ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Difficulty of Goods and Services Tax

Is the central government circumventing structural crisis of GST in the name of compliance?


Over the past three months, the central government has compulsorily retired some 37 officials in the ranks of commissioners and superintendents from the Central Board of Indirect Taxes and Customs (CBIC) over corruption and related charges. With three-fifths of these cases of sacking being executed against the backdrop of the Comptroller and Auditor General’s (CAG) pessimistic audit report regarding the performance of the goods and services tax (GST) regime over the two years since 2017–18, is this initiative of “cleansing bureaucracy” a strategy of killing two birds with one stone?

The central government’s crackdown on corrupt and incompetent government employees—through the application of Fundamental Rules 56(j), Rule 48 of Central Civil Services (Pension) Rules, 1972 or Rule 16(3) (Amended) of All India Services (Death-cum-Retirement Benefits) [AIS (DCRB)] Rules, 1958—is in itself an appreciative gesture towards restoringefficiency in the administrative systems. And in the case of the tax system, this is a move to remove those whom Prime Minister Narendra Modi in his Independence Day address had identified as the “black sheep in the tax administration (who) may have misused their powers and harassed taxpayers, either by targeting honest assessees or by taking excessive action for minor or procedural violations.” However, in this exuberance of cracking down on the housebreakers, is the government overlooking the systemic faults in the house itself, and consequently, wasting the opportunity of mitigating its proneness to such pilferages?

If there is cognisance of mala fide tax officials within the government, then why is a system like the “invoice matching,” which could have minimised, if not eliminated, the official–assessee interface, still not put in place? In fact, invoice matching was perceived to curb tax evasions, and the system of payment and settlement of tax envisaged for the GST, especially the settlement of the integrated goods and services tax (IGST), was to be based on (100%) invoice matching. Without an invoice-matching system in place, these objectives have not materialised as of now. Further, the CAG report has identified the susceptibility of the GST system to leakages like input tax credit frauds, in the absence of invoice matching. And without invoice matching and auto-generation of refunds, the envisaged tax compliance is found to be declining, as indicated by the falling share of taxpayers filing the summary return form (GSTR3B) from 87% in April 2018 to 79% in December 2018. While the IGST, which is collected on the interstate supply of goods and services and imports, saw a staggering decline from ₹ 1,76,688 crore in 2017–18 to ₹ 28,947 crore in 2018–19, the centre’s revenue from GST (excluding the central excise on petroleum and tobacco) registered a decline of 10% in 2017–18 compared to that in 2016–17.

At this juncture, let us go back to the two questions that were raised at the beginning of this editorial. The most plausible answer to the second question of whether the government is trying to brush aside the systemic problems in the GST regime will be a “no.” Take, for instance, the case of invoice matching since it is at the core of the GST design. In resonance with the GST Council, the proponents of this tax regime will acknowledge that this is a heavy requirement for both the taxpayer and the tax collector—at least initially—given no or low prior exposure to such a system, and such implementation issues will be resolved in phases, over time. In tandem, attention will be drawn to the rate reductions done over a period starting from November 2017 and their immediate revenue impact. This argument will gain traction when viewed in the context of an expansion in the assessee base by 84% from ₹ 65 lakh to ₹ 1.20 crore, in the eight months from July 2017. But what gets subdued by this discourse is a fundamental structural issue in the GST, that is, despite such an extensive assessee base, 95% of the tax is paid by only 5% of the taxpayers.

Even if the technical issues are resolved, the number of those filing tax is hard to increase. And this is because the GST does not cover or benefit the unorganised sector that constitutes two-fifths or so of the national output and over 90% of employment. While this sector is largely not eligible for the input tax credit, reverse charges make it even less (price) competitive to the organised sector. To answer our opening question now, the second bird that the government attempts to kill by removing the CBIC officials on grounds of integrity and public interest, is not any leakage in the GST system. But potentially, the commoner’s “awareness” of the structural bias in the GST. In the absence of strong political opposition to question such structural flaws of the GST, the government is expediently “role playing” its own opponent by creating new hyperboles of “introspective” interventions that bank more on moral outrages than any pragmatic understanding of issues.

Updated On : 11th Sep, 2019


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