Envisioning GST five years hence

While plenty will be said by way of how India fared with the goods and services tax (GST) in its first six years, it is with great delight that we must consider what can be expected in the coming five years. It is unmistakable that GST has inspired even the most uninitiated into a technology-driven tax compliance and administration regime that is the world’s envy with nearly nothing required to be addressed offline. So, here’s a look at what remains to be experienced in the next five years.

Cross-learning between Centre and states

The learning is for everyone, and with a common legal framework, the experiences of states are being shared with the Centre and vice versa in a constructive manner. This ensures certainty, predictability and consistency of the administrative experiences of all stakeholders. The learning from each other facilitates collaboration, especially when inter-state evasions have to be investigated. The learning is not limited to administrative functionaries, but functionaries responsible for review and revisionary proceedings canvassed. The harmonised system of nomenclature (HSN) code forms the common thread to track, trace and cross-pollinate ideas.

Affirmative action by taxpayer prompted by auto-populated data

While self-assessment is the legislative autonomy vested with the taxpayer, it includes the perils of any misstep by the taxpayer. Returns are to be furnished not because GSTN cannot ‘derive’ this information. Instead, it must be viewed as affirmative action by the taxpayer, to be held accountable for the assertions made, both expressed and implied. While liability self-assessed is disclosed in GSTR1 returns, and is discharged in GSTR3B returns, refraining from availing of credit or making reversal to a certain extent are also affirmations that the taxpayer will be accountable for. It would be interesting to observe the development of new levels of jurisprudence when the audit trail is presented as evidence in support of the taxpayer’s misadventures.

Ability to expand ‘sample size’ in audit inquiry

Armed with intelligent data, and not merely data dump, a proper officer is now able to conduct and conclude the audit without the need for any taxpayer engagement. Assisted with targeted review, a proper officer can even expand the sample size to ensure greater coverage. While it is the vision of the government to progressively reduce direct taxpayer engagement, when the audit can be non-invasive, expanding the sample size can offer greater assurance of accuracy of compliance while reducing perceived degree of engagement.

Automation 2.0

The backbone of GST is technology. GST has embraced unprecedented levels of automation in data validation and dissemination for departmental action. Encouraged by irrefutable intelligence gathered, the Central Board of Indirect Taxes and Customs (CBIC) is tasked with raising the bar several notches and breaking new ground in data management, thereby giving a shot in the arm to revenue augmentation and arresting leakage.

Machine intelligence to assist initiation of inquiry

Sophisticated evaluation criteria, apart from ensuring consistency, offers refinement in the selection of cases of inquiry while reducing subjectivity. And, altering perceived evasion requires more pervasive use of technology to screen countrywide data that is now available as information flows from all regulators. Inquiries become more targeted, and with this level of preparedness, tax evaders can be successfully brought to book and the recovery accelerated, leaving little room to dispute the well-investigated demands.

Exchange of information 2.0

Linear comparison of taxpayer’s data available with the income-tax department has exposed unprecedented levels of escaped turnover for detecting leakage in GST revenue. When the data submitted by the taxpayers to different regulators under various statutes like Companies Act, IBC, RERA, Legal Metrology, etc., does not match with that reported in GST returns, and the divergence is detected, it will provide irrefutable evidence to bring those adopting mischievous tax positions to book. Legal action against unscrupulous taxpayers will result in a level-playing field between dishonest and scrupulous taxpayers. Add the data available with banks, payment gateways, clearing houses, crypto exchanges and notified IUs, and Section 150 of CGST Act, 2017 will raise the bar for the development of intelligence to detect leakage.

Convergence of interpretational dichotomy

Divergence of views is not the draftsman’s work but the expectation ‘about the law’ and the reality ‘of the law’. The apex court has made it explicit that the courts will not enter the domain of legislature and the statute contains the policy of the government. There cannot be a consensus without the assurance of redressal in the event of conflict. But with various measures in pre- and post-litigation stages, the convergence of any interpretational differences is imminent with cross-learning. After all, society desires that under like circumstances, treatment of law must be alike.

Transparency and accountability of departmental tasks

Any system that assures transparency and accountability is bound to yield rich dividends to society. Departmental tasks are implemented with greater trust through reliance on each officer who is ably assisted by a technology backbone that prompts, records and alerts based on a pre-set workflow. Technology can sometimes overdo things, but with the right amount of intervention, departmental tasks will operate with predictable certainty.

Successful demonstration of e-fication of Tribunal

The Appellate Tribunal will be a beacon of technology adaptation in justice delivery. With a natively digital platform for case management, this tribunal will show how it is done for others to follow. Electronic filing, listing and disposal forming ‘e’-fication of the tribunal will transform dispute resolution in India. Hours lost in getting that audience for a few minutes will be saved and available for productive pursuits. This will be truly liberating for the taxpayers and the government alike.

 Pendency is passé

If anything, the tribunal will render pendency passé and allow for disposals with speed and elan. The existence of disputes to a desirable extent is reassuring. It is clarity, certainty and predictability of dispute resolution that forms the foundation of a healthy compliance ecosystem. GST will encourage taxpayers to operate in a ‘high’ compliance-oriented economy with ‘low’ delinquency levels. Entities that care about the economy will choose to be compliant and work with like-minded others.

Experiments need time before their workability can be demonstrated. But GST has long passed the stage of experimentation. And the proof is in the revenue collection numbers. With the Prime Minister’s vision of a 5T economy, GST holds the promise to deliver the resources needed to turn this vision 

into the reality that the people of our nation deserve.

Dhananjay Singh is a civil servant in the Government of India and a Chevening Gurukul Fellow. A Jatin Christopher is a chartered accountant