The GST journey has been all but smooth

On January 1, 2019, the Goods and Services Tax will be 549 days young. The decisions taken at the latest meeting of the GST Council clearly show that the tax — which made its debut on July 1, 2017 — is still a work-in-progress. This is a good time to look at how the GST journey has been in specific areas.

Rates of tax

The number of times tax rates under GST have been chopped and changed gives one the impression that the rates were fixed arbitrarily and changes were made once protests were made by those affected. The reason for these ever-so-frequent changes can be attributed to two factors — a needlessly lengthy list of items in the GST tariff and seven rates of tax.

First, the GST Council and its fitment committee should come up with a policy document that explains their rationale for fitment. This document can also focus on reducing the number of items in the GST tariff by prescribing rates of tax for the products and not the individual components of the products.

If this is done, all vegetables, for instance, would be under a single tariff instead of someone having to rack their brains on where to slot them based on uncooked/cooked by steaming/boiling in water, frozen, branded and put in a unit container.

In a Facebook post, the Finance Minister has stated that the government is working towards a single rate of GST that will be between 12 per cent and 18 per cent. While this is welcome news, taxpayers would wait for it to be announced since many such announcements can be interpreted to be merely soothing statements to appease voters prior to elections.

This is because the post is titled “18 months of GST” and should have stuck only to GST but appeared to target the Opposition party.

Input tax credit

Enabling taxpayers to claim input tax credit on all inputs used for furtherance of business forms the backbone of a good GST law. But the process started off on a weak note since the Central GST (CGST) Act continued with all the artificial dis-allowances (such as restrictions on utilising credit in respect of insurance of employees) were a part of the erstwhile Cenvat Credit Rules.

The failure of the magical concept of matching of invoices compounded problems as there was no system of controls to check input tax credit claimed. All that the taxpayer had to do was to fill in an amount in GSTR 3B and pay tax on the net amount. Some sort of a counter-check is available in the form of GSTR 2A but till date, no one has been able to figure out how entries appear in GSTR 2A.

The new system of filing returns announced in the latest meeting of the GST Council should fix this problem — provided it works well. The Council announced that input tax credit cannot be claimed in the annual return GSTR 9 effectively, meaning that credit that has been claimed in GSTR 3B (which in itself is a best-guess estimate) would be the basis on which the annual return should be computed.

An open-ended system of input tax credit is one of the popular ways some taxpayers indulge in artificially increasing their claims of input tax credit, thereby, paying lesser than what they should be paying.

The GST Council has decided to extend the last date for filing of the annual return and the reconciliation statement to June 30, 2019, and some changes are being made in the forms that have already been announced.

The utility of a reconciliation statement given 15 months after the end of the financial year is questionable — it would appear that this effort is only to add to the large amount of data that are already available with the GST offices. How they use this data would be critical in assessing the intent of the tax officers.

2019 and beyond

In 2019, GST laws can be divided into two time-frames — what will possibly be done before and after the elections. Before the elections, the GST Council can be expected to be liberal in doling out concessions (a starting point was made in the recent tax cuts recommended by the Council) and not doing anything radical.

The recent election results would tempt the government to impress rural voters with a basket of GST concessions.

Taxpayers can expect the new system of filing of returns — christened ‘Upload, Lock and Pay’ — to be enforced from April 1, 2019, on a trial basis. It is fervently hoped that the technology being used for this system is completely tested and is bug-free when “go-live” happens.

How GST will pan out after the elections would depend on who comes to power next year. If the present government continues, one can expect their attention to be focussed on maximising revenue due to the fact that monthly GST revenues are still flattering to deceive and evasion appears to be on the rise.

Taxpayers should, therefore, brace themselves to face aggressive GST officers who would want to mobilise revenues at any cost.

It a new government comes to power, it may go soft initially as it would probably have five years to assess what needs to be changed. At some point in time, petroleum products and liquor for human consumption would need to be brought into the GST bandwagon after a careful assessment of their impact on prices.

If the GST Council is asked its opinion on GST till date, it would probably be: any GST is better than no GST.

As for taxpayers, their view would most likely be:: a complete GST is better than a work-in-progress GST. Housewives would probably have the best one-liner: any GST that does not reduce prices is no GST.

How the GST Council manages to meet the demands of the taxpayers and boost GST revenues would be the narrative of the law going forward. Undoubtedly, the GST Council of the future has an unenviable task — finding the right balance after an extremely mediocre start.

Indian taxpayers should be genuinely worried as past experiences under similar circumstances have not been very pleasant.

They will be eagerly hoping that the system for filing appeals online at CESTAT is introduced as soon as possible so that they can knock on the doors of the Tribunal and seek justice.

While it is too early to conclude that the erstwhile service tax and Central Excise laws were better than the present GST laws, going by present trends, we certainly appear to be heading very fast in that direction unless a course correction is made.

The writer is a chartered accountant.

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