GST Model Law – 5 high priority inconsistencies

An important aspect of the tax reform to be rolled out in India from 1^st April 2017 is the last mile that goes digital.

While rules regarding transactional details are being worked out and rolled out regularly, the government by fixing annual revenue as 20L as the criteria for being registered under the GST regime is practically bringing in several crores of vendors and traders into the tax net. The estimate for the first year is itself between 70 lakh to a crore registrations in total.

20 lakhs per annum means a daily revenue of about 6000 rupees. This gives us an indication of how wide the tax net is going to be. Many traders are going to be confronted therefore with needs to account, submit invoice wise details, take credit, and pay taxes; submission, credit availment, payment of taxes being digital in nature. This will result in an investment that enables the same, a large change in behavior and most importantly be able to avail credit of tax. This is a huge leap forward; difficult initially, but worth the investment and effort in the long run.

The government’s larger interest being minimum human interaction, is a very magnanimous gesture of bringing in uniformity across the country in terms of legal interpretation and transparency. The dream being business must run better while compliance is automatically handled digitally.

As the rules are being detailed out, what one notices is definite inconsistency between the envisaged state and what could be real. It starts with how invoices need to be communicated to GSTN the digital tax office.

Shouldn’t invoices in their raw form be accepted on a regular basis by the tax office? Why should the invoices be grouped by HSN code and uploaded? Why is this additional burden of aggregation being pushed onto the assesses lap? Why cant the GST Council take a pragmatic stance; ignoring any legal interpretation? Or repeal such an act or section should there be one?

Data in a raw form will be helpful for further studies; which I think is imperative considering the gold mine of data that GSTN will accumulate.

A second inconsistency is a vague rule of asking a certain set of assesses to maintain an eight digit HSN code, and another set to maintain 2 digit and/or 4 digit HSN code. How does this help the latter? Imagine the reconciliation effort & the harmonization effort! And when the rules mention HSN code as a criteria to validate credit that can be availed, it is in my opinion ridiculous. My suggestion will be to have everyone maintain the eight digit HSN code uniformly following global standards.

A third inconsistency is the decision or proposal to charge GST on advance payments. Now advances could vary from token amounts to full payment. Tax on advance payments against goods or services will be difficult to determine and reconcile simply because the provider of goods and/or services will have to fix the source of supply right at the time of receipt of advance; which from a business point of view is impractical. GST being indirect in nature can be garnered with ease with just one taxable event – the invoice. Government must not show haste in collecting taxes; it implies a lack of trust and that is against the dream state envisaged.

A fourth consistency is the ask to validate monthly returns & a quarterly returns. I am wondering why. The entire data at a transactional level is available; it can be constructed, aggregated, segregated in any form required. Why should an archaic system of filing returns be followed in the digital age when data has been submitted in its most raw form? This is retrograde and most business unfriendly.

A fifth inconsistency – Form 9A is now available in the CBEC portal (www.cbec.gov.in). While there hasn’t been a mention of it in the model law so far, we aren’t sure if this will have to be furnished by assesses. It comprises reconciliation statements, income and expenditure statements, and 12 annexures. The details sought require every taxable entity to prepare such statements; which is humongous effort.

All in all, it seems the efforts put in to bring in a legislation that will help businesses focus on business is being side tracked, and legislation is largely focusing on audits, trails, reports, returns, the primary foundation on which it is built being a lack of trust. This outlook will derail transition into a new regime, thus bringing in unnecessary disruptions into functioning of corporates. Let us not miss the woods for the trees. Let the grandeur vision of the new law not be lost amidst such myopic views.