Simplify GST tariff, defer launch till September

On the basis of the recent few meetings, one can almost predict the outcome of meetings of the GST Council — rates of tax for items not already notified are announced, a couple of rules are made final and the dates and agenda for the next meeting are announced.

Everyone who is someone involved with making the law keeps reiterating that the Goods and Services Tax will make its entry in India on July 1. No one can dispute the fact that an early introduction of GST will be beneficial for both the tax payer and the tax administration as they can start getting used to the nuts and bolts of the law.

However, introducing GST in its present form and shape on the July 1 is going to add to the already-existing confusion on many aspects of the law. With only about three weeks left for July 1, many critical aspects of the law have been announced in bits and pieces while many other provisions need to be articulated more clearly.

As on date, 24 states and Union Territories have passed their State GST laws though important ones such as Jammu and Kashmir, Karnataka and West Bengal haven’t passed their laws. Transition registrations in Jammu and Kashmir are low. Although this may appear to be only a formality since the state laws invariably repeat all the 174 sections of the Central GST law, still the administrative act of passing the Act has to be done. The GST law hopes to transition all existing indirect taxpayers through a transition return which permits them to take credit of 60% of the indirect taxes paid on their closing stock a day before GST is introduced.

The form is still in the draft stage. Assuming that it is notified on June 11 when the GST Council meets next, there is hardly any time left to fill in the form. Transition provisions provide a time limit of two months from the date of introduction of GST to file the transition form but taxpayers would be keen to strategise the amount of stocks they would need to maintain on the date of introduction of GST.

They certainly would not want to be in a situation where they have strategised for inventory as on June-end (because the government is insisting on July 1 as the date for GST) but have to revise it to August-end (because the government accepts reality and defers GST to September). Most taxpayers who have transitioned to GST have a provisional GST number — they do not have the final GST registration certificate. If not issued before month-end, taxpayers would be in a unique position wherein they start collecting and paying GST though they are not formally registered!

As a law, GST has been structured on the fundamental principle of matching of invoices. The GST portal will do the matching and intimate both the parties with mismatch reports. One of the harshest provisions in the GST law is the one which states that if the mismatch that has not intimated is not rectified in the return for the next month, it will be added to the output tax liability.

As a concept, when matching has not worked very well even for exciting areas like matrimony, one wonders how it would work with unexciting areas such as invoices. It is too early to slap the taxpayer with a tax liability within a month for the mistake of his counterparty. The GST Council would do well to retain the provisions for matching of invoices but defer the provision to add the mismatch to the tax liability of the supplier in the next month.

Mismatch format

In the recent GST Council meeting, a Mismatch format was announced as a part of the GST rules. The only format that has been notified here is going to take a lot of time to comprehend. Consider the following headers in the format for which the taxpayer would need to understand the content: “Details of Invoices, Debit and Credit Notes of the month of August that were found to have mismatched in the return of the month of August filed by 20th September but mismatch was rectified in the return for the month of September filed by 20th October.” Sample another: “Details of Invoices, Debit and Credit Notes of the month of September that were found to be duplicate and will be become payable in the return for October to be filed by 20th November.”

Though it is expected that all the columns in the Mismatch Report would be auto populated based on the returns of outward and inward supplies filed by the taxpayers, it would still take a lot of time and effort to understand the Mismatch report and act on it. The present GST provisions do not talk about the possibility of errors in the Mismatch Report itself and how they would be rectified.

Pushing the date of implementation to September could also give the government an opportunity to simplify the GST tariff for both goods and services. The Tariff List is too long and spends too much of time nit picking within a particular area of activity and trying to park them in the different tax rates. A special rate of 3% has been proposed for gold jewellery which could set a trend for other industries to also seek special rates. The tagline for GST could then be “One Nation, One Tax, Multiples rates.”

Cutting aside all speculation about the date of transitioning to GST, the government should announce a firm date (September being the ideal choice) for implementation of GST on June 11.

The psychological impact of such an announcement could be the same as the demonetisation announcement of November 8, 2016. What may well happen is that the government could tread the middle path and ring in GST into the country from August 15 thereby symbolically hinting that they are independent from all present Indirect Taxes.

(The writer is a Bengaluru-based tax expert)

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