GST needed a ‘nudge’, the Budget failed to give it one

GST needed a ‘nudge’, the Budget failed to give it one

An illuminated Parliament ahead of midinight launch of Goods and Services Tax (GST) in New Delhi on Friday, in 2017. PTI Photo

Some years ago, taxpayers would pass judgement on the quality of the Union Budget after going through all the fine print that accompanies Budget documents. These days, judgement is instantaneous and reaches a wider audience, thanks to social media. In the recent Budget, even before the finance minister had finished her speech, the popular consensus appeared to be that this was an “announcement Budget.” Judgements on it seemed to be driven by the direction in which the stock market moved during the 90-odd minutes that the Budget was presented.

‘Sab ka Vishwas’ again

Not much was expected on GST as the GST Council had met recently and taken some decisions regarding the proposed new system of filing returns and deliberating on the concept of e-invoicing. The Budget speech and accompanying documents highlight the achievements made over the past two years on GST. To settle past disputes, the Budget introduced a dispute resolution scheme with a strange title – ‘Sab ka Vishwas (Legacy Dispute Resolution) Scheme, 2019.  

The relief under the scheme varies from 40% to 70% of the tax dues for cases other than voluntary disclosure cases, depending on the amount of tax dues involved. The scheme also provides relief from payment of interest and penalty. For voluntary disclosures, the relief is waiver of interest and penalty on payment of full tax dues disclosed. The person discharged under the scheme will also not be liable for prosecution.

While this is a welcome scheme, CBIC should ensure that the same issues that are resolved under the scheme do not reappear in the GST era. A significant portion of litigation under both Service tax and GST can be classified into about two dozen common areas as the laws are almost the same. Across the country, old VAT and service tax cases are still being litigated after recent audits by the tax departments. All these should be simply put under the Dispute Resolution Scheme and settled at the earliest.

The Dispute Resolution Scheme provided an opportunity for a physical meeting between taxpayer and the department, something which GST is attempting to minimise. Such in-person meetings run the risk of settlements being done without the government getting the entire pound of flesh. The scheme should have been made an online process.

The finance minister reiterated the simplified processes that had already been proposed by the GST Council, such as simplified quarterly returns and e-invoicing. Both the Economic Survey as well as the Budget summarised the reduction in tax rates that have happened over the last two years. An opportunity to implement the ‘Nudge’ theory that was the star feature of the Economic Survey was missed in the Budget. Implementing the ‘Nudge’ principle for GST could have been made by announcing measures to correct the disconnect that is very visible between the intentions of the government regarding GST and what is happening in the offices of the GST departments across the nation.

Customs duties

As a revenue-generating measure, the Budget trained its guns on customs and excise duties. Special Additional Excise duty and Road and Infrastructure Cess were imposed, each one rupee a litre on petrol and diesel. It is also proposed to increase customs duty on gold and other precious metals from 10% to 12.5%. Penalty and prosecution provisions have been introduced for resorting to unfair practices to avail undue concessions and export incentives. Misuse of duty-free scrips and drawback facility involving more than Rs 50 lakh will be a cognizable and non-bailable offence.

It is clear that the increases in customs duties have been made as a response to representations made by different industries who are facing competition from imports. In these times of instant trade wars, one can only hope that the increase in customs duties do not rub India’s trading partners the wrong way.

Many firsts

This Budget had many firsts, such as the finance minister dumping the usual leather briefcase for a ‘bahi khata’ and no reference to the term ‘fiscal deficit’ in the entire Budget speech. On GST, the Budget introduced provisions such as the Kerala Flood Cess, which could be construed to be trampling on state authority.

Having taken the decision to enter into the nitty-gritty of GST, the finance minister lost an opportunity to streamline provisions regarding input tax credit. Recently, the Odisha High Court ruled in the case of Safari Retreats Vs. Chief Commissioner of GST & CE (2019) that Section 17(5)(d) of the CGST Act is to be read down (blocked credits) and a narrow interpretation of this Section is frustrating the objective of the CGST Act.

The Gujarat High Court has given a ruling that the GSTR 3B is not a return at all, which can be interpreted to mean that input tax credit can never be denied if a proper GST return is introduced. The finance minister could have taken the opportunity to direct the GST Council to take a relook at the artificial restrictions on input tax credit that are the subject matter of a lot of disputes at present under GST.

State governments have already begun to demand extension of the sunset date for the compensation payable to them on account of loss due to GST beyond 2022. The finance minister could have used the Budget to create a fund for such compensation, should the necessity arise. In the years to come, GST revenues may not increase exponentially, which could give rise to worry about how the government would fund demands for extending the compensation date.

Even after going through all the fine print, this Budget lacks the fizz that one has come to expect from Union Budgets. One hopes that this was only a one-off event for a government sandwiched between the euphoria of an impressive election victory and the demands of balancing the accounts.

(The writer is a Bengaluru-based tax expert)