GST: What 2018 could have in store

The year 2018 may also see a debate about bringing in real estate and petroleum products under the GST

The year 2017 will always be remembered as a GST (goods and services tax) year, arguably the most important reform of our times. Despite being far from perfect, the GST can be called a 'reasonable success'. Industry supported it, commodity prices have been in control and the tax base has expanded with over two million new registrants. 

The GST Council has been quick to respond to challenges and course corrections have been made, including those on rate rationalisation and easing of the compliance burden, particularly for smaller businesses.  Frequency of these changes not only means we are learning on the job but also that there is an intent to do the right things. 

However, along the way, a few decisions of the Council look like a compromise and not in consonance with the design and objective of the GST.  One example was reducing the GST rate on restaurants to five per cent but with restriction on allowing input credit on the basis that the industry is not passing this benefit to consumers. From a structural standpoint, blocking credit is not a good idea. It promotes cash economy.  It also raises question on efficacy of the anti-profiteering provisions in the GST law, which mandates passing on such benefits to consumers. 

Another controversial decision was to advance the implementation of e-way bill system to February 1, 2018, despite a contrary recommendation of the GST advisory committee, set up by the government. Industry is concerned, not only about the readiness of the system and ability of the ecosystem to adjust in time but also that it could lead to supply chain bottlenecks. 

Despite these, we have certainly made a good beginning but there is still a long way to go. The more pertinent question, therefore, is as to what 2018 will have in store for the GST. Clearly, this will be a year of consolidation, both for the government and businesses. 

From the government's perspective, there are two primary concerns at present — the first is lack of buoyancy in revenues (collection for November has been lowest thus far) and the second is the low level of compliance (over one-third of registered businesses are still not filing returns).  They will also want to keep a watch on commodity prices, particularly at retail level. 

This could mean tightening tax administration and audit, closer scrutiny of data collected by GSTN and possible simplification of the filing process.  If the number of complaints already filed with the anti-profiteering authorities is any indication, this area promises to be most controversial, keeping the government busy and businesses on their toes. 

Industry would hope that there is greater certainty on compliance procedure and clarity on  the number/ frequency of filings.  One fundamental debate is as to whether the 'invoice matching' mechanism for claiming input credit should continue to operate.  Being part of the fundamental architecture of the GST, it would be prudent not to let it go, else much of the benefit envisaged in terms of faceless tax administration and plugging the leakages might be substantially diluted.  

A better approach would be to simplify the returns and make it quarterly, with a monthly tax payment through summary returns.   Once the compliances settle in, industry's focus is likely to shift towards leveraging on the efficiencies the GST offers by redesigning the supply chain models.  It is also likely that GST laws would undergo a few changes, largely to address the unintended ramifications like taxing the transaction between an Indian and overseas branches of a same legal entity and double incidence of tax on SEZ transactions. The GST advisory committee has made recommendations on this. 

The year might also see a debate about bringing in real estate and petroleum products under the GST.  

There is definitely a case of looking at including industrial fuel like natural gas and ATF, which has also been requested by the Civil Aviation Ministry.  

The number of items in the 28 per cent slab might be reduced, the 12 per cent and 18 per cent rates might be merged into one.  This will largely depend on whether and when GST revenues show sign of resurgence. 

For both the government and India Inc, the GST thus far has been like playing a cricket match at a bouncy pitch under overcast conditions.  There are indications that next phase would see some sunshine !!  

Views expressed are personal