GST system redesign neither desirable nor feasible, say tax experts

Illustration by Binay Sinha
N  K Singh, chairman, the Fifteenth Finance Commission, recently set the cat among pigeons when he called for taking the goods and services tax (GST) system back to the drawing board. He is, however, not the first one to say so. Earlier, the finance ministers of Punjab and Kerala had made similar demands.

Reasons for the rethink on GST are not difficult to figure out. Both businesses and governments have their share of woes from how the GST system has shaped up over its two-and-a-half years of existence. While the need for simplification of the GST structure is something almost experts agree on, they remain divided over the issue whether there is the right time to go back to the drawing board.

Experts say the government has been mindful of industry concerns over the implementation of the new indirect tax regime. “During the last two years, the government has been accommodative of trade and industry, and has issued 126 circulars, 581 notifications for CGST and a similar volume for SGST,” points out Vinod Subramanian, CEO of Logo Infosoft, which offers GST-related services to companies.

These circulars and notifications have provided clarity on the GST provisions, say experts. “There still exists scope for fine-tuning to ensure there is no revenue leakage while easing the business operations of the taxpayer,” says Subramanian.

The flip-side to frequent changes in the compliance structure of the tax is that it puts off honest and diligent taxpayers. “The process of continuous changes has impacted the morals of compliant taxpayers as they constantly see that the goal-posts are changing,” notes Pritam Mahure, a Pune-based GST expert.

Frequent changes also mean that technology is not able to keep up with the pace with the changes.

M S Mani, partner, Deloitte, says GST has replaced a multitude of state and central taxes, which used to exist till June 2017. “It’s premature to discuss its redesign,” he says.

Pratik Jain, partner, PwC India, agrees. “What is perhaps needed is a few changes in key aspects -- structural, legislative, as well as procedural -- to help stabilise the indirect tax system,” he says.

However, some like Santosh Dalvi, partner, KPMG in India, stress on the need for correcting some design flaws in the current indirect tax systems.

He highlights instances such as:  
  • In case of inverted duty structure, the GST law does not allow refund of input tax credit relating to input services
  • Similarly, for products covered under a government subsidy scheme (such as fertiliser), the refund of ITC is not allowed to a trader/importer 
  • Restriction on refund of ITC availed on capital goods to exporters
  • Ambiguity on the treatment of post-sale discount scheme

“The concept of matching (invoices) needs a revisit and the same can be done on a half-yearly basis,” says Mathivanan N, principal partner at Lakshmikumaran & Sridharan.

One major area of concern for businesses has been financial implications associated with mismatches of credit, specifically on account of possible working capital concerns because of non-compliance/inadvertent mistakes in compliances by vendors. Most businesses believe where tax has been paid by them to vendors, credit should not be denied to them. Instead, the supplier should be held accountable for non-compliance/default in tax payment.

Mani is of the view that a modified compliance system for service providers which enables them to combine tax payments and return filings across states needs to be introduced.

To assuage the government’s concerns around falling revenues, Abhishek Jain, partner, EY, feels the inclusion of excluded sectors like petroleum products, real estate, and electricity could help bridge the gap.

Most experts agree that linking input tax credit to vendor compliance actions creates difficulties for taxpayers. This provision needs urgent relook, they agree.

Mahure’s advice is: “The GST Council should prepare a detailed roadmap for next two-three years to provide an environment of tax certainty for businesses.”

Involving industry stakeholders in the decision-making process is the other areas experts agree on.

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