Things Look Pretty Bad

One Year of GST

Raman Swamy

It has been 12 months of anxiety, apprehension and stress for tax-payers, big and small—especially traders, transporters, shop-keepers and even consumers. But for the bureaucrats and technocrats directly involved in GST implementation, it has been the most nerve-wracking experience in their lives and careers.

It is a wonder how Dr Hasmukh Adhia, who as the Union Finance Secretary, has been the official midwife of the gigantic operation to transform the entire indirect taxation system in the world's most populous democracy, still manages to live up to his name and keep a smiling face.

On the occasion of the first anniversary of GST (misleadingly called "One Nation, One Tax"), Dr Adhia had the difficult task of presiding over numerous birthday celebrations without looking worried or sounding gloomy. He accomplished that with the time-tested formula—wherever he went he uttered the magic words: All will be well.

His audience, mostly comprising of industry captains and tax lawyers, did not mutter under their breaths.

Instead, they pressed him for clarifications, concessions, explanations and assurances. He listened to their numerous grouses and sob stories and responded with classic agony aunt empathy, sympathy and consolatory reassurances.

He even admitted that the first year of the "experiment" had been a rich "learning curve" for all. He frankly confessed that there had been "missteps" and "shortfalls". He underscored the "flexible" approach of the authorities and pointed to hundreds of "course corrections" that had been made during the tumultuous first 12 months.

Those at the helm of the GST machinery, he said, were constantly striving to make continuous efforts to smoothen the path, to simplify the GST rates and to rectify the glitches and imperfections. He insisted that the introduction of the GST had been an overall success but that did not mean there was no scope for improving the system.

Regarding simplification of rates and slabs, he said: "We fully understand the need for simplification but you must also appreciate the time constraints were working under and also the need to keep in mind the revenue and societal concerns of economically weaker sections of the population".

It may have been cold comfort to the entrepreneurial classes to be reminded that India is still a land where vast swathes of the populace live a hand-to-mouth existence. But their primary concern was to keep their own businesses afloat and also to avoid falling foul of the stringent GST provisions against non-compliance and default.

Many wailed that what they found most back-breaking were the multiple tax slabs, perplexing maze of exemptions, cumbersome returns processes and terrifying compliance procedures. There were also bitter complaints about the utter unreliability of the online infrastructure that made them vulnerable to penal action even though they were ready and willing to file returns.

On this last grievance, Hasmukh Adhia was refreshingly forthcoming—"It is technology that has failed us", he said in a burst of candour.

He elaborated in some detail by saying that smooth transition to the era of GST from the previous indirect tax regime depended hugely on seamless hi-tech functionality. The GST Network is the technological backbone of the entire exercise. The personnel responsible cannot be accused of not doing their best, but despite their efforts, computers can sometimes fail.

This was an admission by the Finance Secretary that made ears prick up—The GST Network (GSTN) is indeed the vertebrae that handles Registration, Invoice uploading, Tax Return filing and Tax Payment system and is run and managed by IT giant Infosys. Adhia's explanation was: "Since we had to meet a certain deadline, we needed to hurry up the processes. We hope to fix the technical problems. Marvelous people work in the GSTN. Give them some time, all will be well".

A survey carried out by Local Circles on the 1st anniversary of the GST showed that a whopping 50 percent of businesses are still having trouble logging in and submitting information on the GSTN. That apart, there are more hitches, glitches and grievances than just the technological inadequacies. The majority feel that even after one year, GST continues to be time-consuming and costly.

Even though the government has tried to be proactive in addressing the problems faced by taxpayers, the changes also bring in confusion—GST rules and compliance procedures are being constantly fine-tuned; issues are being clarified at a frantic pace by not only issuing circulars and public notices, but also through FAQs, tweets and e-fliers. All this is quite bewildering and almost impossible to keep up with.

It is worthy to note here that since the rollout of GST, the law has evolved considerably with the government issuing multiple circulars and notifications for clarifying the scope of provisions under the GST law.

The tax rate structure under GST has also undergone multiple revisions since implementation. There have also been many revisions to the procedures and formats prescribed under GST rules.

Not surprisingly, tax advisors, chartered accountants and lawyers are having a boom time. The thousands of imperfections in the GST law have left enough scope for litigations and disputes. The long list of writ petitions and advance rulings provide just a glimpse of the flood of litigations to come.

What is even more worrying is that, from the authorities side, multiple proceedings have already been initiated against many taxpayers on the premise that the input credit of various cesses imposed prior to the introduction of GST, was not available for transition in GST. Further, companies have already started facing multiple investigations relating to anti-profiteering, transitional credit and e-way bills.

Surprisingly, it has been discovered that clarifications issued by the government through informal means (tweets, e-fliers, FAQs), are not legally binding on taxpayers and tax authorities. In some cases, it has been noticed that these clarifications are contradictory and not in line with legal provisions. Therefore, while the intention of the government has been to promptly clarify important aspects through accessible channels for taxpayers, in reality, this is only abetting confusion and litigations.

In the year ahead, observers anticipate that classification disputes due to multiple tax rates, input tax credits, scrutiny of tax returns and technical problems in the GST Network, are likely to be among the most contentious issues.

Meanwhile the GST council made up of all the state finance ministers beside the union finance minister, announced a major overhaul on the tax rates on items such as refrigerators, washing machines, vacuum cleaners among others with can eye of polls in Madhya Pradesh, Chattisgarh and Rajasthan in November and December. But it is still "unreformed" as former Union Finance Minister P Chidambaram said the other day and it is nowhere near the concept of a single rate tax. The belated move by the GST Council is aimed at wooing middle class voters —plain and simple.

Vol. 51, No.4, Jul 29 - Aug 4, 2018