GST was launched with much
fanfare at the midnight of 30th June 2017. Touted as the most
important tax reform since independence, the same immediately met with extreme
reactions on both sides. Some course corrections were also carried out in terms
of reduction in tax rates, extension of due dates, filings, suspension of many
of the complex provisions in the law and the like.
Nearly a year since its’
implementation, GST continues to be the talk of the town. Last week, I met a
friend and in casual discussions, I could sense an element of frustration. When
I asked for the reasons, he explained that the deluge of due dates, to a large
extent sponsored by GST, just keep him super-busy and the compliance costs had
increased drastically. During the discussions, another friend joined in and he
had a diametrically opposite version to offer. He was very happy with the
introduction of GST and saw it as an opportunity to streamline his business
processes.
These diametrically opposite
versions, coinciding with the anniversary of GST prompted BCAS to conduct a
survey on the taxpayers’ reactions towards the implementation of GST. The
BCAS survey on GST included a cross section of industry verticals with
constituents of differing scale and complexity of operations. This article
summarises the key takeaways from the said survey. To ensure
confidentiality, as requested by many of the participants, the names are
avoided in this article and reference to the position and industry is provided.
Whether introduction of GST was a step in the right
direction?
The rollback of GST in Malaysia
was the backdrop of the above question in the survey. Surprisingly, not a
single participant responded in the negative. The jury was unanimous. The
country was fed up with a plethora of indirect taxes like sales tax, VAT,
excise duty, service tax, CST, octroi, etc. Therefore, the dual levy of GST,
implemented in a unified manner was hailed by all the participants. To quote
the response of the Global Tax Manager at a large software exports company,
“This kind of reform under Indirect Taxes was the need of the hour I
congratulate the policy makers for that.”
Has GST resulted in ease of doing business?
To the next question on
analysing the impact of GST on the ease of doing business, the mood amongst the
participants was that of cautious optimism. While most of the participants felt
that there was an improvement in the ease of doing business, they felt that the
extent of improvement could have been better. Perhaps the initial teething
troubles resulted in this hesitation in response. The response of the AVP-GST
at a large diversified listed company summarises this mood well, “Over a period
of time once streamlined then it (the ease of doing business) will improve.”
Has GST resulted in reduction of product costs and
prices?
On the question of the impact
of GST on product costs and pricing, again the jury’s view generally was that the costs have reduced due
to lower cascading of taxes and free flow of input tax credit. However, certain
sectors did see an increase in costs due to working capital blockages and
related issues. To quote the response of the Finance Controller at a midsized
pharmaceutical manufacturer, “Working capital requirements have increased and
funds are blocked due to procedure and timelines of refunds for exporters.”
Is the GST tax rate optimal?
Again, most of the
participants were comfortable with the rate of tax and to that extent the
response was not surprising. An astutely managed fitment of rates coupled with
a course correction of rate on many items kept most of the people happy.
However, some pockets were affected. The tax manager at a large public sector
bank responded “W.r.t. Banking sector, GST has really not resulted in cost
efficiencies. In fact tax outgo has
increased. Further, w.r.t. banking services, the GST rate could have been lower”.
Similarly, the Finance Controller at the pharmaceutical manufacturer felt that
instances of inverted rate structure could have been avoided.
Has GST resulted in increase in compliance costs?
On the question of increase in
compliance costs, the general response was that GST did result in increase in
compliance costs. The transaction level uploading and multiple return
obligations perhaps resulted in such increase in costs. The increase in
compliance costs was more felt by small and mid sized organisations. To quote
from the response of the AGM of a small diamond assortment company, “Yes, the
number of returns and details to be provided in return is considerably
increased resulting in additional costs.”
Does the structure of dual GST present an inherent
risk of divergence?
The multiplicity of enactments
and the autonomy provided by the Constitution to both the Centre as well as the
State prompted this question. As of now, all seems well. However, what would
happen once the period of assured compensation for revenue loss is over? Will
some States digress from the uniform GST Structure? In response to this
question, most of the participants felt that a reasonable political consensus
has been achieved on the front of GST and there should really be no reasons to
worry. However, the response of the AVP at a large diversified listed company
was different, “I fear risks in consensus between Centre and States going
forward once there is a coalition based Central Govt.”
Is the allocation of administrative jurisdiction
between Centre and States fair?
The dual GST structure with
allocation of tax administration between the Centre and the State Authorities
has been a unique experiment in the Indian context. In response to a question
in this regard, most participants could not respond since they did not have
first hand experience of interaction with the respective jurisdictions.
