By Abhishek A Rastogi and Abhishek Deodhar
While we commemorated the first anniversary of the GST regime at our office, someone mentioned the Malaysian GST debacle. Malaysia scrapped the GST regime within three years of its introduction. The Malaysian context is of course entirely different in terms of economic and political factors. However, it gives us an important perspective on the perils of complacency. We must therefore strive to keep scrutinising and improving the GST regime introduced in India and ensure that we learn from past mistakes and experiences.
Prior to its introduction, a lot was expected from the new tax regime. Easier, automated compliances, fewer issues in interpretation leading to lesser disputes, and a reduction in logistics time and cost were some of the things taken for granted.
The bad
The preparedness of the GSTN portal (or lack thereof) was a major let down for the industry when GST was finally introduced in July 2017. Assessees had to face many hurdles, including problems with filing transition returns that lead to a denial of credits, which directly affected the bottom line. This has also led to a plethora of writ petitions being filed in the courtsan avoidable wastage of time and resources of the industry and the already burdened judiciary.
The fate of the credit matching mechanism is also uncertain with summary GSTR-3B returns continuing for the time being. What was originally a mere stopgap arrangement for filing summary returns is now the only source of reporting. The government must pull up its socks and make decisive announcements in this regard. The return formats affect the enterprise resource planning (ERP) systems of assessees, and in most cases, aligning ERPs with the reporting requirements is a costly, time-consuming affair.
Although classification issues have reduced, they have not disappeared entirely. The multiplicity of rates has led to considerable confusion. To be fair, the GST council has initiated a process of rate rationalisation by bringing most items from the 28% tax bracket to the 18% standard rate bracket. While the political talk about having a single rate may not be feasible or desirable, having most goods and services in the standard tax bracket makes life easier for the industry.
On the litigation front, the advance ruling mechanism has turned out to be a bit of a damp squib. Rulings have been largely pro-revenue, which may not be unexpected since the authority consists of revenue officers only. There have also been instances of contradictory decisions on the same issue in two different states. Further, the appellate mechanism for advance rulings is not yet notified in all states.
No analysis on GST can ignore the controversial anti-profiteering provision. The government has not yet notified the exact methods or formula for determining the extent of profiteering. Accordingly, a degree of arbitrariness cannot be ruled out. The authorities must consider issuing firm guidelines to ensure transparency in anti-profiteering proceedings. Further, contrary to expectations we have seen proceedings being initiated even in the B2B segment.
The good
There are quite a lot of positives to look back during this last one year. The GST council is responding to feedback from assessees in a proactive manner. GST council meetings have seen decisions that were well-thought out and responsive to industry demands. The GST council is certainly not operating in a vacuum.
The refund mechanism under GST is operating fairly well, ensuring minimal funds are getting blocked. Exporters are getting refunds with ease and convenience (especially with the 90% provisional refund disbursal). The E-way bill mechanism has seen a reduction in logistics time and cost. This will only help society as a whole in terms of an efficient exchange of goods and services throughout India. The pan-India uniform compliance system has enabled businesses to centralise their tax operations and cut down on compliance costs to the extent of hiring local consultants, having local tax teams and the like.
Trade barriers within India are a thing of the past. With uniform tax rates and compliances, companies have been able to optimise their supply chain to bring down costs and increase efficiency. While this may seem to be an intangible benefit, its tangible effect will be seen in terms of increase in the bottom-line of the industry.
On the whole, the GST regime is heading in the right direction. It is important to keep faith and avoid a Malaysia-like situation. We can all be proud of how our nation has embraced this mammoth change. Indians are famous for taking things in their stride and the GST regime, with all its hiccups, has been no different.
Abhishek A Rastogi is partner and Abhishek Deodhar an associate at Khaitan & Co.