Stop tinkering with GST laws but ease procedures

No one would disagree with the fact that the Indian economy has slowed down over the last year or so. Classical economic theory suggests that the tried and tested route to revive a comatose economy would be to create more jobs which would put money in the hands of more people.

This money would lead to additional consumption which is the only boost the economy needs. However, this is a process that would take time. Another economic theory suggests that a sizeable reduction in the price of certain goods and services could lead to an instant increase in consumption.

Depending on how bad the situation is, governments can opt for either or both the routes. On September 20, 2019, Finance Minister Nirmala Sitharaman opted to make an attempt to create more jobs but chose to ignore an instant reduction in the price of goods and services in industries where it was needed.

Taxpayers were keenly looking forward to the outcome of the 37th meeting of the GST Council expecting some decisions to provide relief to the economy in general and certain sectors in trouble such as automobiles and textiles in particular.

Long before the GST Council meeting commenced, the finance minister wowed the entire nation by slashing income tax rates drastically. A special rate of 15% was announced for manufacturing companies - a move that was expected to lure the world to set up a manufacturing base in India - an event that would create more jobs.

Eventually, the decisions taken at the meeting of the Council later in the evening on the same day paled in comparison to the big-bang income tax rates announcement. No sector-specific reliefs were provided nor was there any path-breaking announcement.

The automobile and textile industries are bound to be disappointed due to the GST Council having nothing to offer them when they are going through their worst phase.

Composition dealers and those with a turnover up to Rs 2 crore should heave a sigh of relief since the need to file the annual return in Form GSTR 9 has been removed. For the others, the GST Council has announced that a Committee of Officers would be appointed to recommend simplification of the forms.

This is bound to frustrate these taxpayers since they have been attempting to understand this form and file it for quite some time now with little success. Instead of investing further resources in changing and amending forms in an attempt to simplify them, the government would do well to permit a one-time revision to the GSTR 3B form for the years March 31, 2018, and March 31, 2019.

This is a form that most taxpayers are familiar with and hence filing this revision should be easy for them. Introduction of the new system of filing returns has been postponed to April 2020. Since no reason has been given for this deferment, one can only assume that the bugbear of the GST portal - the technology platform - continues to be a source of worry.

The GST Council also cancelled the controversial Circular No No.105/24/2019-GST which attempted to clarify various doubts relating to post-sales discounts but only resulted in creating further confusion.

The circular had some eerie clauses such as “..if the additional discount given by the supplier of goods to the dealer is the post-sale incentive requiring the dealer to do some act like undertaking special sales drive, advertisement campaign, exhibition etc, then such transaction would be a separate transaction and the additional discount will be the consideration for undertaking such activity and therefore would be in relation to supply of service by dealer to the supplier of goods. The dealer, being the supplier of services, would be required to charge applicable GST on the value of such additional discount”.

What should worry the GST Council is how and why such circulars which ask more questions than providing answers are being issued. It could probably be traced to a lack of training and awareness on the part of the tax officers on the intricacies of GST laws. The Central Board of Indirect Taxes and Customs should proactively engage with the officers to ensure that controversial circulars are not issued.

The GST Council did not provide any specific relief to both the automobile as well as the textile industries. Instead, it proposed reduced rates on an eclectic variety of items such as slide fasteners, wet grinders (consisting of stone as a grinder), marine fuel and dried tamarind.

Interpretational issues

The GST Council also solved the controversy surrounding GST on fishmeal by providing an exemption to fishmeal for the period 01.07.17 to 30.09.19. There were doubts as regards taxability of fishmeal in view of the interpretational issues. It was clarified that any tax collected for this period shall be required to be deposited with the government.

In their attempt to breathe some oxygen into the economy, the government appears to be hitting out in all directions - buying new cars in government undertakings, reducing income tax rates and tinkering with GST laws ever so frequently.

This strategy works on the assumption that anyone of these measures or a combination of them would do what needs to be done for the economy. Yet, this strategy runs the risk of choosing to ignore specific sectors that need succour.

There can be no two thoughts on the fact that the largesse provided in income tax rates is being funded by the enormous dividend that the government has taken from the RBI.

Since this amount of funding is not going to be available every year, the government is going to have a budgeting problem in future years as the beneficial rates of tax would have to be continued with no assistance from the RBI. How the government balances its books with tepid GST collections and low rates of income tax will decide the path of the economy.

(The writer is a tax expert based in

Bengaluru)