Revisit contentious issues
Source: By Mohan R Lavi: Deccan Herald
As we make progress towards implementing the GST, two questions need to be answered. The first one is: "Should GST be implemented from April 1, 2017?" There can be no two thoughts that India requires a proper value-added tax considering the multiple taxes that products and services suffer at different stages of their lifecycle from commencement to completion.
Everybody who is somebody connected with the implementation of the GST appear to be on a mission to ensure that it is implemented from the above date. The GST Council has been set up and has had its first disagreement, a massive training exercise is being done and draft rules and forms have been issued for public comments. If the Council approves the rates of tax and the state legislations this month, we might be on course for an April 2017 implementation.
The second question that feeds off from the first is: "Should GST in its present form and shape be implemented from the above date?" The answer would be an unambiguous no. Any law that is hastily drafted (which the model GST law most certainly is) and relies on continuing the contentious issues such as disallowing input tax credit, tends to get into needless litigation later on, despite any number of clarificatory circulars. The government should press the pause button for some time now, take a complete relook at contentious issues and then implement the law.
It would certainly be an achievement if this deadline is met but the government should not make the mistake of factory-producing forms and rules just to meet it. It is possible that the government is thinking of bringing in GST next year since 2018 is a year closer to the Lok Sabha elections and it would not want to upset anyone who is negatively impacted by the GST. Implementing the GST in 2017 gives the government a cushion of one year to iron out problems that could plague certain specific industries.
Invoice matrimony: Seamless granting of input tax credit is the foundation of any GST law that believes in the concept of the value added tax. The foundation of the GST law is extremely weak because no effort has been made to rewrite the rules for availing input tax credit. By copy-pasting bits and pieces of the present input tax credit under Central excise and service tax, the government has imported all the inefficiencies of the present tax system. They have also managed to add to the inefficiencies by framing Section 29 of the model GST law which is titled, 'matching, reversal and reclaim of input tax credit.'
The details of every inward supply furnished by a taxable person for a tax period will be matched with the corresponding details of outward supply furnished by the counter-party in his valid return for the same or a previous tax period and for duplication of claims of input tax credit. If these match, life moves but if they don't, both the parties are intimated about it. An intimation received in April 2017 will have to be rectified in the return that is filed in May 2017 failing which it gets automatically added to the tax liability of May 2017. Every supplier and buyer would now need to get into the matrimonial service of matching their invoices with each other.
Without worrying about the rest of the world (where the concept of matching of invoices hasn't worked), we should consider whether matching of invoices would work in India. Differences in invoices can arise because of innumerable factors - different accounting systems, using codes for invoicing, differences in designating various types of goods and services and basic accounting errors.
A tax payer who is prompt and correct in the payment of his taxes will now have to ensure that the rest of the population from whom he receives invoices are like him - else he will have to pay for their errors, mistakes and laziness. The GST is based on the fact that there is no threat of the input tax credit in the entire supply chain being broken. The ill-advised concept of matching of invoices will ensure that there will be disruptions in input tax credit for administrative errors of the counterparty.
Technological tax
The entire GST tax chain relies on technology as most responsibilities under GST are to be made in electronic mode. Small-time players who are getting into GST may not be well-versed in the technology. This is bound to result in erroneous invoices being uploaded due to which the counterparty would be penalised. To avoid such issues, the GST Council should fix a threshold (for instance a turnover of Rs 2 crore) for the matching of invoices concept to apply.
In the mission to bring in GST from April 2017, draft forms have been issued. Filling up any tax form in India normally requires some knowledge of the respective tax laws and loads of patience. Apart from these two qualities, filling up the GST forms for ITC Mismatch Report (GST ITC 1A,1B & 1C) would also require a good degree of imagination because one who files the tax has to familiarise himself with the concepts of matched and unmatched invoices for the current and previous periods. The e-commerce companies and their vendors would probably need to create separate teams called as "Mismatch Teams" as the volume of invoices they deal with will be extremely large.
It is clear that comprehending and implementing this new concept of matching of invoices will take a lot of time. The government should see how this scheme of matching of invoices works for a period of one year from the date when GST is implemented without penalising the taxpayer in the form of disallowing his input tax credit. Else, taxpayers would use their innovativeness and ensure that there are as many versions of invoices as are necessary to get an input tax credit.
