Skip to main content

Simplicity, uniformity take a back seat amid frequent tweaks in GST

While rolling out the goods and service tax (GST) from the central hall of Parliament at midnight of 30 June 2017, Prime Minister Narendra Modi told the nation that the new indirect tax system will unify its divergent state economies with ‘one nation, one tax’ right from Leh to Lakshadweep. About 18 months later, the biggest tax reform since India’s independence is still in a fluid state of continuous change as businesses, especially the small ones, struggle to cope with the rigours of a technology-driven and transparent tax system that has cast its net far and wide to bring at least 3.4 million new indirect taxpayers. Some of the concessions to small businesses announced earlier this month by federal indirect tax body, the GST Council, ahead of parliamentary polls due by April-May, raise fears about sacrificing some of the basic design advantages of GST over the previous regime— simplicity and uniformity. The changes imply that policymakers are still struggling to make the reform acceptable to a large number of small taxpayers without a backlash in a market where the culture of tax evasion is rampant.
GST REGISTRATION
The GST Council at its last meeting on 10 January decided to let states choose between two possible criteria—?20 lakh or ?40 lakh annual sales—for businesses to get GST registration as it could not arrive at a consensus on doubling the current threshold level to ?40 lakh for all. This brings back divergent tax base for states, somewhat similar to what existed in the pre-GST era where small businesses with sales ranging from ?5 lakh to ?40 lakh needed registration for value added tax (VAT) depending on the state.
“Having two state-specific turnover threshold limits can shake the foundations of GST. One can only hope that local businesses will put pressure on those states that refuse to raise the threshold, to eventually raise it to ?40 lakh and bring it at par with the other states,” said a member of the Council, who asked not to be named.
The states are currently in the process of taking a call on the threshold that suits their local economy. Kerala, which is recovering from the worst floods in a century that submerged large parts of the state last year, will opt to retain ?20 lakh annual sales threshold for GST registration, while Delhi, Jammu and Kashmir, and Assam have opted for ?40 lakh. Another member of the Council, however, said concessions aimed at giving compliance relief to small businesses were a necessity. “Even in most advanced countries, it took twothree years for GST to stabilize. India is far more diverse. Besides, in election time, we have to be sensitive to the aspirations of people,” said the person, who also spoke on condition of anonymity.
“When there are different legal provisions in different states, uniformity takes a hit which is a step backwards,” said R. Muralidharan, senior director at Deloitte India. This could also encourage some units to move to other states for staying out of tax net, the kind of distortions India tried to address with the tax reform. Senior director, Deloitte India
RETURN OF THE CESS
In the first case of introducing a state-specific cess to mobilize funds for reconstruction after a calamity, the Council allowed Kerala to levy a 1% additional tax on supplies within the state. Considering floods, cyclones, landslides and draught that occur in different parts of the country from time to time, this could set a precedent for other states to go for similar levies in addition to GST with the permission of the Council. “Though the cess is for a noble cause and for a limited period of up to two years in the case of Kerala, it dilutes the concept of ‘one nation, one tax’. Businesses have to make changes in their IT systems and in invoicing,” said Abhishek Jain, tax partner, EY India. These changes follow either suspension or dilution of some of GST’s anti-evasion features that businesses claimed were onerous. These include a provision for matching the invoices of suppliers and buyers and making large businesses responsible for collecting and paying taxes on behalf of unregistered vendors. Besides, those entities that sign up for a concessional flat tax scheme called composition scheme can now file annual tax return while paying taxes on a quarterly basis.
REFORM GOALS ACHIEVED
GST has, however, helped in adding 3.4 million new indirect taxpayers, according to Economic Survey of FY18 and has helped in formalizing the economy. It has also improved transparency in the tax system and reduced the tax incidence on a host of products and services. This, despite the fact that the administration is not on a tax enforcement drive. The number of items in the highest slab of 28% has also been brought down. The Council is now working on using data from radio frequency identification tags attached to vehicles to verify whether e-way bills or electronic permits issued for goods shipment are misused. The idea is to collect data passively to check tax evasion and boost revenue receipts. GST could see further changes with the opposition Congress party making it an election issue, arguing a revamp is needed.
 
The Mint, 23st January 2019

Comments

Popular posts from this blog

Data storage norm splits digital payments industry

Data storage norm splits digital payments industry  India’s nascent digital payment industry could be thrown into disarray due to the demand by the Reserve Bank of India (RBI) that all user data be stored within the country, fears an industry grouping, which has termed the decision as “heavy-handed”, even as others, including the country’s largest digital payment provider Paytm, have hailed the move.  In a bid to narrow the growing schism, the industry is planning to send a formal representation to the regulator highlighting its concerns, a top official told ET.  “We are trying to build a consensus on the issue," said the person adding that the representation to the central bank will be ready this week.  RBI on April 6, mandated all payment companies—global and local—to set up data storage facilities within India by October. The stringent six-month deadline has attracted the ire of several sections of the industry that fear it will lead to a disruption of wel...

Sebi to finalise options in commodities today

The Commodity Derivatives Advisory Committee of the Securities and Exchange Board of India ( Sebi) will meet on Friday with senior officials of the latter, to give a final shape to the rules on options trading in commodity futures, beside revising the warehousing norms to ensure good delivery on settlement. The decision taken, after discussing with the advisory committee, will be placed before the regulator’s board, to finalise the regulations. According to knowledgeable sources, three commodities in each segment, agricultural and non- agricultural, have been proposed for introducing options. It appears commodities from the soya and guar segments are preferred in the former. From the non- agri segment, it is likely that gold, silver and crude oil will be finalised. All these These have better liquidity and both the National Commodity and Derivatives Exchange and the Multi Commodity Exchange, respectively, will be able to introduce the options. In the equity segments, options ar...

E tailers global warehouses may come under tax net

E tailers  global warehouses may come under tax net Warehouses of e-commerce companies based in countries such as Australia, Japan, Italy,  Spain, the Netherlands, and Russia may not be exempted from paying the income tax in India  once the multilateral instrument (MLI) to prevent base erosion and profit shifting (BEPS)  comes into force. BEPS refers to the reporting framework mooted by the Organisation for Economic  Co-operation and Development (OECD) and signed by over 100 countries, including India, to  prevent exploiting gaps and mismatches in tax rules to shift profits by multinational  companies (MNCs) artificially to low-tax regimes. The representatives of 68 countries on June 7 this year signed an agreement (MLI) in Paris  to amend their tax treaties to bring them in alignment with measures to prevent BEPS.  However, there is still time for synchronising tax treaties with the multilateral  instrument. India has submitte...