The problems with GST are manifold and tax slabs are only one of them. The issue of tax slabs will come later on when we increase the base, have revenue collection for a year and we know where we stand. Currently, the immediate and short-term problems with the GST are that of cash flow in case of exporters and problem of compliance. Small- and medium-term enterprises and even large firms are not able to file returns online properly.
There are problem with GST network. Even if they manage to file returns in GSTR 1, we will know the viability of the GSTN system when GSTR 2 starts getting tested in the later part of this month. So compliance is a big issue.
Instead of monthly it ideally should have been quarterly for everybody. Then each sector has large number of issues which requires sorting out for GST to be smooth.
Let me give you an example of educational institutions. The school education is exempted from the GST but given the definition of turnover, the moment you sell old computer or scrap even for Rs 1 then the whole thing becomes liable to pay GST and as a result you will have to register.
The moment you get registration done, your liability to pay tax under reverse charges and other headings is triggered. This increases the cost. Various sectors have lot of issues that need to be sorted out. Then complicated laws make it very difficult to interpret them.
There’s a need to simplify them. They need to look at issues where there’s ambiguity and it does not result in court cases. For example, like employer-employee issue.
There are many grey issues that are causing problem for the corporates to take a definite view. So given that advance ruling has not started, given the ambiguous nature of the law, corporates are seeing a lot of problems.
So tinkering with tax slabs is something, which is nine months or one year down the line. But current problems need to be sorted out on a priority basis. Government needs to look at the problems faced by exporters as they are a major part of the GDP. Before the GST, goods bought for manufacturing products, which were to be exported were exempted from excise duty. And similarly there was no VAT on these exporters.
So there was no cash outflow on these taxes from the exporters. Exporters were also exempted under various schemes from paying import duty on raw material. Now exporters have to pay all these taxes and later claim a refund from the government. The quantum of refunds to be claimed by exporters under various heads has gone up tremendously and right now there is no mechanism to get those refunds. So for four months their cash is stuck.
The writer is a tax partner at consulting firm Ernst & Young
If government reduces the number of tax slabs it will be a great relief for people and traders alike. Right now there is a lot of uncertainty and chaos among the trading community of the country. There is a riot-like situation among them.
There is a complete state of confusion among the people as to what rates are applicable on various items.
This state of confusion is because of multiple tax rates in the GST system. Currently, the GST regime slots items under rates of 5, 12, 18 and 28 per cent. An additional GST compensation cess is also levied on certain products.
People don’t have information and it makes GST compliance difficult. If these rates are reduced to two then people will have to concentrate only on these two rates. Reducing tax slabs will also promote ease of doing business in the country, which is the basic theme of the present government.
It will be a good start to resolve other GST issues. Reducing the tax slabs into two will also help to increase the revenue of the government. What is happening right now is that due to complex system many try to work outside the system.
They say why to get into all this. But if the system is easier and simplified more and more people will like to join the system.
Many consumers also try to avoid paying GST right now. The basic fundamental of the GST is to widen the tax net and encourage compliance. These two things can only happen is you keep the system as simple as possible.
If government keeps two rates, one a lower rate for goods used daily by the common man and inputs for the manufacturing sector and other tax slab for luxury goods or goods used by people who can afford to pay high prices. If GST is designed on the principle that higher the income higher the tax and lower the income lower the tax, it will be the most ideal tax system across the world. In this case, people will not hesitate in complying with the GST.
It will also be easier for the consumers to understand the component of tax on commodity they purchase. This because when today they get bill there are some items which are taxed at five, some at 12 or some at 18 per cent so they are also confused as to what item has been taxed at what rate. So a simple tax structure will also be helpful for the consumers.
If this proposal gets a practical shape I am sure the result will be tremendous and there will be no adverse impact on the revenue, rather tax revenue will grow. So we should ease the GST as much as we can because the present system is very complex resulting in hardship to consumers and traders.
The writer is secretary-general, Confederation of All India Traders (CAIT)