Honest, thorough reappraisal of GST long overdue

The goods and services tax regime completes three years on June 30, 2020.
The goods and services tax (GST) regime completes three years tomorrow. It has fallen short of expectations in terms of stability of laws, revenue growth, curbing evasion, ease of compliance and smooth movement of goods.

The GST laws were designed with the main objective of maximising revenue through extensive use of information technology that will detect and curb evasion. So, the laws drafted were very complex that gave way to thousands of changes over the last three years in response to problems pointed out from the operating levels.  In a way, it is a reflection of the responsiveness of the administration to the issues highlighted by the trade but the frequent changes have made the laws quite incomprehensible to even seasoned tax practitioners.

The GST regime was ushered in without adequate preparation of the information technology platform for filing returns. Many glitches that surfaced during registration, transition to the new regime and filing returns were addressed by amending the laws and the software frequently but still, quite a few issues went to the High Courts for resolution and suitable directions.  Now a new e-invoice system and a new returns filing system have been devised but their implementation is deferred due to the disruptions caused by the Covid-19 pandemic.    Till these new systems stabilize and the invoice matching becomes a reality, it cannot be said that the new GST regime is working smoothly.

In the meantime, the assessees are paying taxes and filing returns that are not subject to any scrutiny by way of assessment or audit. So, whether they adopt proper classifications, pay taxes at the correct rates, avail exemptions properly or claim input credits correctly is not known. It is when their books are audited by the department that the real picture and the real issues in the laws will surface. Meanwhile, many dubious and contradictory Advance Rulings have not helped. The GST Tribunals are not yet operational.

The abolition of check posts at States’ borders for entry of vehicles has helped easier movement of goods but that advantage is somewhat offset by powers to detain vehicles anywhere due to even minor errors detected in the e-way bills.  The jurisdiction for adjudication and appeal in such cases depends on the place where the vehicle is intercepted. So, a tax payer in say Tamil Nadu has to fight his case in say Bihar, where the vehicle carrying his goods is detained.

In the interest of consensus in the GST Council meetings, the tax rates have been reduced on a number of items. That, coupled with deceleration in economic growth through last nine successive quarters has lowered the tax collections. The States are complaining about delays in getting their legitimate share of taxes and compensation for the shortfall in annual revenues from the Central Government. The lockdown due to Covid-19 has worsened the situation.

Under the GST regime, the States got jurisdiction over 90 per cent of tax payers with turnover up to Rs .15 million and 50 per cent of the tax payers with turnover above Rs 15 million. Their inadequate understanding of the complexities in the manufacturing and service sectors, especially the export of goods and services, shows up quite often.

The GST Council should address these and many such problems that mask any gains from the GST. An honest and thorough reappraisal is overdue.

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