Taxing year ahead

Abhishek Raja Ram | Updated on January 03, 2020 Published on January 03, 2020

Focus on GST, direct tax reforms in 2020

The year 2019 was marked by politics, as it started with the general elections and ended with large-scale protests against the CAA. Politicians scrambled around throughout the year amid various elections and issues like the abrogation of Article 370 and the uproar over the CAA and the NRC. As a result, economy and taxation suffered. The year was particularly not good on the economic front. What we need now are full-fledged economic and taxation reforms. There are certain areas which should be watched in the new year:

Tax rates: India faced weak demand in 2019, which aggravated the economic slowdown. As a relief measure, the Central government reduced corporate tax rates by up to 10 per cent, which has cost the exchequer around ₹63,000 crore, adjusting for errors in government estimates. The government reduced corporate tax in anticipation that it would stimulate cash flow with corporates, which would lead to more investments.

But it is by now known that the economic slowdown was due to weakness in demand. The Centre slashed corporate tax rates, but it should have focussed on increasing demand. Therefore, to boost demand, the government may reduce individual income tax rates or may create additional sub-slabs in the current slabs.

Direct tax code: The present Income Tax Act was introduced in 1961. But with time, the business environment has changed, and so now, we require a ‘direct tax code’. Earlier, the UPA government had proposed such a code, but it never saw the light of day. Recently as well, the Akhilesh Ranjan taskforce in its report recommended implementing a direct tax code.

During its introduction, the GST was called the ‘Good and Simple Tax’, but unfortunately compliances and complications proved that the GST is neither good nor simple. Reduced GST collections and pending compensation to States have further complicated the problems.

GST invoicing: Electronic invoicing (e-invoice) is a system in which ‘business to business’ (B2B) invoices are authenticated electronically by the GSTN through the Invoice Registration Portal. E-invoicing has been availed on a voluntary trial basis from January 1, if the company’s turnover is ₹500 crore or more. It is applicable for domestic B2B sales, export sales and sales to SEZ units.

GST returns: In May 2018, the GST Council promised to introduce new, simple returns for GST. New forms in this regard, such as the ANX-1, the ANX-2, and the RET-1/2/3 are in the public domain and available for trial from this month onwards.

If one needs an example of the mess created in the GST system, then they must look at the situation of the GST annual returns. The GST was introduced on July 1, 2017. For FY18, GST annual returns were to be filed by December 31, 2019. Now, the date has been further extended to January 31, 2020. Tree years after the GST was introduced, the government is yet to provide a simple form for annual returns.

Input tax credit: ‘Seamless credit’ is the spirit and backbone of the GST. But the shortfall in GST collections has forced the government to introduce provisions against this spirit, by restricting the earlier 20 per cent credit over and above matched GST to 10 per cent. If GST collections decline further, then the government may only allow for credit on real-time matched GST.

Every new year comes with new hope and expectations for everyone, but for this Central government, the new year comes with more challenges and complications on the taxation front.

The writer is a chartered accountant

Published on January 03, 2020

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