GST changes: relief for taxpayers, disaster for economy

After natural calamities such as floods strike, it is customary for the men who matter to take an aerial survey of the affected areas and propose remedial measures. Although GST cannot be labelled a natural calamity, the GST Council appears to have taken an aerial survey of the disaster at its latest meeting in Guwahati - the members have considered most the areas affected by the law and have relaxed provisions that were troubling taxpayers.

Some taxpayers are now wishing that all future meetings of the GST Council are held in Guwahati since it seems like a lucky place for them. The changes made in the GST law were expected, only the fine print was pending. The number of items in the 28% bracket have been drastically reduced and moved to either the 18% or 12% brackets; norms relating to filing of returns have been eased; the composition scheme is being extended to encourage taxpayers to opt for it; and some new exemptions have been provided.

The Fitment committee has also done its job, but many rates of tax that were moved to the 5% bracket should have been there right in the beginning (idli, dosa batter, for example). By November 15, it seems GST will look like what it should have on July 1 itself.  

After the introduction of GST, the portal was unable to immediately kickstart the process of matching of invoices. This forced the lawmakers to introduce a new but temporary return form called 3B that was simple to fill and upload. This form does not appear to be temporary since it has to be filed at least till March 2018.

Only one return form, GSTR 1, needs to be filed now - quarterly for taxpayers with turnover below Rs 1.5 crore and monthly for all others. The counterparty form to GSTR 1, GSTR 2 appears to have been deferred till March 2018, which effectively means that the concept of matching of invoices has also been deferred. This is certainly a welcome measure.

Since a large number of taxpayers were unable to file their return in Form 3B within the due date for the months of July, August and September, they were slapped with a late fee, which was subsequently waived. In a welcome move, the council decided that the software would be tweaked to re-credit any late fee paid to the Electronic Cash Ledger of the taxpayer such that they could adjust the amount against future tax liabilities.

Interestingly, GST is moving away from being a digital tax, since a facility for manual filing of application for advance ruling is being introduced for the time being. Taking cognisance of the late availability or even unavailability of some forms on the common portal, the due dates for furnishing those forms has been extended.

There will be a uniform rate of tax at 1% under composition scheme for manufacturers and traders, with a special condition that for traders, turnover will be counted only for supply of taxable goods. Supply of services by composition taxpayer up to Rs 5 lakh per annum will be allowed by exempting the same. Annual turnover eligibility for composition scheme will be increased to Rs 1.5 crore from the present Rs 1 crore limit.

It has been clarified that inter-state movement of goods like rigs, tools, spares and goods on wheels like cranes, not being in the course of furtherance of supply of such goods, does not constitute a supply, though the service component embedded in the movement would attract GST.

An exemption from IGST has been provided on imports of specified goods by a sportsperson of outstanding eminence, subject to specified conditions. It would be really interesting to see how a "sportsperson of outstanding eminence" is defined. Irrespective of the definition, sportspersons who are not of outstanding eminence are going to be miffed by this partisan clause. While political compulsions may have forced the government to scatter relief on critical components of the GST law, the economic reality of GST should be a cause for concern.

Economic reality of GST

With a widespread reduction of rates, credit being permitted for goods in stock on the transition date, the concept of matching of invoices to avail input tax credit being deferred, and the list of exemptions increasing, revenue collections from GST for the current financial year are not going to set any records, to put it mildly.

In addition, state governments have been promised compensation for all losses they suffer for having given their nod for GST. If trends from the central sales tax (CST) compensation are any indicator, there is going to be a lot of back and forth on the amount of compensation between the Centre and the states, since their claims for compensation are going to be on the basis of rough estimates and not accurate accounting.

At least till March 2018, input tax credit is going to be permitted on the basis of whatever the taxpayer declares in his returns. Considering the fact that a series of elections are due over the next couple of years, political compulsions may continue to drive the GST law-making thought process. If so, GST is certain to put a dent in the fiscal deficit, which could force the government to raise some other taxes, such as income tax or the GST compensation cess, which could further dampen the economic environment.

If first impressions are the best impressions, there are going to be only a very few who will be impressed with GST law. Much as the GST Council may try to improve its impression, the flavour of a hastily implemented law is bound to linger.

(The writer is a Bengaluru-based tax expert)