By Rajeev Dimri & Abhishek Jain
A common GST for India first got its in-principle go-ahead in 1999 and became a reality on July 1, 2017, paving the way for the ‘One Nation, One Tax’ vision. It has been half a decade since India welcomed its biggest change in the indirect tax system. It can be said that GST has certainly brought down tax barriers across the country by cutting out the cascading effect of taxes, expanding the tax net, and eliminating multiple indirect taxes. With the introduction of GST, both the Centre and the states have pooled their powers to achieve uniformity and remove compartmentalisation in indirect taxation, setting an example of cooperative federalism.
While the high points of GST ecosystem are numerous, the introduction of digitisation at a massive scale for indirect tax compliance merits special mention. A pan-India technology platform has been adopted, which has not only enabled businesses to operate smoothly, but has also reduced manual intervention. Both tax officials and business owners are now able to ensure a smooth filing process and keep an eye on all transactions. This has enabled various regulatory bodies to easily communicate with one another, helping identify tax evaders easily. Further, the analytical tool(s) adopted under GST have largely been successful in preventing leakage. With the advancements proposed in the 47th GST Council meeting to implement IT reforms to verify antecedents of the registration applicants and adopt risk-based monitoring, it is expected that revenue leakage will be further curtailed. However, we would be painting an incomplete picture without discussing the challenges for GST, and the way forward.
Reduction in number of tax slabs
GST in India has four prominent tax slabs—5%, 12%, 18%, and 28%. These have long been expected to be done away with. Considering that slab rationalisation is already on the cards as hinted in the 47th GST Council press briefing, perhaps the government can also consider bringing down the number of tax slabs to align the Indian GST rate structure with that of other countries.
Central appellate body for advance rulings and GST tribunals
Various State Authorities for Advance Rulings (AAR) have passed conflicting decisions under GST, leading to confusion amongst businesses, making it difficult for India to truly achieve uniformity across jurisdictions. This has made setting up of a Central Appellate Authority for Advance Ruling one of the key demands of the industry players. Another request here is to expedite the setting up of the GST tribunal. While the 47th GST Council has decided to constitute a Group of Ministers to look into the setting up of GST Tribunal and concerns thereof, the government should consider fast-tracking it.
Expanding the GST network
The recent uptick in inflation has intensified the demand to bring petroleum product(s), electricity, and other excluded sectors under GST. Doing so will have many benefits including reduced costs for industrial consumers as taxes would be fully fungible.
The question of anti-profiteering
The anti-profiteering provisions, namely Section 171 of CGST Act and Rules 126, 127, and 133 of the CGST Rules , have been challenged in the courts for violating Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. Meanwhile, various companies are arguing that given that it has already been five years since the introduction of GST, and considering that the pandemic has materially changed the cost/business environment for companies, the government must bring forth a sunset clause on the anti-profiteering provisions, to have market-driven pricing of goods/services. If at all anti-profiteering needs to be continued, the government should consider limiting the same to the recent rate reductions, if any, introduced under GST.
Industry expectation from the government includes streamlining audits, investigations, and assessments, including prevention of overlapping notices being issued by central and state authorities. Since departmental audits are just starting under GST, a range of disputes are expected to spark up. To limit these to the maximum extent possible, it is of paramount importance that the government ensures that uniform practices are followed across states. Furthermore, expectations from the government include allowing for cross utilisation of CGST credit across states and the liquidation of accumulated credit amongst others.
GST, in its half a decade tenure, has largely met the stakeholder expectations and targets that it set out to achieve. These five years can be characterised by digitisation of compliances, successful coordination between the Centre and states, and the understanding of GST law being established among businesses and on-ground authorities. Going forward, the government should focus on ironing out the few issues and challenges that still remain while targeting to reach revenue neutral collections. If the current trajectory is to continue, India will soon be one of the examples of successful GST implementation for the world.
The writers are, respectively, national head, Tax and partner, Indirect Tax, KPMG in India.