Tax return filing extension on GST may not be enough

Over the weekend, the body administering the goods and services tax, or GST, iterated its intention to roll out the new indirect tax regime from July 1. However, the GST Council has also taken note of the increasing clamour from the private sector about its unpreparedness for the new system, and it has announced certain concessions. The timetable for filing returns has been somewhat relaxed initially. And industry will be granted exemptions from penalties and fees for late filing in the first two months of the new tax regime. The GST Council’s decision is welcome. However, it is far from certain that this is the best way to respond. For one, it does not necessarily reduce confusion; some states have indicated that they do not know what this implies for their own finances in the interim, if all indirect taxes for July and August are paid instead in September. While Finance Minister Arun Jaitley said that he did not have the “luxury of time” to defer the implementation of the GST, the government continues to fail to provide a coherent explanation as to why this is so. 

Questions continue to be raised about the preparedness of the system; many companies migrating to the new technological infrastructure have noted that the server does not seem to be reliable. The correct answer to these worries would be to provide more time for testing, and a transparent stress test of the system. Testing the system when the new tax has already been introduced seems too lax an approach to this landmark reform. As this newspaper has previously argued, ensuring a glitch-free roll-out for the technological backbone of this extremely tech-intensive new system is essential if transaction costs are to be minimised and political capital is to be stored out for future simplification of the currently over-complex tax structure. Delaying the roll-out by a couple of months remains a more than reasonable solution, and it is puzzling why the government is so firm in its refusal to consider it. 

As regards the other important concern about the “anti-profiteering” clause, the Council has provided a two-year expiry date. This clause mandates that any benefits from a lower tax incidence or from input tax credits under the new system should be passed on to the final consumer. This has always had the appearance of a counter-productive interference in the working of the price system. Further, it clearly creates a handle for the harassment and prosecution of companies that may be making purely commercial decisions. Here, too, the GST Council’s response has been unsatisfactory and incomplete. It has provided a three-level structure to look into complaints. It is far from clear whether the capacity of the structure suggested is in any way commensurate with the vast potential for trouble-making contained in the “anti-profiteering” clause. The idea is that the powers given to the government by this clause will serve as a “deterrent”; but how often have governments failed to use powers that have been granted them? The authority itself has not yet been properly constituted — another thing that will have to be done on the fly if the roll-out of the tax is not postponed as it should be.