07/08/2019 - Indian Economy

Shantayya Swami 5 years

Please review and provide your feedback Sir.

Goods and Service Tax (GST) is an indirect tax for entire country, levied on the supply of goods and services.

It has been two years since the GST was rolled out, but the technology-driven tax code has failed to curb evasion as was envisaged,

said the Comptroller and Auditor General of India (CAG).

CAG flagged the vulnerability of the goods and services tax (GST) system to fraud,

citing as example a settlement under which a taxpayer claimed 79% of the total input tax credit in a month and the matter remained undetected for long.

CAG said these areas in the indirect tax reform need a relook.

Reasons for the imperfections in the implementation of GST can be as follows,

1. GSTN portal is an hassle to tax payers which forces them to upload form after form, besides micro-level transactional detail.

2. System validated input tax credit through “invoice matching” is not in place.

2. The complexity of return mechanism and the technical lapses become a complicated affair.

3. The serious lack of coordination between the executive and the developers.

4. The failure to map business rules correctly and the absence of key validations in the rolled out system

because of above reasons GST has failed to live up to its full potentials.

Following measures can be taken for better implementation of GST,

1. Introduce invoice matching of sales and purchase to plug loopholes in return filing which can curb tax evasion.

and According to CAG, invoice matching is a “critical requirement", which will yield benefits.

2. In view of its magnitude and pan-India impact, coordination between executive and developers must be strengthen.

3. Return mechanism should be simple and hassle free.

4. Product should be rolled out on pivot basis so necessary loopholes and issues can be fixed before product release.

By keeping in the mind, benefits of bringing in GST regulations, GSTN has to work more pro-actively to pass on the benefits and curb loopholes.

GSTN can re-examine prioritisation of development of various functionalities, strengthening of their root cause analysis and testing process to ensure that critical deficiencies in application are detected and rectified before

roll-out to the public.

IAS Parliament 5 years

Good answer. Cut short the introduction part. Keep writing.

IAS Parliament 5 years

KEY POINTS

Reasons for imperfection

· The deficiencies in the GST system also point to a serious lack of coordination between the Executive and the developers.

· The so-called simplified format of uploading returns, supposed to be introduced in a couple of months, is full of rows and columns, with needless details being sought.

· Small businesses still suffer overheads on account of GST compliance (which includes filling forms in English without any other language option), despite efforts to simplify processes for them.

· The GST Council has not helped by creating dual systems in certain sectors such as real estate, where 5 per cent can be paid without claiming input tax credit and 12 per cent with ITC.

· The unorganised sectors continue to operate below the radar not necessarily because they wish to do so, but because the rates are high, more so if they have to remain under the composition scheme where tax credit is ruled out, and compliance formalities daunting.

· At the federal level, the CAG points to IGST dues not being paid on time to States, some Rs2.11-lakh crore in 2017-18. This could disrupt the existing consensus over GST reforms.

For better implementation of GST

· Make GSTN fully functional. In the beginning, everything GST was to be online through the GST Network (GSTN). Even the most central feature of GST, invoice matching or the matching of information provided by the buyer and seller, could not take off

· Error-free GSTN is a precondition to issuing eWay bills on time. Any delay will stop the movement of trucks and the business.

· The GST rules should also allow small unregistered firms to export and sell in other States, on the e-commerce websites.

· These steps will help small and informal businesses which create 90 per cent of the jobs, flourish and transition to the formal sector. The taxes paid by these firms in buying the inputs will remain with the Government as they do not get Input Tax Credit.

· Simplify rates, reducing the number of rate categories will make tax administration easy, but revenue pressure may not allow this to happen immediately.

· Most exporters have not received refunds of the taxes paid due to the complicated application process, confusion in refund calculation criteria and lack of awareness at the field level. Improvements would need a better functioning GSTN and clear refund guidelines.