Modi 2.0, it’s time for a ‘good and simple’ GST 2.0

The party that introduced GST in India two years ago is back in power. To put it mildly, these past two years have been chaotic. As the law stands today, it is good in parts but there is substantial scope for changes to make it a truly ‘Good and Simple Tax’. With 60 months at its disposal, no Opposition worth mentioning, and reasonable GST collections, there cannot be a better time for the government to muster the political will to make GST a truly landmark reform.

Tax rates

After many changes, most GST tax rates appear to be in a sweet spot now. Without looking at revenues, the GST Council would do well to take a relook at certain industries where the rates could be realigned. For instance, keeping the GST rate for cement at 28% when the real estate industry is at 12% has no justification.

Restrictions on availing refunds on inverted duty structure would mean that the industry has to do some adjustments in pricing to off-set the negation of Input Tax Credit (ITC). If the pricing is changed, anti-profiteering provisions come into play. With no specific guidance available on how to calculate the quantum of anti-profiteering, one is left to look at a few decisions of the Authority for Advance Rulings (AAR) for clarity. Most AAR decisions are skewed in favour of the tax department as they are passing judgement on a law that is still wet behind the ears.

Though the anti-profiteering provisions were supposed to have a sunset date of June 30, 2019, indications are that it may be extended by another year. The government should take a firm decision to either put in place a mechanism to calculate anti-profiteering or do away with these provisions from July 1. For every charge of anti-profiteering, the defendant company has a counter-charge which invariably results in denial of ITC.

During the next five years, there will be pressure on GST revenues — the government should not make the mistake of resorting to ad hoc increases in rates on a few items or bringing in a nicely-worded cess on top of GST. While the intention to bring as many taxpayers as possible onto the GST bandwagon is laudable, attempting to do this through reverse charge on purchases from unregistered dealers will result in exactly the opposite.

The GST Act has provision for Compliance Rating of all GST taxpayers that is yet to be implemented. Government tenders could be decided on the basis of the Compliance Rating. CBIC should ensure that the Compliance Rating is free of controversy and some relaxations are given to small and medium enterprises.

Compensating states

The decision to compensate the states for loss of VAT revenue will have to be revisited at around the time of the next Lok Sabha elections. The Centre would have had visibility on the pattern of GST revenues for 60 months. It should put in place a mechanism whereby the compensation cess is withdrawn and states pacified on the quantum of revenues being shared. The government should also keep an eye on the fiscal deficit if it intends to extend the compensation to states beyond 2024.

GST portal

A look at what has happened since the introduction of GST shows that the software developed by Infosys was only a work-in-progress on July 1, 2017. The Central Board of Indirect Taxes and Customs (CBIC) and Infosys have learnt a lot over the past 18 months and have been able to fix many bugs that were encountered. The portal shows no signs of peak hour moodiness now, but the CBIC and Infosys should do multiple dry-runs of the new system of filing returns before launching it as it requires both the supplier and the receiver to spend a lot of time on the portal playing the game of matching their invoices.

Though the help-desk system for redressing grievances is improving, there is still no clarity on the ground in many instances when questions are asked. These questions normally are on the concepts of supply, availing ITC, reversing it, inability to file returns. CBIC should ensure that a set of GST officers in each state are well trained and equipped to answer any technical question on GST.

Notifications

One of the things that the government should do at the earliest is to seek professional assistance to teach bureaucrats the art of issuing simple notifications and circulars. To an existing set of unclear GST laws, if we add a bunch of equally unclear notifications, mayhem will prevail. The recent notification on the changes in GST rates for the real estate industry is a case in point.

A complete reading of the circular and an attempt to understand it would need lots of patience. CBIC should come up with a solution whereby the GST Acts, Rules and Rates are all changed on the portal once a clarification is issued. The notification can still be issued and kept in a database.

Appeals

As on date, most of the litigation in GST is at the door of the AAR. It should be ensured that there are sufficient appellate tribunals to hear and adjudicate on the avalanche of appeals that is expected.

History is testimony to the fact that justice, if at all there is such a thing in tax laws, happens mostly at the tribunal level. Internal instructions should be given to officers not to conduct “revenue-at-any-cost” assessments. CBIC is just about issuing the last set of service tax notices now. One can expect the first assessment-based GST notices sometime next year.

If the government misses this opportunity to bring in a better GST, we will be left with a very complicated law in 2024. In that year, voters will judge whether the erstwhile Central Excise/Service Tax/VAT laws were better than GST. If the answer to this question is positive, it may work against the government. Till then, taxpayers can only live in hope.

(The writer is a Bengaluru-based tax expert)