By Saloni Roy, Ankur Goel & Pankaj Tiwari
Introduction of Goods and Services Tax (GST) is a landmark indirect tax reform since independence, was introduced on July 1, 2017, which subsumed various erstwhile indirect tax levies. GST legislation, which is on the verge of completing a year on July 1, 2018, encountered resistance by various state Governments due to apprehension of loss of revenue.
While the road to ‘One Nation-One Tax‘ has been a topsy-turvy ride, the Government has put in best efforts to address various issues including political deadlocks, frequent amendments, clarifications and IT related chaos. With the completion of a year of GST, it is worthwhile to analyze whether the Government’s initiatives in addressing various aspects related to the GST statute, administrative framework, compliances, rate rationalization etc., have been successful.
Simplification of compliances
With the Government’s ‘Digital India’ initiative, the process of registration under the GST regime has been simplified, which is a step in the right direction. The process of physical submission of documents (prescribed under service tax, excise and VAT regime) has been done away with and the entire process is now automated.
However, such automation has brought challenges in migration of registrations from the erstwhile regime to GST regime (such as online verification of credentials), as well as in obtaining new registrations.
Further, the introduction of three monthly returns and matching of inward supplies of the buyer with outward supplies of supplier on a monthly basis, was criticized by the industry. Due to technical glitches in the GSTN portal (such as affixing of digital signatures, delay in making cash payments etc.), many taxpayers were unable to file returns in the first month itself. The Government also extended the due dates multiple times and eventually brought a summary return via Form GSTR 3B.
Addressing the above issues and industry concerns, the Government in consultation with various stakeholders, has decided to revamp the compliance structure by introducing a single monthly return, which could significantly reduce IT challenges and compliance burden.
Frequent GST rate slash and rationalization
In the process of GST rate fitment, Government introduced multiple GST rates viz. 3%, 5%, 12%, 18% and 28%.
However, various concerns were received from industry due to certain products being placed in a tax bracket higher than they were under the previous regime. In response, Government revised and rationalized GST rates on such items which needed immediate attention. These rate cuts reflected Government’s intention to remain flexible in addressing trade issues.
These rate cuts have been welcomed by the industry. In addition, Government is considering merging GST rates of 12% and 18% into a single consolidated tax rate to reduce multiplicity of taxes.
Exports and Refunds
The GST law came up with the concept of zero-rating for exports with or without payment of integrated tax. To avail the facility for exports without payment of tax, taxpayers were required to obtain a letter of undertaking (LUT) / bond manually. However, confusion prevailed over supporting documentation required to be submitted in different tax jurisdictions, which made obtaining LUT / bond, a tedious and cumbersome process.
The government has bridged such gaps by introducing online functionality for obtaining such LUT / bond, which has substantially reduced the time and effort of businesses.
Industry also expressed its dissent towards mechanism of disbursal of refunds since there was considerable delay in the integration of the customs and GST database. After much deliberation and representation from the industry, various circulars and clarifications were issued to ensure minimum requisite documentation for the purpose of verification of filed refund claims. Measures such as ‘Refund Fortnights’ have also helped to clear the backlog of refund claims considerably.
The Government was keen to introduce e-way bill mechanism to monitor the movement of goods vis-à-vis supplies reported in GST return and also to reduce tax evasion.
After an unsuccessful attempt at implementing the e-way bill system in the month of February, Government took initiative and improved the system with enhanced capabilities and functionalities. With the success of the redesigned system which was earlier made applicable for inter-state movement of goods, such system has also been effectively implemented for intra-state movement of goods. This has eliminated the requirement of state level e-way bill portals.
Further, businesses have had apprehensions in accepting the e-way bill system due to increased burden of compliances. However, with a glitch free system, businesses have been given an effective and convenient tool for requisite compliances.
Anti-profiteering provisions have been introduced to ensure that businesses pass on the benefit of any additional input tax credit or reduction in tax rates to customers arising due to introduction of GST, by way of commensurate reduction in prices. The Government has established administrative framework including committees and a national anti-profiteering authority to address the complaints of the consumers.
However, anti-profiteering provisions lack in providing a specific mechanism and guidelines to determine benefits accruing to businesses and to check whether such benefits have been adequately passed on to consumers. Owing to the lack of clarity, businesses are struggling to estimate and then demonstrate that the aforesaid benefits have been appropriately passed on in the entire supply chain.
Thus, there is a need for clear guidelines for businesses to determine the aforesaid benefits. This will save businesses from the hassles of anti-profiteering inquiries.
Revamping the structure of Advance Rulings Authorities
Authority for Advance Ruling (AAR) has been set up in every state to provide clarification on various technical and classification issues to facilitate businesses to avoid litigation.
Contrary to a centralized advance ruling authority set up under the service tax / excise regime, setting up of state-level AAR has resulted in divergent views on a similar matter. Recently, the AAR in the states of Maharashtra and Gujarat issued conflicting views by treating the processing of goods as manufacture and job-work respectively. Hence, despite setting up of state level AAR, there has been more confusion instead of bringing in consistency.
To address the above issue, the Government is planning to set up a centralized AAR with officers from the centre and states, to address multiple applications on a similar matter. It is indeed a welcome step that will signal the government’s willingness to pro-actively address such administration issues and give confidence to taxpayers.
Additionally, the GST law provides for setting up of an Appellate Authority for Advance Ruling (AAAR) on a state level basis, where an aggrieved party can approach AAAR for review of an order passed by AAR.
Currently, certain states (such as Tamil Nadu, West Bengal, Gujarat etc.) have notified the setting up of AAAR. However, these have not become operational as the members have not yet been appointed.
Sector wise initiative
GST being a new law has brought a new set of challenges for various industries. To resolve industry worries, the Government has set up 18 sectoral groups such as oil and gas, telecom, mining etc., to better understand industry concerns and to interact with different sectors.
Pursuant to the above, the Government has also taken a step forward to issue sector-specific frequently asked questions (FAQs) to address practical application and to provide clarification on concerned areas.
As seen from above, the Government has taken various initiatives and a continued steady attempt is being made to address concerns of the industry. In the second year of GST, it is expected that with the Government’s pro-active measures and industry participation, the desired objective of ‘One Nation-One Tax’ would be achieved.
By Saloni Roy is Senior Director, Deloitte India & Ankur Goel is Manager, Deloitte Haskins and Sells LLP.