This is my first article since the introduction of Goods and Service Tax (GST) across the country on July 1. Much has been written and spoken about it prior to its introduction, and now the time has come to face this indirect tax reform and evaluate its impact on the industries in particular and the taxpaying consumers in general. What began as a single tax at a single rate for all goods and services across the country, has now taken shape of a complex web of taxes having different forms of charge such as the Central Goods and Service Tax, State Goods and Service Tax and Integrated Goods and Service Tax along with different rates of taxes (5 as of date) ranging from 5% to 28% on different products and services. There is no denying that GST is aimed at bringing more people and business houses into the tax net, but its biggest test will come from lack of skill among taxpayers in using digital tax reconciliation.
Take for instance under the erstwhile Value Added Tax (VAT) Act, a business enterprise needed to file 4 returns online one for each quarter, and two returns under Service Tax Act one return each semi-annually. This is now replaced by three returns per month under GST add to it an annual return over and above these three returns per month, making it a grand total of 37 returns per year per state. That’s not all to ensure that GST works as it should, everyone falling under its preview will have to file through an online government bookkeeper known as the GST Network (GSTN). This online bookkeeping network will have to tally and link every entry in the supply-chain of goods and services, to the central as well as state tax databases. That’s a whooping few billion invoices each month.
In my earlier columns on GST, I had mentioned that the essence of GST is to eliminate cascading effect of taxes ie tax on tax by allowing credit towards tax paid in every stage of the supply chain. To ensure this every return filed online under GST has to be absolutely accurate without any scope for errors, a single erroneous entry from manufacturer to distributor and distributor to retailer will lead to mismatch of particulars making it impossible to take input tax credit against the respective transaction. So in other words each taxpayer will not only have to ensure accuracy for himself but for other stakeholders to make tax reconciliation possible. To give you a rough idea that’s around 15 things to tally, from accurate addresses, correct codes to tax rates all in a single invoice. Now imagine a small and medium enterprise, which has to come to grips with e-filing and do so without making a single error on any of the parameters leaves a lot to be desired. Lace that with other issues such as erratic power supply to hinterlands and country sides, lack of internet facilities and proficiency in using it. This is where GST filings may start to hassle taxpayers.
There still remains a lot to be desired as far implementation of GST is concerned. To begin with taxpayers need to be sensitized about compliances under GST that includes usage of software’s and computers alike. Training needs to be given about the need for synchronisation of various stakeholders within the supply chain. Information and Telecom infrastructure should be uniformly made available across the country for smooth conduct to digital operations including helplines in regional languages with well-trained tax officers. If all this is executed, GST rollout promises to become what it’s meant to be: an effective tax model, otherwise, it might fester into a messy swamp. One only hopes that these are teething problems which will be overcome in due course of time, and procreate a tax-friendly environment for doing business in India.
