india

Updated: Sep 14, 2019 07:25 IST

India’s Goods and Services Tax (GST) is a little over two years old now. The first year was about transitioning to the new indirect tax regime and dealing with the initial teething issues. In the second year, the government tried to bring more stability and simplicity to the law while reinforcing its efforts to expand the taxpayer base, primarily through more efficient use of technology.

In a diverse country like India, a reform like GST hadn’t been expected to be a cakewalk — and so it has proved. There is a general consensus that GST has reduced the overall tax incidence in most cases and also brought greater efficiencies to the supply chain, but there is a perception that compliances has consumed too much time and effort.

As we move ahead in the third year of GST, the government must be concerned that revenue buoyancy is much less than expected. The April to July 2019 collections were somewhat encouraging, but revenue slipped to Rs. 98,202 crore in August. To be sure, it may reflect economic realities on the ground, but plugging tax leakages at the business to consumer (B2C) level has posed a big challenge to the government.

The government is now looking to increase its revenue by using robust data analytics, a new compliance framework with inbuilt checks to reduce misuse of input credits and initiatives such as e-invoicing. Industry expects a simpler, stable and transparent tax regime that is globally aligned.

Here are few things that can possibly be done:

Greater ease of doing business

Businesses are concerned as to how the assessment and audit procedures would work on the ground, particularly because there is pressure on government revenue and GST laws are still evolving; many aspects of the new regime are still unclear.

It is important that the government comes up with detailed, sector-wise guidelines for audits and also considers setting up groups for a few complex sectors such as banking, oil and gas, telecoms, and so on. This is where most mature tax jurisdictions across the world are heading towards.

Consultation with taxpayers as an assessment procedure by tax authorities is a globally recognised practice. This gives taxpayers the opportunity to clarify their position on potential issues and enables the tax authorities to get a clearer picture. A similar process has already been introduced under customs laws and can be replicated in GST as well.

Managing cash flow of businesses

The cash-flow requirement of businesses has increased substantially under GST. In order to ensure effective utilisation of taxpayers’ money, the government could explore introducing a well integrated model for collection of direct and indirect taxes at the central level. One possible measure is to allow the amount of tax paid in excess or input tax credit under GST to be offset against the liability of tax under other statutes like Income tax.

At present, businesses need to have state-level balances of Central GST (CGST) as well as State GST (SGST). There is certainly a case to allow the CGST accumulated in one state to be used as an offset against the CGST liability of another.

This sort of mechanism will facilitate the taxpayers in making optimum utilisation of their cash or credit balances and would also help the government to significantly reduce its own operational cost in management of taxes (including collection of taxes and paying refunds) under different statutes.

Incentivising consumers

End consumers cannot reclaim the GST they pay for their purchases, and consequently, have no incentive to ask for a GST invoice. At the same time, non-issuance of GST invoices enables retailers to avoid reporting GST on their supplies. This also opens avenues for them to avoid paying tax on their income.

Many countries are looking at incentivising end consumers to create a more compliant tax ecosystem. Given the situation, the government may want to consider introducing some schemes to incentivise end consumers. These schemes may be in the form of cash incentives, cash back on uploading of invoices, discounts to consumers who seek invoices from suppliers, rebates in income tax basis the total amount of GST paid on procurements made during the year, and so on. Government and public participation is necessary to put a robust tax framework in place.

Rationalisation of tax rates

Inclusion of non-GST products (such as petroleum products and alcohol) under the ambit of GST has been on the government’s agenda for quite sometime. It is time that the government now takes proactive measures to build a consensus among the states to bring these products (which may start with industrial fuel, aviation turbine fuel and natural gas) under the GST net. The government should also consider merging the two rate brackets (12% and 18%) into a single one in the range of 15-16%, in line with global standards.

So yes, there is much to be done yet, but a lot has also been accomplished. If all the stakeholders work together, there are reasons to be optimistic.

(The author is national leader, indirect tax, PwC. With inputs from Sumit Bansal, associate director, indirect tax, PwC)