GST me Naya Saal, Aur taxpayer Behaal

Input-Tax-Credit-e1573731489177.jpg

Courtesy : CA Umesh Sharma

[email protected]

Arjun (Fictional Character): Krishna, massive changes have been made in the GST law to take effect from 1st January 2021. What is the need for such changes?

Krishna (Fictional Character): Arjuna, the year 2020 has seen a large number of false transactions & malpractices of the taxpayers. Hence in the new year 2021, to curb malpractices used by taxpayers for tax evasion, the GST department is now implementing its new tools to brush out anomalies in the system.

Arjun (Fictional Character): Krishna, what the critical changes that taxpayers need to take severe care of?

Krishna (Fictional Character): Arjuna, here is the gist of the major changes which will take effect from this new year :

I – Registration (Rule 8): Along with the verification of original copies of documents uploaded in FORM GST REG-01, the taxpayer is given the option for authentication of the Aadhar number. If any taxpayer does not opt for such authentication or fails to do so, then the time limit for the system based GST registration for such taxpayer is increased from 3 days to 7 days. Further, if the department feels fit to carry out physical verification, the time limit shall be 30 days instead of 7 days.

II – Cancellation of registration (Rule 21): Any taxpayer under GST, if found to violate the three provisions given below, registration of such taxpayer shall be canceled:

i. Violation of the provisions of Section 16 i.e. Input Tax Credit.

ii. Furnishes excess outward supply in GSTR-1 as compared to that furnished in GSTR-3B.

iii. Violates the provision of rule 86 B (1% payment through cash ledger).

III – Suspension of Registration: Taxpayer’s registration can be suspended in cases where there are Significant differences or anomalies in [GSTR-1 & GSTR-3B], [GSTR-3B & GSTR-2B (ITC)] and any other contravention of the GST Act, 2017.

IV – Reduction in the percentage of ITC as per statement GSTR-2B w.e.f. 01-01-2020: Rule 36(4) which earlier allowed taxpayers to take provisional ITC of 10%, the same now has been reduced to 5%. This change will have a big impact on tax liability, and cause hardships to small taxpayers who file quarterly returns.

V – Restriction on Filing of GSTR-1 & GSTR-3B :

i. Small taxpayers will not be able to file GSTR-1 if they have not filed GSTR-3B for the last 2 months.

ii. For taxpayers who have opted for quarterly filing of GSTR-1 are not allowed to file GSTR-1 if they have not filed GSTR-3B for the last quarter.

iii. Large taxpayers are not allowed to file monthly GSTR-1 if GSTR-3B is not filed for the last period.

VI – Using Credit ledger only up to 99% (Rule 86B): Now, taxpayers can use their credit ledger against GST liability only up to 99%, therefore paying 1% of their liability in cash. Rule 86B will apply when the value of the monthly taxable supply is more than 50 Lakhs. This rule excludes exempt & Nil rated supply. This rule shall not apply in four cases :

i. Taxpayers who have paid Income tax of Rs. 1 Lakh or more in the last two Financial years.

ii. Received refund of GST of Rs. 1 lakh in a respective financial year.

iii. Discharged tax liability above 1% of total tax cumulatively up to a current month of FY.

iv. Any Government department, Public sector Unit, Local Authority, etc.

VII – Change in E-way bill (Rule 138): The transport vehicles will now have to run faster, to comply with the limit as per rule 138 which has been changed to 200 km. From 100 km. earlier.

Arjun (Fictional Character): Krishna, what should the taxpayer learn from this?

Krishna (Fictional Character): Arjuna, taxpayers need to be watchful about GST compliances, otherwise “Nazar hati, to durghatna ghati” will prove its essence. Let’s hope that genuine taxpayers will not get harassed. Wish all of you a very happy, healthy & wealthy new year.

Why the GST framework is in trouble

meeting.jpg

Reforms such as GST are difficult to implement not because they do not have enough traction as ideas, but because the transition from the status quo to a new framework is challenging(PTI)

The switch to the Goods and Services Tax (GST) in July 2017 was a historic moment in India’s fiscal trajectory. It scrapped a plethora of central and state taxes and paved the way for a uniform tax regime and a common market across the country. Ideally, there should have been fewer GST slabs, but the idea was always to move to this once the regime stabilised.

Like all big-ticket reforms, GST had to wait for a long time to see the light of day. Reforms such as GST are difficult to implement not because they do not have enough traction as ideas, but because the transition from the status quo to a new framework is challenging. In GST’s case, the shift required both the Centre and states to give up their sovereignty in levying indirect taxes to the GST Council, a body which includes representation from the Centre and the states. Still, the loss of fiscal sovereignty was much greater for states.

