By Abhishek Jain
A year and a half of this new tax regime, while may have been a roller coaster ride for many, but any rational man would appreciate the concerted efforts of the Government to cover the distance to a utopian tax regime. Be it from rate rationalization to addressing issues of India’s exporters or from relaxing compliances to addressing issues which were jeopardising ease of doing business, this Government with the recommendations of the GST Council has found solutions to most impediments in GST.
Inclusion of the excluded sectors
While the businesses that have fully migrated into the GST regime are reaping the benefits of increased credits and other benefits, this new tax regime has to offer, excluded sectors like petroleum, diesel, alcohol, etc., have been grappling with the impact of a dual tax regime.
Typically, while the erstwhile taxes like VAT/ CST and excise duty continue to apply for the excluded sectors, as most of these businesses also have miscellaneous incomes, they are as well obligated to comply with the GST requirements; this entailing dual compliances and assessments for these sectors. This anxiety further being supplemented by the additional GST costs on their procurements, as credit of most of this is not available; the said being a concern for both the excluded sectors as well as real estate and exempt sectors like electricity.
Separately, unlike the erstwhile regime, concessional rates/ credit of taxes paid on procurements from excluded sectors is not allowed; as businesses procuring these goods are covered under the GST regime.
And essentially on account of the above, most tax experts believe that one of the significant milestones for India to garner the benefits of GST, is inclusion of these excluded sectors; essentially the benefit of free flow of credits.
The spirit of cooperative federalism should continue
One of the biggest triumphs associated with GST is the depiction of cooperative federalism, with almost all decisions on GST being taken with consensus among members of the GST Council. While every new law does initially have some hiccups, it was essentially the proactive outlook of this body that helped tackle these impediments and address major issues of businesses.
The efforts of this body, be it the basic construct of law, efforts on issuing clarifications on ambiguities in the law, relaxations on compliances or rate rationalizations are applauded and recognized by almost all businesses in India. Given the experience and outcome in the last one and a half year of this new tax regime, businesses yearn for continued depiction of cooperative federalism by the GST Council; with there being consensual efforts on addressing GST related hardships/ issues of businesses.
Relaxations for the initial period and alternate dispute resolution forums
As any law entails changes, decisions, etc to gear up, the GST law as well had witnessed issuance of multiple clarifications, rationalizations and amendments to address the ambiguities and worries of the industry. While most of these clarifications did bring clarity to the Government’s intent of specific insertions in law and taxability of certain transactions, businesses in the initial phase may have had a different opinion/ followed a different practice; entailing possible interest and penalty repercussions on businesses. In this regard, businesses are eagerly looking forward to amnesty schemes for settling anticipated disputes/ liabilities, if any for the initial phase of GST.
In the long-run, while businesses have an option of obtaining an Advance Ruling on aspects which warrant a clarification/ taxability of which is ambiguous as per businesses, the said option is generally a very tedious and arduous one for businesses with pan India operations; as they are required to obtain a clarification in each state of operation. Such geographically widespread businesses have been wishing for a national/ centralized forum for obtaining a clarification on ambiguous issues.
Intelligent data analytics and hence, restricted notices
Many businesses especially the service sector, have already started experiencing a manifold increased in enquiries/ notices from the Government; essentially because of a state level assessment. While data analytics/ data mining at Government’s end definitely should help prevent the tax evasions and identify the businesses in parallel economy, intelligent and evaluated data analytics/ enquiries, would help prevent unwarranted hassles to businesses and also yield faster detections of tax evasion by the Government.
Smooth transition into the new compliance regime
The GST Council has approved new simplified return formats and these are expected to be launched on a pilot basis from April and full-fledged from July this year. In the backdrop of the experience of businesses with the IT system, in the initial months of GST implementation, the Government should ensure a go-live for the new return filing system only after adequate dry run; especially in terms of the data traffic and load capacity of the system.
While the above are much wished for by the industry, to make this tax regime even more efficacious, it now is well-accepted by most that India has successfully orchestrated a successful indirect tax reform; and that with the continual commitment of the Government, India would witness itself embracing a utopian indirect tax regime.
Abhishek Jain is Tax Partner, EY India. Sonam Bhandari, Senior Tax Professional, EY India, also contributed to the article.