Five years of GST – Baby out of the cradle

As the Goods & Services Tax legislation completes 5 years and has evolved from its “infant” stage into a stable state legislation today, the industry is again abuzz analysing the hits, misses, expectations, and future outlook of the ‘most ambitious tax reform of the country’ in its half-decade stint. With revenues getting buoyant in the recent months and compliance issues settling down, a section of stakeholders strongly feel that the law has started to stabilise now, and GST 2.0 is already underway. On the other hand, another section still feels that the legislation is a work-in-progress and has lots of roads to cover before it can be said to have achieved the desired objectives and done justice to the term ‘Good and Simple Tax’. As a child out of the cradle learns to stand, walk and then run, GST now seems to be out of the cradle and is ready to run its course to become a matured and sophisticated legislation needed to deal with the modern-day growth economy such as India.

It is needless to say that whenever the history of Indian GST is written, the impact of technology in its implementation and execution would invariably be a major highlight. The report card of the GST law can under no circumstance be prepared without grading the pillar on which the entire framework rests – technology. The importance of technology can be highlighted not only by the fact that all compliances and invoicing are done online but also that innumerable provisions under the law have been framed and undergone changes due to the technology that goes behind the common portal.

While it can be comfortably said that tax automation ushered by the Indian GST law has been inspirational for the world at large, the scope for improvement cannot be undermined. For instance, although the implementation of the e-invoicing system has significantly contributed to broadening the tax base and reducing the fake invoice menace, many of its benefits are yet to be fully unlocked due to impending technical bottlenecks. Issues on the online portal with respect to the generation of e-invoices and flow into the GST common portal require manual intervention in the compliance process. To unlock its full potential, the e-invoice, e-waybill, and GST portal must be seamlessly integrated which shall result in the reduction of the compliance burden and efficiency in tax management, which we believe is a work in progress. While e-invoicing in India will continue to evolve into a more perfect system in due course, India has led by example and one can’t take away the huge success of such a “first of a kind” large-scale e-invoicing system implemented across a country like India. Many countries across the world have recognised the benefits accruing from such systems and are deriving learnings from India’s experience.

GST is a transaction-based tax and technological interception has not only benefitted the exchequer through improvised tax collection and administration but has also helped business houses to automate their internal controls and systems. Automation has led to significant ease in business efficiency, transparency, and control. Proper maintenance of data, its storage, and retrieval have become essential which has resulted in ease to monitor business progress and take timely action.

To be fair, the technological framework under GST has come a long way despite the initial teething issues faced and the future path also seems to be very promising. This is not only because of the fact that the frequency of issues has gone down but also due to the speedy and robust grievance redressal mechanism in place. Having noted this progress, the thrust should now shift to leveraging technology to optimise tax administration and focus on effective policy making.

As part of the next phase of GST reforms, it is important for lawmakers to take cognizance of the fact that a robust and effective dispute resolution system should be implemented and put in place to address one of the long-standing demands from the industry. The GST administration which is split between states and the Centre seem to, at times, have divergent views and practices across states and jurisdictions limiting the benefits of a reform like GST and an effective and robust dispute resolution mechanism could deliver to the Government’s agenda regarding ease of doing business in India.

The ongoing geopolitical environment, macro-economic scenario, and high fuel prices have collectively led to the inflation rate rocketing to unprecedented levels. Before the economies could fully recover from the pandemic impact, it again seems to have been pushed into the doldrums. India is no exception to this impact and thus, the need for bringing fuel into the GST ambit has become even more important. RBI is doing its part to control inflation by increasing the interest rates, and the GST legislation today has the power to contribute to the economic stability through rate rationalisation measures and by bringing fuel into the GST net at this juncture which could help reduce the impact of inflationary prices and would provide an impetus to the economy.

Besides the aforesaid, a very interesting affair that would potentially shape the future of GST in India would be the test of cooperative federalism sparked by the recent Supreme Court judgement which ruled that the recommendations of the GST Council would not be binding on the Union and states. However, the established governance format and the smooth functioning of the GST council over the last five years have proved to be a very robust set-up and the industry would like to believe that this judgment would not shake up the robustness of the governance framework which has been the hallmark of the GST reform.

It may be said that the previous half-decade of GST marked the first phase of implementation of the law whereby the core technological functionalities and understanding needed by taxpayers and officers have been put in place. GST 2.0 should focus on putting in place an efficient dispute resolution mechanism and leveraging technology and data available to improve compliances, broaden the tax base, detect frauds, and support policymaking to achieve ease of doing business in India, alongside. This would not only bring efficiency in tax collection and administration but would also provide a scope for rate rationalisation and expanding the economy.

(The writer is Tax Partner, EY India)

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