The biggest question which needed to be addressed before shifting to GST was what if revenue collections fell short of expectations? This was a matter of deep concern for the states, which feared a loss of revenue. The final deal was struck, under the stewardship of the late Arun Jaitley, who brought in his remarkable consensus-building skills as finance minister, with the Centre offering a guarantee to the states. They would be assured of 14% growth in revenues for the first five years of GST. This money was to be realised from cess on luxury and sin goods.

Three years after the implementation of GST, many state governments (run by non-Bharatiya Janata Party forces) are alleging that the Centre has reneged on this promise. Their objections seem valid. The Union has not paid the constitutionally mandated ₹1.5 lakh crore of GST compensation to states for the months of April-July in the current fiscal year. The reason is that cess collections have not been enough to make payments. It also expects that the total shortfall in GST compensation to the states will be ₹2.35 lakh crore in the current fiscal year. Of this, the Centre claims, ₹97,000 crore is on account of GST implementation and the rest is due to the external shock of the pandemic.

The states have been told that they can exercise two kinds of borrowing options to meet this shortfall — either borrow the entire ₹2.35 lakh crore, or borrow ₹97,000 crore. The Centre has said it will work with the Reserve Bank of India (RBI) to facilitate this process. The repayments will be made by extending the period of cess on luxury and sin goods. As some states are claiming, there is basically one option on the table. The states have to borrow to raise the money, which, the Centre owes them. The GST Council will meet again next week to resolve the matter. Irrespective of the nature of the final resolution, state governments are bound to feel let down. The GST experience will also make them chary about agreeing to change the status quo for market-friendly reforms in the future. A growing distrust between the Centre and the states does not bode well for our democracy.

To be sure, the current economic situation, which caused this crisis, is indeed extraordinary. The Indian economy will witness a contraction, of at least 5% this year. Revenue collections will miss projections made in February, before the pandemic spread. However, GST’s problems go back to the pre-Covid-19 period. While most people agree that a unified tax was desirable (this continues to be the case), its revenue-generating abilities were grossly overestimated initially, especially because slabs have gone through constant revision. Just one example should make this clear. The budget estimate for Centre’s GST collections was ₹7.43 lakh crore in 2018-19, the first full budget after GST’s implementation. This number is just ₹6.9 lakh crore in 2020-21 — so, a tax head is expected to shrink even when GDP has grown. Even the reduced targets have not been realised. The Centre’s GST collections in 2018-19 and 2019-20 were only 78% and 90% of budgeted targets.

Even finance minister Nirmala Sitharaman, while speaking at the HT Leadership Summit in December 2019 acknowledged this point. “I am not saying that people did it (reduced rates) thoughtlessly, but in the enthusiasm to reduce taxes, that framework which was originally agreed at stage one of GST was distorted,” Sitharaman said, explaining that lowering the tax rate impacted the input tax credit and transferred more taxes to the buyer. A Reserve Bank of India report on state finances corroborates Sitharaman’s point. Against the revenue-neutral rate of 15.3% which was recommended by the Arvind Subramanian Committee, the weighted average GST rate has been falling continuously and was just 11.6% in July and September 2019.

A similar set of processes is underway again. Even as Sitharaman suggested, on August 25, the extension of cess on luxury and sin goods beyond the initial period of five years, she hinted towards reducing GST rates for two-wheelers. While tax breaks to boost the economy by spurring demand are always welcome, they cannot be decided without consideration of their fiscal implications.

GST has faced other issues too. Its teething troubles — many believe that it was implemented without adequate preparation — generated large headwinds for economic activity. The pre-Covid-19 deceleration in the Indian economy — GDP growth fell from 8.3% in 2016-17 to 7% in 2017-18, 6.1% in 2018-19 and 4.2% in 2019-20 — followed the back-to-back economic disruption from demonetisation and GST.

India’s GST experience raises a bigger point, and perhaps highlights a future lesson, about policy reforms. All reforms, no matter how desirable they are in principle, need to be thought through carefully before being rolled out. It is always tempting for regimes to fast track them, without weighing all pros and cons. This process becomes easier when a regime has tremendous political capital — like the BJP has had from 2014 onwards. However, when the crunch comes, like it has come for GST compensation today, or when there is more-than-expected collateral damage from reforms, both the government and citizens are left to face the consequences.

The forthcoming GST Council meeting should do all it can to preserve the sanctity of India’s fiscal federalism in letter and spirit. This process cannot be complete without an honest introspection of the GST’s formulation and evolution.

Source : https://www.hindustantimes.com/columns/why-the-gst-framework-is-in-trouble/story-N5W9GDrGnzAw4eGJhFH2UJ.html

Image is old – taken from 2016

scroll to top