A press release issued after the recent meeting of the GST Council stated that amendments to the GST laws would be made in Budget 2020. This year, GST would be in its third year and the word is that the government is contemplating GST 2.0 – a revamped version of GST. If done well, this would be exactly what is needed to bring back the mojo of GST.
Since its introduction, the GST story has been one that posed multiple challenges in almost all aspects of the law warranting changes in rates, rules and regulations. Shortcomings in the software that ran the GST portal resulted in the system of claiming credit and paying taxes being open-ended. This, in turn, prompted some taxpayers to claim input credits based on fake documents which made the agency concerned look at every taxpayer with scepticism.
Some other taxpayers —who quickly reached a conclusion that the law is complicated —chose to opt-out of the system. For a large part of these 30 months, GST revenues have flattered to deceive. The government had to resort to restricting availing credit through artificial means with an eye on improving revenues.
The million-dollar question is, will GST 2.0 turn everything around considering that there is so much to do? While only elapse of time can answer this question, we can look at the areas under GST that are crying out for reform.
The government will have to think of coming up with solutions soon to make good their promise to compensate state governments for loss of revenues due to the implementation of GST assuming a tax buoyancy of 14%. Angst in state governments are rising and with the ruling government losing their stranglehold that they had over the nation, the number of states that are going to protest will only increase.
This disconnect was clear in the 38th meeting of the GST Council when the tax rate on lotteries was put to vote—something that had not happened in the previous 37 meetings. If no viable solution is forthcoming, the states may want to collect some local levies to make good their losses. On hindsight, assuming 14% growth was the height of optimism and the present slowdown in the economy is not helping either.
New return system: Almost 33 months after it was supposed to be introduced, a new system of filing returns that is based on the concept of matching of invoices is set to be introduced from April 1, 2020. The demo version appears to tick all the boxes but the efficacy of this system would be known only when taxpayers begin using this system altogether in real-time. On the introduction of this system, the government should remove the artificial restrictions on credit that were imposed through Circular No. 123 and 129.
Though the tax rates under GST have reached some level of normality, there still remain some outliers such as tax on cement being at 28% while most other components in the construction industry are at 18% or 12%. The fitment committee should take a relook and align these rates since refunds on the inverted duty structure are becoming hard to come by.
The Council should also discuss whether there is truly a need for a Harmonised System of Nomenclature (HSN) Code for GST rates. The HSN was developed by the World Customs Organisation (WCO) with a vision to classify goods all over the world in a systematic manner.
While this could be required for customs purposes, whether the same long laundry list of codes are needed for CGST/SGST is to be thought over. The long list of HSN codes are due to the lawmakers indulging in a lot of hair-splitting to decide different rates of tax, say on coconut water that is refrigerated, not refrigerated or sold in unpacked condition.
Anti-profiteering: Section 171 of the CGST Act stated that in case there is a reduction in the rate of tax or the taxpayer gets the benefit of input tax credit, he should pass on that benefit to the buyer, else he will be charged with anti-profiteering.
However, the rules did not specify the manner of computing anti-profiteering nor did it give any bandwidth to the taxpayer to change pricing till certain limits. Many unsuspecting companies in the real estate and fast-moving consumer goods industries have been held guilty of anti-profiteering.
Some of these companies were just getting to know the GST laws when these demands were made on them. Since the formula to compute anti-profiteering has not been formulated, there is no window available to the taxpayer to ascertain what he has done wrong. The anti-profiteering provisions are best removed from 1st July 2020.
Assessments/Appeals: Since the GST returns for the first year of GST are yet to be filed, assessment are yet to be filed. Assuming that assessments commence soon, the Central Board of Indirect Taxes and Customs (CBIC) should ensure that the GSTAT offices are up and running and are manned by competent personnel.
Litigation is going to be rampant in the GST era. Based on experience from the Central Excise and Service tax regime as well as the first few years of the Authority for Advance Rulings (AAR) under GST, taxpayers would not be wrong in concluding that their chance of getting justice is only at the GSTAT level as most of the assessments prior to that level tend to be pro-revenue.
Budget 2020 provides an opportunity to the finance minister to do the needful for the revamped GST system. While it is obvious that iffy GST revenues may not prompt the government to undertake major reforms, it should be noted that adjustments in rates are very few and are required only for the outliers.
During their first innings, this government had a penchant to coin catchy phrases. They could use “GST 2.0 in 2020” if and when the all-new GST is unleashed on the nation.
(The writer is a Bengaluru-based tax expert)