Saving the GST

Overhaul of procedures and rate rationalisation will help

Revenue Secretary Hasmukh Adhia has said in an interview that “there is need for some rejig in rates” of the goods and services tax (GST). In what seems to be a candid admission of how the execution of the GST in the past four months has been bedevilled with many flawed ideas, Mr Adhia has also underlined the need for harmonising rates for items belonging to the similar categories of goods and services. The burden of compliance on small and medium businesses and on the common man, he said, would be brought down wherever it had proved to be onerous. These statements are reassuring, coming as they do from Mr Adhia, who is also the ex officio secretary of the GST Council. While the government deserves to be complimented for launching the GST, there is little doubt that its execution has been poor, giving rise to teething troubles many of which could have been avoided. The recognition that flaws in the execution have to be fixed, therefore, is to be welcomed.

Initially, the problems arose because of too many rates and exempted categories, which made the GST imperfect and vulnerable to pressure from various industry lobbies seeking preferential tax treatment for themselves. Further complicating the GST roll-out was the lack of adequate advance preparation, as a result of which the GST Network, or GSTN, did not have the required time to build a technology backbone that was robust and free from glitches. GSTN representatives have been on record admitting that there would have been no problems if they had more time and the rules of the GST had been finalised a few weeks in advance, thereby giving them an opportunity to test the network before launching the tax system. Procedures for filing of returns – as many as three in a month – and the requirement of matching of invoices before claiming input tax credit added to the compliance burden. Determination of different rates for goods and services with marginal differences also contributed to the taxpayers’ woes. More confusion was created with the announcement that the GST would be extended to real estate, a sector already plagued by a slowdown.

To be sure, a few corrective steps have been taken in the last few weeks in response to complaints the GST Council has received. The idea of introducing e-way bills to track the movement of goods from their points of sale has been deferred till next year. Tax rates on a few items have been rationalised. The threshold for availing the composition scheme that reduces the compliance burden has now been raised from an annual turnover of Rs 75 lakh to Rs 1 crore. Clarifications have been issued to suggest that only after amending the Constitution can real estate be brought into the GST framework. However, these steps are only half-hearted measures that will merely act as short-term palliatives. Trade and industry will need more clarity on the road map for e-way bills, the coverage of the composition scheme and on how real estate will be treated in the new tax system. There is no reason, for instance, why the threshold of annual turnover for the composition scheme should not be further raised. And if businesses with a turnover of up to Rs 1.5 crore can be allowed to file returns every quarter, there is no reason why this system should not be extended to all taxpayers. Similarly, the condition of matching invoices before claiming input tax credit needs to be reviewed as the current system is complicated. If the idea is to make the GST a good and simple tax, the GST Council should consider reducing the number of tax slabs apart from undertaking a proper overhaul of the procedures that have increased the compliance burden.