gst: To cut, or not to cut GST rates, that is the question – The Economic Times

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On one hand, tax revenues have dwindled to unbelievable levels and on the other hand businesses are bleeding and looking up to the government for a bailout.

The 40th GST Council meeting scheduled to be held on 12th June 2020 is perhaps, the most important Council meeting in the last three years. It comes at a time when neither the government nor any expert in the field of economics is in a position to predict what the future holds for the Indian economy. There are more questions than answers.

On one hand, tax revenues have dwindled to unbelievable levels and on the other hand businesses are bleeding and looking up to the government for a bailout. While there is no doubt that the government needs to seriously look at measures to shore up the revenue, it has to tread cautiously so as to not force companies to go out of business. One thing which is clear is that the only reason for the revenue decline was because businesses were shut for almost two and a half months, hence, the tax collections will increase only if businesses are given the breathing space it requires to recover from the impact of lockdown and use its resources to get consumers back to the market.

It is expected that the GST Council will, in particular, focus on certain sectors which have been worst hit due to the lockdown and are expected to go through challenging times at least in the near future. These sectors are hospitality, aviation, real estate and automobile. Measures such as payment of GST on receipt basis as opposed to invoicing basis, widening of credit pool and allowing credit on CSR activities and personal protection equipment, rationalization of GST rates, especially for auto sector are some of the measures which can be looked at by the government.

A lot of businesses are also facing huge bad debts as payments are hard to come by from customers. Similarly, tenants are finding it difficult to pay rents, especially in malls and high street locations. However, since GST is payable on invoicing, in most cases GST has already been deposited on such transactions. This has resulted in a double whammy for tax payers as they have not been able to recover the consideration for the supplies and have paid the GST from their own pocket. The GST council should certainly look at measures to ease this particular pain point of the industry by providing a suitable mechanism to all business to take suo moto adjustment of such GST against future GST liability.

The upcoming council meeting should also be used as a platform by the government to set-up a think-tank to deliberate on measures which can be implemented in the near future to strengthen the economy by giving more capital in the hands of businesses as well as increasing revenue collection by increasing tax base.

Some of the measures which can possibly be looked at are:

  • Deferred GST payment mechanism where a portion of GST collected can be retained by the businesses and used as capital for a short period of time, say 18 to 24 months and can be paid thereafter to the government in equal installments
  • Increasing tax base by bringing in items such as oil and gas within the GST framework
  • Rationalizing the rate structure and bringing down the rate slabs from 4 to perhaps 2
  • Bringing certainty in tax application and governance.

This is also a time to evaluate how honest taxpayers can be rewarded and distinguish them from companies who are merely trying to take advantage of the relief measures. The government can explore introduction of rating or point system in the near future wherein top rated companies can enjoy certain privileges such as faster processing of refunds, having dedicated GST relationship managers, extension of time limit beyond 180 days for credit reversal in case of non-payment for goods or services or even getting better lending rates from nationalized banks.

While it is true that now is one of the most challenging times that the country is going through which will have a long lasting impact on the economic condition of the nation, it is also true that perhaps now is the time to convert this crisis into opportunity by implementing out of the box measures, which can possibly insulate the country from an economic depression. Businesses drive economy world over. They are the engines of economic growth. The government needs to put in the right fuel in the engine and hope that the sheer consumption capacity of India coupled with the resilience of Indian businesses will act as the PPE kit for the Indian economy and see the country through during these testing times.

(The writer is, Partner, Indirect Tax at Shardul Amarchand Mangaldas & Co)

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