However, the response from the public sector bank suggested some discontent on
this front, “Assessees seem to be allocated between Centre and State
Authorities in a random manner. Proper communication has also not been sent
which has led to confusion among assessees.”
Are there challenges in the legal provisions
pertaining to GST?
In various technical sessions,
it is highlighted that the legal provisions of GST present inherent conflict
and could result in litigations. The spate of litigations in the High Courts
and the advance rulings revalidate this aspect. Interestingly, the responses of
the industry on this front appeared to be much more forgiving.
The industry seems to have
reconciled to the expanded definition of supply and taxation of branch
transfers. The General Manager at a large cement manufacturing company
summarises the response, “Earlier also Excise Duty was paid but it was a cost.”
In fact, the Global Tax Manager at a large software exports company sees this
provision as a positive provision. In response to a pointed question on whether
there are difficulties on account of this extended definition of supply, he
responded, “In fact its otherwise the tax on branch transfer allows the credit
chain to remain intact.” GST is an interesting tax, people want to pay the tax!
One common resentment on the
legal provisions pertained to taxation of advances. It was unanimously
criticised by most of the participants. Luckily as a part of course correction,
tax on advances pertaining to supply of goods was kept in abeyance. This
presents another set of challenges. To quote the AVP-GST at a large diversified
listed company, “Its (The obligation is) onerous as at the time of advance the
purpose is not known.”
The place of supply rules not
only determine the nature of the tax but also the Government which effectively
enjoys the tax. In that sense, these rules go to the core of the GST
Implementation. Most of the constituents were reasonably happy with the
drafting of the rules and did not foresee any major risk of interpretation on
this account. With the aggregate tax remaining the same, the approach of the
industry seemed to be to take as conservative a stand as possible. As one of
the respondents stated, “We are taking safe route.”
On the requirement of matching
of input tax credit, the opinion was fairly divided. While some felt that this
requirement was fine, others felts that this resulted in an onerous obligation.
Some suggested a middle route to substitute the invoice level matching to
vendor level matching. There was also a feeling that the restrictions in the
claim of credit should be done away with. To quote tax manager at a large
public sector bank, “Restrictions can be further rationalised. In Banking as it
is 50% ITC is reversed so the list of ineligible items should be further
reduced or done away with.” Similar responses were received to do away with
restriction on claim of credits for employee related costs.
Were you able to use the portal effectively during
non-peak days?
Even the uninitiated would
know by now that the IT System for implementing GST was not totally ready at
the time of implementation and is still a work in progress. In fact, most of
the backlash against the Government was around this aspect of the portal not
supporting a smooth transition into GST. In this
context, the response to the above question was a bit surprising with many
participants suggesting that the portal was fine to use during non-peak days.
However, in case of errors like digital signatures not matching, browser
compatibility issues, etc., it appeared that the industry was left to find its’
own solutions. Most of the responses expressed dissatisfaction about the
response time from the helpdesk. In fact, the response from the public sector
bank was, “(Our issues are) Not yet resolved in spite of repeated follow up and
reminders with GST helpdesk.”
Did the nationwide rollout of eWay Bill System bring about
uniformity, ease of doing business and
transportation?
The first phase of
implementation of eWay Bills resulted in the system crashing on the first day
itself, resulting in postponement of the implementation. Thereafter, the system
has been implemented across the nation. In this context, the above question was
posed and most of the respondents felt that the system did bring about a
uniformity and ease of doing business and transportation. Those from the
service sectors like banking were less impacted. However, an interesting point
of view was presented by the global tax manager at the software company, “when
invoice wise details are reported to GSTN there is no case for eway bills, it
needs to be scrapped.”
Did the outreach programs of the Government help in
transitioning to GST?
Last year, around this time
saw an unprecedented flurry of outreach programmes from the Government. To its’
credit, the Government did try quite a few things to educate the trade and
industry about this gigantic reform. “FAQs, sessions with business/ Chambers
helped” was the crisp response from one of the participants.
Learnings from the Survey
Any legal expert would agree
that the Dual GST Structure along with a half baked law representing an amalgam
of multiple earlier laws does not augur well and can present fundamental
challenges. Things got complicated with confusion on administrative aspects
like portal, eWay Bills and the like. Despite these issues, the responses from
the industry have been positive. While there are issues, which did come out in
the survey as well, on a holistic basis, the industry understands the saying
that one cannot miss the woods for the trees. To summarise in a single line,
“There is a big thumbs up for the GST reform implemented by the Government.”
