A simpler tax system—one that will subsume multiple taxes imposed by state and central governments and eliminate the cascading of taxes. This was the promise of the Goods and Services Tax when it was first launched in July 2017. It was even dubbed the "good and simple tax".
Six years on, there is a requirement for an appellate tribunal mechanism, a need to weed out fraudulent registrations, false input tax credit claims and offer a simpler tax rate structure, according to experts.
In the 49th GST Council meeting in February this year, the Council of Ministers agreed on setting up of the Goods and Services Tax Appellate Tribunal. They were expected to finalise the language of the recommendation and BQ Prime had reported that the GSTAT was expected to start hearings by the end of the year.
However, there is still a lack of clarity on the blueprint of the GSTAT system that will take over from its predecessor—the Customs, Excise and Service Tax Appellate Tribunal.
While there has been a delay in launch of the GST Tribunal, the industry is optimistic that decisions on setting it up would be taken in the next council meeting and the GST Tribunal will soon become a reality, said Mahesh Jaising, partner and national leader of indirect tax at Deloitte India.
The 50th GST Council meeting is expected to take place in New Delhi on July 11.
Need For Reforms
According to the GST@6 survey by Deloitte India, which featured 612 industry participants across six industry sectors, most of the industry leaders appreciated the GST system and agreed that it led to a reduction of goods and services costs.
They expressed the need for additional reforms to encourage "ease of doing business", including bringing about uniformity in approach to audit, investigation and scrutiny across jurisdictions to propel sectoral growth in the next 1-2 years.
Shashi Mathews, partner at Induslaw Legal LLP, said that as the system evolves, so do the complications. "The menace of fake invoicing has hounded GST for the last six years and while the department is taking measures and actively prosecuting such cases, it can be said that the same is sometimes to the peril of honest taxpayers, who are subject to intense scrutiny and business disruption," he said.
The Central Board of Indirect Taxes and Customs is currently conducting a nationwide campaign to curb fake registrations and fradulent input tax credit claims.
Earlier in the month, CBIC Chairperson Vivek Johri said that 43,000 cases were under verification in the ongoing special drive, out of which 10,000 entities had been identified to have falsely claimed GST.
A financial implication of Rs 15,000 crore had been identified as fake input tax credit claims being passed on by bogus entities, Johri told reporters in New Delhi, after a trade facilitation event conducted by the Confederation of Indian Industry.
The CBIC started its campaign to identify fraudulent invoices and GST registration on May 15, and it is expected to go on till July 15.
The implementation of GST has made it easier for taxpayers to comply with tax law & this can be seen in the fact that the number of registered taxpayers has increased from 1.03 crore taxpayers that enrolled into GST by April 1, 2018 to 1.36 crore by April 1, 2023. #6YearsofGST pic.twitter.com/0bNNopQdmg
June 30, 2023The Next Phase
From simplification of procedures and paperwork to the latest decriminalisation of offenses, the 49 GST Council meetings held so far have ushered in landmark policies.
Some of the biggest milestones on the technology front have been the auto-population of returns and matching of credits between parties, e-way bill process and the launch of e-invoicing back in October 2020.
"Specifically, the staggered manner of introducing e-invoicing has given the businesses as well as the government ample time to make necessary changes to the Enterprise Resource Planning and accounting systems, while bringing in transparency and establishing audit trails,” Jaising of Deloitte said.
From a revenue perspective, the GST collections have emerged from the pandemic-induced slowdown, with the current record for gross monthly collections reaching Rs 1.87 lakh crore for transactions in March this year.
In FY23, GST collection buoyancy demonstrated 22% growth, indicating resilience of the economy, according to the Deloitte survey.
Industry Wishlist
GST Appellate Tribunal
As people await clarity on the GSTAT, there are several unanswered questions, according to Rajat Bose, partner at legal advisory firm Shardul Amarchand Mangaldas.
Bose expects that multiple state-level tribunals could raise concerns on the consistency of judgements and lead to divergent interpretations.
“A similar issue might be faced by companies across state lines, and if they all seek litigation and go to the tribunal, then we'll have multiple tribunals ruling on the same issue. This would be inefficient in terms of judicial resources,” he said.
He highlights how the Customs, Excise and Service Tax Appellate Tribunal had regional benches and a principal bench in New Delhi. But in case of GSTAT, each and every state will have benches. "This will also mean finding enough judicial members and technical members to appoint, which has been a challenge that CESTAT also faced,” he said.
Rate Rationalisation
In July last year, the Group of Ministers came out with an interim report on on rate rationalisation. It sought to remove inverted duty structure, review and rationalise exemptions and decide if rate mergers were necessary.
With the change in the political leadership in Karnataka, the Chair of the GoM for rate rationalisation will have to be re-elected, before work on the final report of the GoM can proceed. While Krishna Byre Gowda will stand in as the new Council representative from Karnataka, a replacement for the former Chair and Chief Minister Basavaraj Bommai is likely to be decided in the upcoming meeting.
Complete rate rationalisation continues to be a key item on the industry wishlist, Jaising said. “In terms of rate rationalisation, close to 30% of the survey respondents are in favour of a single-rate system.”
Other Concerns
The other industry concerns include export rule liberalisation under the GST law, with 78% of respondents in the Deloitte survey voting for it.
It was followed by a demand for unlocking working capital measures such as cross/distinct person utilisation of CGST credit balances (77%) and removing ITC restrictions (68%), such as those pertaining to employee expenses, and setting up of commercial infrastructure.
According to Bose, policymakers need to focus on the tax treatment of company expenses leading up to an initial public offering, GST liability on transfer of leasehold right, and GST levy on the difference in acquisition costs of intellectual properties and intangible assets—including goodwill, trademark, etc.—when companies engage in mergers and acquisitions.
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