Goods and Services Tax (GST): The Road Not Taken
With the roll of Goods and Service Tax (GST) from July, 2017 after a waitlist of 17 years [i], the revolutionary tax system has subsumed various indirect taxes to form one tax that will be levied on value addition to goods and services. It is expected to defunct cascading effects of indirect taxes and regulate unorganized sectors. While it has put goods and services under the umbrella of uniform tax rates, this ‘one nation one tax’ system has miles to go before it becomes a hit in the country. Post resolving the tax rate structure[ii] dilemma, the system stands repugnant when it is to levy GST on services consumed across multiple States. Specific to Telecom industry, GST will be levied only where the user is registered and not where the services are availed during roaming. This “destination-based tax” system will, therefore, result in higher tax ascription to states that have more registered offices.[iii] Another major problem posed in the implementation of GST is its IT[iv]backbone, which a developing nation like ours lacks. Its operation hence requires complete IT-overhaul and re-engineering of tax and accounting departments.
The government has tried to curb long queues at state-border check-posts that scrutinize material and location-based tax compliance, by placing heavy reliance on E-way bills or RFID[v]. E-way bills can be generated online before transportation and carried on RFID device that will be scanned by the RFID Antenna installed at check-posts and will reduce the time taken by officials in the inspection. While the availability of its requisite infrastructure is an administrative issue, the big question here is on the technical know-how and willingness to invest among businesses in the country. Even in widely promoted digital India, small shipping agents do not yet have acquaintance with these technologies. Furthermore, a strong opposition has come forth from the e-commerce businesses who claim that this system of generating E-way bills is redundant in case of return shipments, which is very common in their business. It may also be noted that E-way bills will have to be generated in case a vehicle breaks down and goods are to be moved to another vehicle since each E-way bill is exclusive to the vehicle carrying goods.[vi]
GSTN: An Online Platform
An online platform GSTN[vii]has been established by the government where an assessee will be enabled to upload his sale or/and purchase invoices for government’s perusal and for availing input tax credit. The idea is that tax paid on output can be set-off against the tax already paid on inputs, provided the sale and purchase invoices of the transaction in question match. However, the government is yet to launch the GST Application Platform, an interface that will enable the assessees to directly upload the said invoices. The problems arising out of this infrastructure lag are manifold. In absence of such a platform assesses are forced to manually key in their sale or/and purchase receipts on the GSTN and the government had to extend the deadline for submitting invoices, by a month. Any discrepancy due to typing errors while keying in the entries may lead to a mismatch in the sale and purchase data, thereby depriving the purchaser of his validly due input tax credit.
To eliminate this trouble, taxpayers have been forced to engage GST Service Providers that provide a GST Application Platform to upload client’s data to the GSTN. This is not only a costly process that trivializes tax reduction endowed by GST but also compromises data privacy and data security. Concerns have further been raised regarding lack of backup resources which are a must to insure System Breakdowns, Force Majeure, Malware Attacks, etc.
Input tax credit has been subjected to matching of sale invoice and purchase invoice that are uploaded on the GSTN by the seller and purchaser, respectively. However, no redressal mechanism has been set forth in case a purchaser is deprived of his input tax credit due to the default of the seller. In other words, in case a seller does not upload the sale invoice, the purchaser shall not be eligible to claim input tax credit despite presenting a valid purchase invoice. Interestingly, this default of the seller will not affect the government’s revenue since the purchaser will already have paid the tax. Since the government will not have any interest in the sales invoice, remedy for the purchaser will become even more difficult. It is also pertinent that these invoices are made available on a real-time basis to avoid carry-forward and enable benefits to accrue down the chain. This process thus requires additional manpower, yet again adding to cost of each transaction.
Oil industries, on the other hand, have reported that they will suffer a hit of Rs. 25,000/- crores due to GST.[viii] This hit is on the lines of a technical loophole that the government while framing the policy, overlooked. Since 5 major oil products have been exempted from the GST regime, they continue to pay Excise Duty and VAT[ix]. This tax cannot be set off against the input tax credit accumulated on GST that was paid by this industry for machinery, services, etc. Similar problem will be faced by all those industries whose core product does not fall under GST. This inconsistency demands the re-enforcement of Article 14 right enshrined in the Constitution and also right to Trade under Article 19(1)(g).
As much as GST tries to unify indirect taxes and ease transactions, it has increased compliance burden on businesses and amplified costs. Little money saved on taxes is now being diverted to acquire appropriate infrastructure and professionals to meet GST requirements. Obscurity in necessary procedures and compliances, months after its coming into force, questions the efforts and competence of government to effectively implement this program. It is the first time that any nation has come up with the invoice matching concept and thus, its employment, dealings and effects have no precedents. The jagged entry of GST marks the beginning of the road not taken and we are to see if the government can transform all uncertainties into accomplishments.
[i] GST comes into force after 17 years of debate. (2017, July 01). The Economic Times. Retrieved from: http://economictimes.indiatimes.com/news/economy/policy/gst-comes-into-force-after-17-years-of-debate/articleshow/59394169.cms, Last accessed on 29th October, 2017.
[ii] A quick guide to India GST rates in 2017. (2017, September 10).The Economic Times. Retrieved from: http://economictimes.indiatimes.com/news/economy/policy/a-quick-guide-to-india-gst-rates-in-2017/articleshow/58743715.cms, Last accessed on 29th October, 2017.
[iii] Gayam, A. &Khullar, V. (2017, July 01).Four GST Implementation Issues That Should Be Carefully Considered. The Wire. Retrieved from: https://thewire.in/119853/gst-implementation-issues/.
[iv] Information Technology, Last accessed on 29th October, 2017.
[v]RFID Journal. (n.d.). Retrieved from: See http://www.rfidjournal.com/site/faqs#Anchor-What-363, Radio-frequency identification (RFID) uses electromagnetic fields to automatically identify and track tags attached to objects. The tags contain electronically stored information, Last accessed on 29th October, 2017.
[vi] Top 5 challenges faced by Tax &Accounting Professionals due to GST. (2017, July 04). The Economic Times. Retrieved from: http://economictimes.indiatimes.com/small-biz/policy-trends/top-5-challenges-faced-by-tax-accounting-professionals-due-to-gst/articleshow/59436292.cms, Last accessed on 29th October, 2017.
[vii] Goods and Service Tax Network.
[viii]Choudhary, S.(2017, May 22).Oil firms may take a collective hit of Rs 25,000 crore as a result of GST. The Economic Times. Retrieved from: http://economictimes.indiatimes.com/industry/energy/oil-gas/oil-firms-may-take-a-collective-hit-of-rs-25000-crore-as-a-result-of-gst/articleshow/58780359.cms, Last accessed on 29th October, 2017.
[ix] Value Added Tax.
By Akshita Saxena, 4th Year, BA LLB(HONS.), Symbiosis Law School, Noida