GST only needs simplification

There is a misunderstanding going around that reduced tax collection is because of the defective GST structure. GST is not the cause for the slowdown in tax collection, rather the slowdown is the cause for less tax collection. The truth is that tax collection is never much affected by a complicated tax structure. Some cases go to tribunal or court if it is complicated but court cases have not started so far for GST. So it is only a glitch that can be fixed by common sense approach and not by so-called experts. Cost accountants, chartered accountants, and consultants are giving statements maligning the GST structure but they cannot say what exactly is wrong. Even Nobel laureate Abhijit Banerjee has said that GST should have been brought after taking more time and settling all possible problems. He is not possibly aware that it took more than 10 years of consultations and visits abroad by finance ministers to find out systems in other countries based on which our GST system, which is a unanimous model and is a triumph of fiscal federalism, has been introduced. More time would not yield any more solutions, which could be found only when the system gets going. Ours is a better model than Canada’s as we have included sales tax; In Canada, sales tax is extra for different states.

That nothing is fundamentally wrong in the design is proven by the fact that the revenue collection has been 14 per cent higher in the last two years in 20 states. If revenue growth was so buoyant until recently, it could not be because of defective GST. One good thing which has been introduced by default is that all invoices are not being verified for input credit. Only those of the suspect companies are being verified. The CAG has objected to this, but that is not proper. Even earlier, there was no such verification and it was left to audit. There are surely problems about filing Returns which I am discussing here. 

(1) GSTN 9 requires eight digits HSN code, while GSTR 1 needs only four digits. Both should be made four digits. 

(2) GSTR 9 requires auditors to verify tax rates of goods sold by a taxpayer which is a herculean job. This should be abolished as this was never there and is redundant. This must go. 

(3) Provision has been made for depositing of any tax liability that arises after audit but if there is excess credit in the taxpayer’s account, the same cannot be utilised. 

(4) There is a lot of data sought in Annual Return which was previously not present in any of the Returns filed. These are problems of filing Returns. 

(5) Bifurcation of input tax credit claimed between inputs services and capital goods was never asked for earlier. Now, it is being asked in GSTR -3B. This is redundant and must be done away with. 

(6 ) Excess input credit is to be refunded. In the UK and the EU, it is done. This should be allowed.

(7) A lot of extra information is being asked for which are too complicated to collect and not necessary for ordinary business. No information, which was not being asked for before GST, should be asked for.

(8) Rates of duty must be brought to the three rates namely 5, 16, (after merging 12 and 18), and 28. Most problems will be solved that way. 

(9) Dispense with the anti-profit law for the price control system, which was not there before the GST was introduced.


We must do three things. First, give up the anti-profit apparatus and the price control idea. Second, we should not ask for things more than what was there earlier. Last, we should not impose more checks than what was there earlier. A 12-member committee, consisting of state and central government officers, has been set up to review the GST. The principle that the committee should work upon is the three points given above.

There should no overstress on the possibility of evasion. The reported figure of Rs 45,000 crore evasions should not rattle us since they are based on suspicion and extrapolation. These cases are mostly lost in tribunals, high courts and the Supreme Court where the success rate of the department is pathetic.

The writer is member, Central Board of Excise & Customs (retired)

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel