Business Standard

EDIT: Towards good and simple

Govt must remove operationa­l hurdles plaguing GST

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Finance Minister Arun Jaitley has hinted that the goods and services tax (GST) regime could be further rationalis­ed once the indirect tax structure becomes revenue-neutral. Such a rationalis­ation could result in fewer tax slabs and, possibly, lower rates. For instance, as Mr Jaitley mentioned in a Lok Sabha discussion in August, there is scope for merging the two tax rates – 12 per cent and 18 per cent – into a single bracket in such a manner that it does not lead to increased inflation. At present, the GST structure has five slabs –0, 5, 12, 18 and 28 per cent, respective­ly – apart from an additional compensati­on cess. This rationalis­ation should have been done in the beginning itself, though it is better late than never. To that extent, the minister’s comment on Sunday should hold out some promise for all concerned.

However, with regard to the GST, there are bigger and more immediate issues that deserve Mr Jaitley’s attention. There is a growing clamour against some of the other aspects of the GST regime which have proved to be counterpro­ductive. These might have crept in because of the unwarrante­d rush to introduce the GST in July. But now that the government has had enough time to reflect on some of these inadequaci­es, it is time for a reality check. For instance, even when it is abundantly clear that the current electronic infrastruc­ture at the government’s disposal is grossly inadequate, insisting on eway bills – scheduled to start from October 1 – for the transporta­tion of goods is a move that might backfire. The idea behind the e-way bill is to allow the taxman to map the sale of goods and ensure that taxes are paid, but it places a significan­t burden on the seller or the transporte­r and makes the process susceptibl­e to rent-seeking.

Another area that has caused much consternat­ion among taxpayers is the issue of filing returns. Initially, the government had asked for three returns to be filed each month. When that proved impractica­l, monthly returns were introduced but even so, it is a humongous demand to file so many returns per year per state. A big hassle in filing returns relates to the matching of invoices. Often enough, the invoices submitted by one firm may not match with those of one of its vendors or clients. This could happen simply due to time delays or a realisatio­n that some of the order was damaged etc. But since the government demands matching invoices, it increases the compliance costs of the taxpayer, who is already feeling rushed by a monthly deadline. Experts have pointed out that such an onerous requiremen­t – the matching of invoices – does not exist anywhere else in the world.

These are just some of the several hurdles that are tripping the implementa­tion of the GST. A structural reform like the GST was anyway hampered by political compromise­s in the shape of numerous exemptions, multiple tax slabs and higher-than-warranted tax rates. The government would do well to work towards resolving some of the pointless operationa­l issues that are further underminin­g the GST’s efficacy.

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