gst: why the GST needs an administrative overhaul rather than rate changes

On July 1, 2017, the GST was launched in the hope of reducing the cascading effects of double taxation, which in turn will reduce the overall tax burden on goods and services, making them more competitive in domestic markets and international. Also, the indirect tax system in India was expected to be simplified as many taxes were subsumed under the GST. Additionally, the GST was to bring more automation into the indirect tax ecosystem. Although the introduction of the GST has helped bring about significant change and achieve the goals, there is still work to be done to fully achieve the goal of calling the GST a “good and simple tax”.

Right now, a lot of attention and discussion is focused on rate rationalization, which was also discussed at the 45th meeting of the GST Council held on September 17, 2021. There is no doubt that rationalization of rates is needed but GST rates do not seem to be a problem as it has mainly four to five tariff baskets which are needed considering the population and diversity of India. It cannot be compared to the EU or Singapore VAT system.

From an industry perspective, they are asking for more clarity on tax classification and other related issues. Although they have been given the opportunity to request an advance ruling in case they have tax problems, the same has not achieved all its objectives as the majority of them are in favor of income. The AAR approach should not only lead to increased revenue, but also provide relief or guidance to the taxpayer.

Furthermore, the power given to the tax authorities must be used judiciously to avoid any inconvenience faced by innocent taxpayers. Today, we have so many writs filed on certain practices followed by tax authorities, be it for credit blocking, credit mismatch, export interpretation and many more. We cannot deny the fact that there have been tax frauds, but if we see the number of these cases of fraud, it could be a very small fraction. Most taxpayers strictly obey the law and pay the appropriate GST.

In order to gain the trust of taxpayers, the administration must work effectively as a facilitator rather than a mere tax collector. All investigations should be conducted in such a way that only non-compliant assessees are questioned or held accountable. Otherwise, diligent taxpayers who honestly obey the law and pay fair taxes will be hurt. There are criminal provisions under the GST Act for fraudulent practices undertaken by the taxpayer, there should also be similar provisions to hold tax authorities accountable to avoid harassment of the assessee in issuing notices unnecessary or making bad orders leading to years of litigation. While much has been said about state-of-the-art compliance practices for an assessor to follow, there is also a need for similar accountability on the part of tax officials.

A change of mentality and an effective methodology is the necessary step to make the GST a “good and simple tax” for both taxpayers and managers.

(Sachin Menon is Partner and Head – Indirect Tax, KPMG India and Kirti Oswal is Chartered Accountant)

(The one-stop destination for MSMEs, ET RISE provides news, views and analysis on GST, exports, finance, policy and small business management.)

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