.

July 1, 2017, will forever be etched in Indian history. Three years ago on this day, in a midnight session of Parliament, our president and prime minister unveiled the Goods and Services Tax (GST) - the most comprehensive and important indirect tax reform since Independence. With this one announcement, ‘one nation one tax’ became a reality. We subsumed the multiplicity of indirect taxes levied by the centre and the states and truly became a common market.

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More than 17 taxes and 13 cesses were subsumed in GST. I, as former Member, GST, have personally seen what a revolutionary step this has been, not only for trade and industry but also for all officers of the Central Board of Indirect Taxes and Customs (CBIC). GST, though under the dual administration of both the centre and states, has laid down a roadmap to achieve the goal of ‘one nation, one market & one tax’ and make the Indian economy stronger than before.
The implementation of GST brought with it economic independence to help liberate us from the stranglehold of black economy and corruption. GST laws were enacted and the rate of tax for more than 1200 items was decided by the council without going through any process of voting.
GST is an Information Technology-driven system. Right from registration and filing returns to making payment and claiming refunds, it is all online. Furthermore, the fulcrum of GST is Self-policing where the buyer and seller depend upon each other in terms of availing any input tax credit.
GST on essential items has been kept as nil so as to help the common man. Furthermore, farmers & agriculturist are not required to register under GST. Items of mass consumption are being taxed at 5 percent. Most of the manufactured items have been kept under 12 percent and 18 percent bracket. Very few items such as luxurious and sin goods are now being taxed at the rate of 28 percent.
The government has been pro-active in ensuring that GST gets implemented smoothly. For any problem faced by the trade or for better functioning of GST, GST Law /Rules/procedures have been adapting to the needs of trade and industry.
The sudden outbreak of COVID-19`has not only impacted the health and wellbeing of citizens but has also adversely impacted economic growth. Consequentially, GST collections over the last few months have shown a downward spiral trend. Even in these trying times when the finances of the government are in the red, the government has announced various relief measures related to indirect tax regulations and compliances to enable them to cope up with the unprecedented crisis.
The government has provided interest-free deferment of GST payments due in March 2020 to July 2020 to all small taxpayers having an aggregate turnover of less than Rs 5 crore. Not only this, for large taxpayers with aggregate turnover of more than Rs 5 crore, but interest has also been waived for the first 15 days and has been reduced from 18 percent to 9 percent, thereafter till June 24, 2020, for February 2020 to April 2020 returns. This is going to provide a big financial stimulus to trade and industry to cope with the sluggish economic activity in these times.
Along with this, the late fee has also been conditionally waived for the above period.  To ensure smooth movement of goods across the country validity of e-way bills have been extended till April 30 for those expiring between period April 15 to April 30. Further, the validity of e-way bills has been extended till June end for those expiring on or after 20th day of March and generated on or before March 24.
In one of the biggest relief, the government has waived the requirement for furnishing Annual Reconciliation Return for 2018-2019 for taxpayers less than Rs 5 crore. Further, to ensure taxpayer facilitation, filing of NIL GST monthly return in FORM GSTR-3B through SMS has been enabled which would substantially improve ease the GST compliance for over 22 lakh registered taxpayers who had to otherwise log into their account on the common portal and then file their returns every month.
Challenges & Way Forward
The journey of the last 3 years can be said to be full of challenges, handled well by the policymakers, the trade and industry as well as the tax officers. The biggest challenge has been the non-matching facility of the return filing process which was initially conceptualised as the backbone of GST return. This has seen a big mismatch in the availment of Input Tax Credit, not backed by the corresponding Invoices uploaded in the system. The government has already initiated restriction in the availment of ITC beyond what is available in the system.
Another challenge faced during the last couple of years is the substantial increase in fake ITC, generation of fake bills and circular trading. It has its genesis, to some extent, of non-roll out of automated matching and returns filing process. The implementation of E-invoice which is already recommended by the GST Council would be a game-changer to reduce the generation of fake bills.
Yet another challenge is the inconsistency in the amount of refund admissible to the exporter on export on payment of IGST or export under LUT which leads, more often than not, to distortion. The export on payment of IGST allows the taxpayer to monetize the credit of capital goods, whereas export under LUT allows monetization of only the input and input services credit i.e. it does not allow the refund of ITC on capital goods.
The GST Council has already recommended amendment in the GST Law to restrict the default route as export under LUT. It is high time that the said recommendation is implemented.
Going forward it is important to streamline the rate of taxes to minimize or completely remove the distortion caused by Inverted Duty Structure.
Concluding Remarks
GST is a fitting tribute to the spirit of cooperative federalism where the Centre and the States have worked together in good spirit and in the larger national interest. It is only through this partnership that one can truly achieve the goal of One Nation One Market One Tax. No doubt, the road ahead is filled with opportunity. It is only for us to grab it take the nation forward on to the path of economic development.
The article is authored by Mahender Singh, Member, Lokpal of India. He was formerly Member, GST at CBIC.
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