Since its implementation on July 01, 2017, the Goods and Services Tax (GST) regime continues to evolve on various fronts by way of rationalisation of tax rates, availability of exemptions, procedural amendments, etc. While the Government has been relentless in its efforts to iron out every crease, bottlenecks continue to persist. With the benefit of hindsight, here is a critical look at some of the significant triumphs and misses on completion of its first anniversary.
The major breakthrough for GST has been the replacement of multiple indirect tax levies at the Federal and State level. GST has not only obliterated the cascading effect of multiple taxes but has also led to uniformity in the legislative matrix and the applicable rates across all States.
What is also noteworthy is that the GST Council is proactively considering representations and feedback from all quarters of industry. The relaxations in compliance requirements, rationalisation of tax rates on various goods, postponement of effective dates of certain provisions such as tax collection at source, reverse charge on procurements from non-registered suppliers, etc. stand testimony to the responsiveness of the GST Council.
The receptiveness of the GST Council to industry feedback and consequent amendments to the GST legislations, reinforces the progressive nature of the GST regime. In addition, the Central Board of Indirect Taxes and Customs has been playing a catalytic role in spreading consumer awareness through periodic releases of FAQs, GST Flyers and organising workshops and seminars in various cities. This has helped bridge the gap between the taxpayers and the tax regime; previously there were few instances of such a collective onboarding approach on the part of the department.
As India has adopted a dual model of GST, to maintain the uniformity of the legislative framework, any amendments to the law, notified at the federal level, are required to be correspondingly notified at the State level. However, the inadequacy in administrative coordination between the Centre and the States has been quite evident from the time lag by the States in notifying changes in rates, or any similar changes in law. This has created a catch-22 situation for the taxpayers, during the interim period. For instance, while the Centre notified the retrospective applicability of the updated formula for refund of unutilised Input Tax Credit in an inverted duty scenario, the corresponding State level notifications are yet to be issued by a number of States.
In addition, where the objective of the law is uniformity throughout the country, the existence of State level Authority for Advance Rulings (AAR) gives rise to the possibility of judgments with conflicting interpretations on common points of law. This potentially gives way to increased litigation where there is no centralised or nodal authority to settle discordance.
Separately, there still continues to be a lack of harmonisation between the provisions of GST and customs laws. The concepts of composite or mixed supply, for instance, do not form part of the customs laws: the parameters for being construed as related persons and the methods of valuation of related party transactions differ under both laws.
Moreover, certain States – including Madhya Pradesh, Tamil Nadu and Punjab – levy additional local or municipal entertainment taxes in addition to GST. The imposition of sugar cess and agriculture cess is also being examined currently. In addition, certain petroleum products and alcoholic liquor for human consumption, continue to be kept outside the ambit of GST. While the inputs and input services used by these industries are exigible to GST, their final output products are subject to excise duty and sales tax. This is not only proving burdensome for taxpayers, but the levy of such multiple local taxes betrays the one nation one tax philosophy of GST, which scrapped multiple indirect taxes.
From a procedural standpoint, the GST Network portal which digitalised most procedures and compliances under GST, was intended to be a major step towards integrating taxation with technology by decreasing the requirement for interaction with tax officers. However, the inability of the IT infrastructure to efficiently support invoice matching, processing of refunds and forms, etc. is turning out to be a nightmare for the industry. In the process of transitioning and adapting to the new regime, the immensity of such compliance requirements for each of the States where a taxpayer has operations, coupled with the evolving nature of the legislation, though uniform throughout the country, has been proving to be a costly affair for taxpayers.
Further, the lack of clarity in the transitional credits provisions under GST has been a prime cause of various litigations in the form of writ petitions challenging notices issued by department, inability of the taxpayers to upload the information for carry forward of such credits, etc. Several taxpayers have also been approaching the AARs and making representations before the GST Council due to ambiguity on this front. Even then the Government is yet to issue appropriate clarifications in this respect.
The recent reports on the performance of GST are definitely an eye opener for taxpayers and the Government, reflecting both its achievements and failures. The Government is definitely learning from the problems it faced during the implementation of GST over the past year, as it is persistently engaged in upgrading GST version 1.0 to a better version GST 2.0. Based on its experience, industry feedback and recommendations, the GST council has already recommended various amendments to the GST legislations to weed out ambiguity on the treatment of various supplies, availability of credits, smoothening of compliances, availability of composition schemes to more taxpayers, etc. Therefore, the industry may look forward to such business-friendly amendments and a more stable GST 2.0 in future.