Of unity, automation and compliance: Mapping the four-year journey of GST in India

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Karan Kakkar
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The goods and services tax marked its fourth anniversary on 1 July 2021. It is time to take a step back, evaluate its impact and efforts required to make it one of the most successful tax reforms in indirect taxation.

India made a breakthrough move by introducing a new Indirect tax regime-goods and services tax (GST) also termed as ‘One Nation One tax’ in 2017. The rationale was to create more effective and efficient tax regime that could curb multiple taxes existing at the Centre and state and promote ease of doing business in India.

In erstwhile tax regime, the Indian taxpayers had to make strenuous efforts to comply with indirect tax laws because of multiple procedures, multiple registrations and dealing with multiple tax authorities. GST has subsumed various indirect taxes viz. excise duty, value added tax, central sales tax, service tax etc., which has certainly led to integration of multiple taxes and overall ease of compliance.

While the government is working pro-actively to resolve issues faced by taxpayers across industries, the industry is continuously learning to adapt to the changes. Standardisation of legislation and compliances across India has been a boon for traders and manufacturers earlier grappling with separate compliances under multiple laws. On the other hand, as opposed to a centralized registration and compliances earlier, the shift to state-wise registrations and monthly compliances has increased the compliance burden for the services industry. To address concerns of businesses, the government has made a proposal to consolidate all periodical returns into a single return. The GST Council is already working on the new format and necessary IT-related changes to make this effective. With the simplified return filing model, it can be expected that GST will become a far smoother process than what it is right now.

Since the inception of GST, there has been an overall increase in revenue for the government. by increase in taxpayer base, automation and digitization of the Indirect taxes and ease of doing compliances.

One of the main objectives of GST was to create an automated indirect tax ecosystem i.e., replace Inspector with IT. Digitisation of processes in filing of returns and refund claims helped in reducing personal interface in the processes and brought more transparency in operations for taxpayers. Later, introduction of e-invoicing and e-way bill proved to be a gateway of digitisation of business processes.

E-way bill, an accompaniment to the nationwide GST, was launched in 2018 to track the movement of goods across the country and curb tax evasion. Introduction of E-way bill system led to removal of inter-state check points leading to no unnecessary delays in transit. The system has evolved in the last three years with additional functionalities such as auto calculation of distance based on pin codes, verification of vehicle number, blocking of e-way bill for non-filers and integration of e-way bill system with e-invoice system.

E-invoicing was another technological reform introduced on 1 October 2020 when organisations with turnover greater than INR 500 crore were mandated to raise invoices digitally. This was a system of interoperable electronic invoices generated by taxpayers but authenticated by the government through the e-invoice portal. This digital push in compliances was much needed and appreciated by the Indian Inc. There were certain initial technological challenges with regard to issuance of E-invoices through the portal and confusions around requirement of QR code but the same have been ironed out over a period of time.

Another aspect where the government tried to digitise and ease the compliance burden on taxpayers was to bring matching concept for a seamless flow of input tax credit (ITC). ITC can be taken if the recipient accepts the information furnished by supplier and vice-versa. However, in case of any discrepancy between the information furnished by the supplier and the recipient, the same shall be communicated to both the parties in the form of mismatch report. To the extent, suitable rectification is not made, the recipient is required to reverse ITC on the same.

Numerous taxpayers registered under GST are receiving notices from the department asking them to explain the mismatch of ITC claimed in returns vis-à-vis tax reported by their vendors. The taxpayers have been asked to reverse ITC along with interest and penalty. The matching concept was introduced to prevent fraudulent availment of ITC and, to this extent, the department is undeniably right in acting for disciplining the same. However, the rightfulness of the action gets impugned when it trespasses into the rink of bona fide taxpayers. This was also taken up by the High Court recently wherein it held that the recipient cannot be denied credit due to a default by the supplier. The industry is hopeful that the government will bring some mechanism to provide respite to honest taxpayers.

Additionally, GST was introduced with a motto to make India a unified market which has also been well established as the GST rates across the country remain uniform. That is why today, unlike in the pre-GST times, the tax rate is not a key criteria for a business while determining where it wants to set up operations. A business can base its decision purely on commercial considerations and fiscal packages that states offer to promote investment. However, the core theme of unified market may get diluted if states continue to levy cesses, such as Kerala flood cess, COVID-19 cess. The industry is also hopeful of further rate rationalisation measures and the expectation is that the government may reduce the number of rate slabs.

Also recently, to ease in doing business, the government replaced the requirement of an annual reconciliation statement between annual returns and financial statement by a chartered accountant with self-attestation. However, companies must take note that this would put a higher onus on them since appropriate reconciliations would have to be reported and certified by them.

With good intent but marred by tech glitches, GST has completed four years and it is safe to say that many improvements have been seen since, through various policy updates. The Government has taken necessary measures to fill the loopholes in indirect taxation system which came in way of smooth implementation of GST. It’s worthwhile to acknowledge their efforts to support taxpayers by announcing measures like extending compliance timelines, waiving of late fees and penalty whenever required.

GST still is in its nascent stage, as Government and experts are still digging into the new tax regime and coming up with policies and clarifications. There is still a room for improvement with regards to frequent technical glitches and teething troubles, hurdles on the seamless flow of credit, streaming AAR rulings and bringing goods like petrol, diesel, ATF etc. under GST. In the times to come we should expect further evolution of GST going on to achieve greater success.

This article was originally publised in Comércio, an online magazine by Kirori Mal College.