By Najib Shah
The launch of the goods and services tax (GST) on July 1was hailed as ‘transformational’. Four months down the line, all kinds of negative effects on the economy have been attributed to the tax law. The discourse has tragically been on party lines. GST is far too important to be reduced to political football.
The criticism has mainly been on the grounds of compliance costs — more specifically, the number of returns and of rates, the impact on small and medium enterprises (SME) and on exporters.
The number of returns to be filed (37 annually) has been criticised. One tends to forget that the joint committees set up by the Empowered Committee of Finance Ministers to look into key processes had recommended three monthly and one annual return. This was accepted by the committee and, subsequently, by the GST Council.
GSTR-1(monthly return) was to be filed online, with the GST Network (GSTN) auto-populating the other two monthly returns and only seeking validation from the taxpayer. The GSTN —which is to handle all key processes such as registration, returns, payments, matching of invoices and refunds —is yet to get fully going. There have been challenges faced by the taxpayer in filing the basic return.
In the consequent din, the debate shifted to the number of returns being too many. This is ironic as, till date, the first return has not been filed by a large number of taxpayers. Incidentally, monthly returns were being filed under value-added tax (VAT) and central excise.
The GST Council finalised the rates at 0%, 5%, 12%, 18% and 28% keeping in mind the prevailing tax structure, the need to protect revenue and the possible inflationary impact. The fitment of commodities and services in the appropriate band is largely reflective of the existing combined tax incidence of excise and VAT.
Should (could?) there have been lesser rates across the spectrum of goods? Astandard rate of 16-18% with a concessional rate and demerit rate as recommended by Chief Economic Adviser Arvind Subramanian? Would that have been politically acceptable?
Didn’t all political parties and state governments insist on compensation for possible loss? And where would that money have come from if not from cess, unless GoI had decided to share it from GST revenue? Would that not have resulted in higher rates?
Another issue raised has been the delay in finalisation of refunds for exports.
What GST promised was zero rating of exports — payment of taxes and a robust refund mechanism. It was never the intention that taxes should be exported. Again, this was predicate on GSTN functioning efficiently.
The SME sector has also cried foul. Threshold limits under the erstwhile taxation regime were Rs 1.5 crore in central excise, Rs 10 lakh in service tax and Rs 10/5 lakh under VAT. The threshold limit in GST is Rs 20/10 lakh. While it is true that it does not make sense to burden the administration with smaller taxpayers, a higher threshold would have resulted in almost the entire tax base getting wiped out in several states.
The success of GST was dependent on the GSTN performing well.
This has not happened.
Multiple relaxations have been given in filing the returns rather than addressing the basic IT problem.
A GoM has been constituted and GSTN will surely rise up to the responsibility cast on them.
GoI and the GST Council should also take note that every change results in changes in the IT processes. The last few council meetings have seen several changes in rates and timelines. All these place a huge burden on the GSTN.
Having got the major share of the tax base, it is incumbent that the states take equal ownership of GST. They need to ensure constant outreach programmes and not leave it entirely to the Centre. They must also quell outrageous demands for relaxation of provisions.
The Indian taxpayer pays his taxes reluctantly. GST, with its IT-driven processes, will make evasion difficult. This ‘fear’ has added to the noise, more so in the backdrop of a perception that GoI is politically vulnerable.
Very few governments would have shown the political courage to initiate such a major reform. It is incumbent upon all stakeholders, this side of the aisle and across, to make it work.
The writer is former chairman, Central Board of Excise & Customs