Time for govt to stand its ground on GST

GST Council would do well to recognise the imperfections in the new tax regime

The July deadline of rolling out the goods and services tax (GST) is just a few weeks away. It is, therefore, time to take a close look at what the misgivings are about the new indirect taxes regime and how well the government has been trying to remove them.
 
The first big misgiving is about the many rates under the GST and how different commodities and services would be placed under them. This is going to be the biggest challenge before the GST Council. The damage was done when the political leadership under pressure from the states and Opposition political parties settled for what was an imperfect model of GST by agreeing to many exemptions as well as many rates.

 
But now that the deed is done, GST Council members would do well to recognise the imperfections in the new tax regime and prevent further distortions by not succumbing to pressure from powerful industry groups and lobbies, who would try hard to secure a more favourable rate for their products and services at the cost of others including their rivals. Fewer the number of rate slabs or exemptions, greater are the chances of avoiding disputes and disruptions.
 

The second misgiving pertains to the increased compliance burden on businesses and traders as a result of the GST. Businesses are complaining that they would be required to file at least 37 returns a year — three each month and one for the entire year. In addition, the compliance obligations for businesses with transactions in different states could be more as the same process would have to be followed in each of the states they operate.

 
The government is trying to address these concerns. It has already put in place an information technology-enabled network that would be operated by the GST Network and on whose platform businesses and traders can file the returns electronically. Contrary to what businesses are saying, the first return of the month to be uploaded by the 10th of every month is an elaborate one and the remaining two require the users only to click on the file online once the input tax credit details have matched.
 
The problem may arise in case a business doesn’t upload its sales diligently; this will result in a mismatch of data for the business that has bought that item. While this can theoretically deny the purchasing business entity of its genuine input tax credit, the government has worked out a 60-day window for resolving such cases and till this period the input tax credit claim would not be denied.

 
The government argument is that businesses must be wary of such dealers, who do not upload their transactions. After all, one of the many benefits of the GST is that it would eliminate the role of assessing officials in evaluation and collection of indirect taxes. A delinquent business that doesn’t upload its sales on the GSTN platform deserves to be shunned and that itself would encourage greater compliance.  Such businesses would also be suitably warned by the next move under the GST regime in which e-weigh bills would become mandatory for all movement of goods from one place to another following a transaction. Such goods that don’t have an e-weigh bill would be liable to be prosecuted for tax evasion.

 
At another level, the government has already appointed about 30 GST Suvidha providers, whose sole job is to guide the businesses on complying with the many procedures under the new tax regime. Another 30-odd GST Suvidha providers are expected to become operational soon.
 
Another misgiving about the GST arises from the compliance requirements of businesses that are dealing only with consumers. For such businesses, the compliance is only to maintain on the GSTN its record of purchases on which it has paid taxes and also the record of the sales to consumers against which it has received taxes. It is this statement of the tax payments and receipts that would be filed as the return after it either deposits the excess tax it has collected or files a claim for a refund.

 
Finally, there is political uncertainty over whether all states are able to pass their respective state GST laws in time. Those that fail to pass them before July 1 will impose on their businesses and traders an extra tax liability with no facility of refund. What happens if a state doesn’t pass the law even by September 16? Well, that state will lose the power of levying VAT and other indirect taxes that the Constitution amendment had subsumed in the GST. In other words, states are now left with no option other than embracing the GST. The only state that still has an option in theory is Jammu and Kashmir.