While in months like November/December 17, the dip in
collections was on account of the rate reductions for
various products, these reductions also led to more
enforcement measures such as e-way bills in order to
curb possible evasion leading to lower collections.
From the business side, many businesses have become more
organised as their business partners prefer dealing with
organised businesses to ensure that input tax credits
are not lost. This has also meant that several
businesses which were otherwise underpaying taxes have
now come clean as payment of tax is now a business
necessity without which their business partners would
not deal with them.
From the consumer side, unlike the experience in some
other countries, GST in India did not lead to an
increase in retail inflation. While this could in part
be attributed to the introduction of the
anti-profiteering law, it is also because the rates
under GST for many products were lower than the
effective rates for excise and VAT earlier and
competitive pressures ensured that the rate reductions
were passed on.
As we near the completion of one year of GST, we must
take stock of some of the changes that we can expect in
the second year of GST.
The GST base is expected to be broadened over time with
petroleum products, the real estate sector in its
entirety and electricity coming into GST. These
inclusions will require consensus in the GST Council and
hence the concerns of various states need to be
addressed. It may also be prudent to approach the issue
of GST base expansion in a phased manner with a planned
inclusion of products at pre-determined intervals based
on an agreed road map. Using this approach, we could
possibly see the inclusion of natural gas and Aviation
Turbine Fuel (ATF) in the GST fold in the initial phase
and fuels like petrol and diesel in the next phase. This
would allow mid-term corrections based on the experience
in the earlier phase and also allow industry to plan
ahead.
Several changes in GST compliance during the initial
phase had disturbed businesses and hence there would be
a conscious effort to reduce the level of compliances in
the coming year. This could take the form of fewer
returns, simplified returns, reducing the periodicity of
filing returns for some categories of taxpayers etc. It
is also expected some requirements such as invoice
matching, which are cumbersome for SME’s, could be made
mandatory for larger enterprises and optional for
smaller entities. Similarly, the insistence on reverse
charge being applied on transactions with unregistered
enterprises, which was kept in abeyance, could be
re-looked as this requirement has not found large scale
acceptance amongst businesses.
The anti-profiteering legislation and supporting bodies
have largely been relying on their persuasive powers to
ensure that the benefits on account of lower net taxes
are passed on to consumers. This approach is expected to
continue as there is continued agreement that in most
sectors, market forces will help in ensuring that the
benefits are passed on to consumers and appropriate
prices are charged . The need to intervene could be
exercised selectively in a few sectors where price
inelasticity prevails. In any case the tenure of the
anti-profiteering law is restricted to the transition
period of two years after GST introduction. Hence the
operation of the legislation would come to an end in
June 2019.
The Authority for Advance Rulings (AAR) formed to
provide rulings on GST matters has finally taken off and
we have seen a flurry of decisions in the past few
months in various states. While some of them have taken
cognizance of business practices and have applied the
legislation in a realistic manner, some of the rulings
have taken views divergent from existing business
practices. There have also been a few rulings where
divergent views on the same issue have been taken by
different states. These have led to filing of appeals
against the AAR decision. The appellate bodies for the
same have been notified in only some states and have
been functioning in fewer states. It could be prudent to
have a national authority to decide matters relating to
businesses having multi-state operations. It is equally
necessary to speed up the appellate process as the
advance rulings serve the role of precedents in GST and
are very useful in interpretational matters.
While many of these measures would be industry friendly,
it is essential to remember that business friendly
changes can only be expected when compliance and
collections are on an upswing. If the compliances and or
collections dip and are short of the targets set for the
year in the Union Budget, we can also expect to see a
raft of anti-evasion measures. Some measures such as
e-way bill have already been introduced for inter-state
and intra-state movements by all states. More measures
such as mandatory invoice matching, compulsory reverse
charge together with more of enforcement measures can be
expected if the collections fall short or evasion is
suspected.
The next one year is expected to usher in the
stabilisation phase of GST where more and more
businesses become organised and compliant so that the
both businesses and the government are able to reap the
benefits of the most significant tax reform of our
times.
Source::: Firstpost,
dated 18/06/2018.