The Goods and Service tax (GST) framework completes three years of operation on 1 July 2020. Hailed as the single biggest tax reform in India, it was sold as the great unifier- “One Nation, One Tax”, but has it really achieved the purpose for which it was implemented? Three years down the line, there remains the trepidation among the taxpayers about the cumbersome return filing, input credit reconciliation, technical glitches on the GSTN portal, peculiar rulings from the Advance Ruling Authorities (A Paratha is not a Roti or Popcorn is Prepared Food!!) to name a few. These are some of the many speed breakers that continue to plague this ‘unified’ tax system.
While the Government has taken note of the challenges and meets through the GST Council regularly to assuage some of the industry woes, the larger issue of backend infrastructure somewhat running on a wing and a prayer cannot be ignored. However, the GST framework, which continues to be a work in progress, will hold a bright future if a proper roadmap of improvements is implemented and the system optimised to handle the challenges.
One of the areas which this roadmap should incorporate, especially when the economy has been ravaged by the Coronavirus pandemic, is to listen to the woes faced by the small and medium (SMEs) industries. While recent GST Council Meetings providing relief to small businesses with annual turnover below 5 Crore from filing reconciliation statements and extended timelines for annual returns and audit compliances, other acute difficulties faced by the sector to undertake GST compliances (for example: GST payments need to be made on raising of invoice irrespective of receipt of consideration) must also be paid heed to. Examples like the above scenario leads to stress on working capital of the MSMEs at the best of times and can cause great panic in the times of a viral epidemic. The Government could think of payment of GST on receipt basis at least for small taxpayers.
The accumulation of input tax credit, often due an inverted duty structure, is another area which needs a relook. An inverted duty structure is a construct where the duty paid on inputs is higher than the output tax, resulting in an accumulation of input credit, especially where refunds are not available or are delayed. The Government has been active on this front, raising the output GST on certain items which historically faced an inverted duty structure (cellular phones) and the Finance Minister has acknowledged that duties in certain sectors like footwear, textiles etc. affected by this inverted duty structure will be rationalized soon.
Other areas of improvement are the rationalization of tax slabs and the review of compliances. While the new GST returns have been proposed to be introduced to streamline the tax filing process and bring in more transparency, these have unfortunately been postponed to October 2020 and possibly will be further delayed due to the pandemic afflicted economy. The new tax returns propose to enhance the threshold limit for small taxpayers to 5 crores from the present 1.5 crore, reduces the number of return forms and seeks to introduce the concept of matching by auto-updating instead of self-declaration to facilitate the availability of input credit by businesses. The new return system focuses on matching transactions at the invoice level by matching invoice uploads in real time which is a great step forward in streamlining compliance and tax payments.
To paraphrase Marcel Proust from Swann’s Way, some years have passed since that night…when the one nation, one tax system was introduced to the country. It gave birth to much joy and new sorrows in the industry, and while to this day resembles a fledgling duckling, has the potential to develop into a graceful swan if a proper roadmap is implemented to assuage the concerns of the industry. The focus in the coming years should thus remain on raising efficiency in the framework by adopting emerging technologies, weeding away the chinks in infrastructure, and developing a coherent approach that benefits both the taxpayer and the interests of revenue authorities in the country.
Contributed by: Rajat Bose, Partner; Neeladri Chakrabarti, Consultant
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