Budget 2020: Some GST fixes the govt should implement to promote sustainable growth

During the run-up to Union Budget 2020, expectations are rising to bring in reforms aimed at creating a tax and business-friendly environment. The economy is on a firm footing and we expect the growth to continue in the medium and heavy commercial vehicle segment which directly reflects the strength of the economy. With the budget preparations around the corner, we would be keen to see GST reduced from the current 28 percent as the benefit would be there for the end-customers. Further, we hope that the budget 2020 primarily addresses the rate reductions expectations. India’s challenge is not only growth but the sustainable growth whereby tax incentives are being given for environment-friendly businesses.GST needed to be revenue-neutral and GST Council needs to move away from a multiplicity of tax rates. The government needs to plan for moving towards a dual revenue-neutral rate as against the current 9-tier tax structure which includes Nil, 0.25 percent, 1.5 percent, 3 percent, 5 percent, 7.5 percent, 12 percent, 18 percent and 28 percent.Speculations are rife that there will be another major rejig in GST rates in the next GST Council meeting. It is expected 12 percent and 18 percent would eventually be merged in 15 percent tax slab, whereas 5 percent tax slab could be changed to 8-10 percent eyeing the low collection of GST. Moreover, certain items that were exempted or nil rated may make a comeback under the tax net with certain riders.There is a continuous widening of the gap in revenue deficit which is arising from the rampant GST frauds undertaken by businesses. GST Council is expected to take note of the revenue position forcing the political honchos to implement a few harsh decisions. Undue delay by the central government to pay off its states with the compensation cess over the past few months is also adding to the pain of states. Some states such as Chhattisgarh have written to the prime minister asking for extending the period of compensation from 2021-2022 to 2026-27. In the coming budget, GST Council may approve to continue with compensation cess for an additional term of 5 years or it may also approve some additional source for revenue collections.In case the businesses have made a profit under GST due to a change in tax rate or increased input tax credits, such benefit is required to be passed on by way of reduced pricing under the anti-profiteering law. Currently, numerous investigations are being conducted by the National Anti-Profiteering Authority across the sectors (key sectors have been FMCG, real estate, pharma and restaurants.), and a majority of completed investigations have already resulted in orders whereby the businesses have been found guilty of profiteering. In the coming budget, the government is expected to give detailed procedures on the methodology for calculation of profiteering benefits.GSTN web portal is an indispensable asset of the government for implementing GST, which facilitates tax filings of the entire nation. However, certain provisions that have been given effect in law have not been incorporated into the GSTN, which makes the actual implementation of legal provisions difficult. In certain cases, this may result in drawing the unnecessary wrath of tax authorities. Such issues, inter-alia, include the issue of single credit note against multiple invoices and reporting of negative balances in outward supplies. In this budget, the government should consider upgrading the technological aspect of GST either by changing the service provider or by allocating additional funds to the same.Under GST law, head office (HO) and branch offices (BO) of a single legal entity are considered as “distinct” entities, if they are located in different states. There is a concept of deemed supply of services from the HO to various BO, due to which GST needs to be charged on the salary component booked as a centralised function. This technical and illogical interpretation by tax officers are leading to massive costs for exempt sectors like education, petroleum products, alcohol, and healthcare. It is high time GST Council eases this cascading effect of taxes for the exempt sectors of the economy.GST Law requires heavy compliance from businesses with monthly, quarterly and annual returns from taxpayers. The Council in its recent meeting has decided to introduce new return format which includes a single-page tax return for ease of compliance for small taxpayers.  However, a host of procedural difficulties anticipated under new GST returns such as frequent matching and tracking of invoices. It is highly expected that the new return format and the filing process can be further fine-tuned for the benefit of taxpayers before its implementation from April, 2020.Constitution of Advance rulings bodies has added to a dangerous tangent to the system of justice leading to illegal illogical and contradictory tax rulings which are binding on the taxpayer and tax officer. The industry expects the government to device a mechanism whereby such divergent views can be resolved by the national bench of the AAAR. Additionally, it is also expected that benches of AAR must have a judicial member onboard.The economy is going through one of the worst slowdowns in the last two decades and this needs to be uprooted, so as to pave the way for a great future. Fiscal and monetary measures need to be implemented to correct course of action, GST being only major transactional tax in India would play a major role in this budget.Rajat Mohan is Senior Partner at AMRG & Associates.

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