Without doubt, GST is a landmark reform in the history of indirect taxes in India. Implementation of GST meant overhauling a plethora of taxes and duties and the coming together of all states for a unified tax structure. A reform of such magnitude came with its own complications and saw a tumultuous first year, which is now well behind us. As India prepares for the second year of GST, several challenges remain and must be addressed in due course. Let’s take a look at them.
Further simplification of GST return filing
The GST Council has committed itself to further simplification of GST returns, at the same time improving compliance and collections is of high priority. The original return filing via matching could not take off and was kept on hold for the purpose of simplification. However, easier means to claim credit and faster refund process itself would increase compliance. This would mean placing heavy reliance on technology at the same time making sure interests of buyers are not impacted due to non-compliance of sellers. Keeping return formats easy and brief while making sure all relevant data is available will be challenging. Design of the monthly single summary return must be supported by the designated fields for auto-population of details from the Invoices uploaded and accepted by the supplier and recipient respectively, wherever necessary to avoid the errors. Further, smart tools for vendor-buyer reconciliations are necessary.
E-way bill Implementation has more hurdles
The implementation of E-Way bill saw delays with initial technical instabilities but found gradual adoption by all the States. This led to reduction in transportation costs, real-time tracking of goods in transit and borderless unification of all states. What needs an immediate action is to streamline the portal in line with the rules prescribed and address specific concerns of the logistics sector. IRN generation will relieve truck drivers from carrying the tax invoice. Not just this, but the much awaited RFID that works similar to a fastag system is expected to digitize the logistics sector and improve the delivery time. It auto-detects, verifies consignment, gathers information about GSTIN and stores the same for moving vehicles. The information collected can be used further by any concerned agencies and lead to faster movement without stoppages.
IGST refund delay needs to be sped fast
Delay in sanction of IGST refunds for export houses created a lot of unrest. This created working capital friction in the exports sector. One of the reasons for delay can be attributed to data- transmission gaps between GSTN and Customs EDI system. Others included mismatches in the amount of IGST paid on export goods between GSTR-1 and GSTR-3B as declared by taxpayers. Seamless means to seek refund is likely to boost compliance.
Setting up a Central Advance ruling authority
Advance authority rulings give a binding clarity on GST matters to taxpayers. However, these rulings are passed by the states and currently there is no overseeing authority at Centre that ensures the uniformity of rulings across different States on a given matter. This has left the taxpayers call for an appellate authority to address their concerns.
Oversight of the Rulings by an unbiased central authority along with setting up of State-level appellate authorities for better administration of this system is a solution to any conflicts in the judgements passed by various State authorities.
Frequency of filing GST returns by different class of taxpayers
The frequency of filing GST returns is different for different class of taxpayers like composition dealers (i.e Quarterly) and regular taxpayers that includes the large enterprises (i.e Monthly). Due to this, there can be a time lag in claiming of Input tax credit by a recipient of particular class and the declaration of details of sales by the corresponding supplier of another class. Many times, the recipient belonging to a particular class may insist his supplier upon filing of returns in concurrence with his due dates, which may or may not be fulfilled by supplier in all cases.
This can happen vice versa as well. This can lead to possible delay in payment processing by the large enterprise recipients that can adversely affect the small supplier’s business credit. But with the proposed GST return filing in the making, it is to be tested how the new single summary return alongside a parallel window of invoice upload and acceptance by seller and buyer respectively, will resolve this issue.
Clearer picture for destination-based model
GST works on destination based tax model. This means the consuming State earns the GST revenue. Place of supply provision are of utmost importance under GST, on whose determination IGST or CGST and SGST gets attracted.
There are still clarifications required with regards to certain transactions like complex bill to and ship to situations. One can expect possible litigations surrounding place of supply provisions due to conflict of interests between States.
Deliberations on bringing price-sensitive sectors in India under GST
Indian consumers will end up shelling out nearly Rs 30,000 crore extra every year towards payment for power consumption unless electricity is brought under the Goods and Services Tax. The power companies are not able to set off the GST liability paid on the purchase of coal, it’s transportation charges, purchase of generators and it’s maintenance due to distribution of electricity being out of GST. Thereby this leaves no scope for a reduction of price.
There are many such products like petrol, natural gas, aviation turbine fuel, real estate that is currently kept out of GST’s ambit. The previous value-added tax (VAT) and CST rules would continue to apply to the excluded products, however, the related sectors continue to incur huge GST impact on all inputs without any set-off.
All said, difficulties are a part and parcel when anything new is introduced. They are the hurdles that need to be crossed and it is time to prepare for the next phase of GST.