GST: Reviewing The First Month Of Rollout

The first month of the Goods and Service Tax rollout has been smoother than many of us thought it would be. Such a radical reform, keenly awaited and observed by all concerned, would be expected to have some disruption but it has not been significant. All the stakeholders – government agencies, industry and consumers need to be complimented for this.

The government has been quick to respond to challenges and has issued a series of clarifications, press releases and FAQ (Frequently Asked Questions) documents on issues ranging from the rate of tax, the applicability of tax, impact on prices in specific sectors, procedure and documentation. Such extensive use of social media by the government, especially Twitter, was never seen earlier. And though helpful, it has resulted in some confusion given seemingly contrary views on the same issue. Overall, the government has shown swift action on the ground, which has certainly helped.

The industry has been largely supportive and with the notable exception of the textile sector, there has not been any major resistance across the country. There has not been any significant shortage in supplies and prices of products have not increased either, barring a few cases where the effective rate of tax has gone up significantly.

Consumers, though curious, have not found any major difficulty either. There have been reports of transportation of products becoming easier and efficient, which means that accessibility for consumers has improved.

While relatively smooth, the first month has also seen few challenges and concerns.

While these levies are not part of the new indirect tax regime, one would have expected a little more restraint from states in the initial few months, until GST settles in and consumer confidence builds up.

Also Read: GST: One Month Appraisal

There has been considerable confusion on anti-profiteering provisions and a few states have been making random enquiries and asking companies to provide details of pre-GST and post-GST prices of their products, along with details such as dealers' and retailers' margin and so on. This really does not help, as the industry is left guessing the purpose of these enquiries – both verbal and in writing – where the law itself lays down the mechanism for action based on the consumer's complaint in specific cases. Unless the GST Council quickly takes note of this and comes up with a suitable clarification to deter the overzealous authorities, this could spread like wild fire, which would then be difficult to contain. The industry also awaits guidelines as to how profit on account of GST needs to be computed and passed on to customers – whether it has to be product wise or entity wise, gross level or net level, immediate or staggered and so on.

One of the objectives of GST was ‘ease of doing business', an aspect which perhaps has not got the attention it deserved.

There are multiple new documentation and procedural requirements, which have come up, which need to be looked at. The requirement of executing a bond or letter of undertaking for service exporters including supplies to special economic zones is one such requirement, which was hitherto not needed. This has created several on-ground issues, where companies, as well as the authorities have been struggling. It has delayed the billing in many cases, which perhaps is also reflected in a significant reduction in the services purchasing managers' index in July.

The question is that if the legislation prescribes conditions for zero rating of exports, why do we need to have another document reiterating the same conditions and undertaking of compliance?

Similarly, the requirement of self-invoicing in the case of purchases from unregistered dealers and issuing receipt note in case of advances needs careful evaluation, as these lead to an enormous increase in paperwork for companies.

The rate of tax on a few products has increased substantially, as 14 percent of items find themselves covered under the 28 percent bracket. These include multi-functional printers, furniture, construction equipment and so on. The car leasing industry has been running from pillar to post to get some relief on existing car leases, where the tax incidence has gone from 13-14 percent to 43 percent in some cases.

Tax administration is another area, which requires immediate attention.

Only a few states have set up advance ruling authority, which is required for companies to obtain clarity on various interpretation issues.

The next big milestone would be August 20 when the first summary return is required to be filed. Goods and Services Tax Network has said that businesses can start the filing from now itself, which does help. The success of GST would depend on the robustness of the IT infrastructure and this is one aspect which needs to be monitored carefully.

All in all, the initial portion of GST has certainly been ‘good', but there's still a long way to go to make it as ‘simple' as we all expected it to be.

Pratik Jain is a Partner and Indirect Tax Leader at PricewaterhouseCoopers.

The views expressed here are those of the author's and do not necessarily represent the views of BloombergQuint or its editorial team.