On July 1, 2019, the Goods and Services Tax (GST) completes two years since it came into effect. Inspired by the idea of one nation one tax, GST replaced 17 taxes and cesses with just five tax rate slabs, starting from 0 to 28 percent. It was geared towards making India one market and two years later, it appears to have succeeded. GST collection in March 2019 rose 15.6 percent from a year ago to Rs 1.06 lakh crore, the highest since the new indirect tax system took effect. Yet the path to the one market is strewn with speed breakers, the biggest of which is the complicated process of filing returns. Small business owners speak of compliance challenges. Even a small typographical error in a refund form can hold up refunds from the government for months on end. For many micro-enterprises, these refunds are a substantial chunk of working capital. GST also requires registrations in different states where a business owner has a presence.
GST is clearly still a work in progress and the new government will need to focus on streamlining it further. Here are five urgently needed fixes to ease the process:
1) Make GST compliance easier
Eliminate procedural complexities in filing GST. From multiple registrations and invoice matching to dispute resolution, the entire GST mechanism needs a rethink. Many businesses complain of delayed refunds and confusion about multiple registrations.
2) Expand the GST base
Bring in items and services like real estate, aviation turbine fuel, petroleum, natural gas and electricity into the purview of GST. Expanding the tax base also leads to the further rationalization of tax rates and lead to lower tax rates which addresses a major concern that India’s GST tax rates are among the highest in the world. Exclusion leads to implementation challenges and distorts the level playing field promised by GST.
3) Bring Electricity under GST
Electricity transmission and distribution by a service provider is currently exempted from GST. The sector currently has multiple taxes with low rates for consumers and high rates for industries. Levying a uniform GST on the sector could mean cheaper electricity, give the manufacturing sector a boost and aid the expansion of India’s low-cost manufacturing base to create jobs.
4) Greater clarity in procedure
Many investigations have found businesses guilty of not passing on the benefits of GST to the consumers but there is little transparency on the methodology adopted for computing benefits. The National Anti-Profiteering Authority has been constituted by the government to see if input tax credits have been passed on to the recipient by the reduction of prices. The government needs to issue clear guidelines on the procedure adopted to compute GST.
5) Fix the GSTN portal
The GST portal called GSTN has been glitch-prone and has not been updated to include changes in the provisions that have been cleared by the GST Council. GSTN needs to be revamped to ease its use.