GST hurdles

With the knotty issue of dual control having been somehow sorted out, July 1 is the next moving goalpost for GST to make its arangetram in India. The Government has the comfort of knowing that even if the July target is missed, they still have a final target date of September to make GST a reality.

The dual control dilemma was resolved by setting a threshold level and agreeing to share control on pre-determined percentages. GST taxpayers with a turnover of up to ₹1.5 crore would be assessed by the Centre and States in the ratio of 90:10. In case of taxpayers whose turnover is more than ₹1.5 crore, control would be shared equally. It appears that the percentages have been arrived at only for the purpose of arriving at some sort of a formula. At the ground level, this is going to create multiple challenges.

The first challenge is in the use of the word ‘control’ . The word suggests that both the Centre and States would lose something big if they do not have it. It would appear that control for GST purposes means managing assessments, collecting tax payments, issue of notices, scrutiny, audit and other administrative compliances that the law envisages.

The need for this arises because GST subsumes the major indirect taxes of central excise, service tax and VAT. It would have been ideal if the VAT Department handled SGST assessments and the Central Excise and Service tax departments handled the CGST piece. However, the need to enter into each other’s territory has arisen because the Centre and the States will share a piece of all the taxes.

Hence, both will need to ensure that they are able to watch over their wards. A watch over taxpayers would be needed to compute the exact loss. If statistics are to be believed, they show that a significant majority of VAT and Service taxpayers are below the ₹1.5 crore threshold.

There are a bunch of issues that arise from the percentage formula that has been worked out. How will the 10 per cent or 50 per cent be chosen? It is clear that there would be some parameters such as turnover and taxes paid. Would the entire population of taxpayers in the 10 per cent and 50 per cent be chosen or only a sub-set of them? Would both the Governments trespass on each other’s areas? Would control between the Centre and States be rotated?

Although the model GST law has provisions for appeals, taxpayers would expect a forum to escalate cases. All indirect taxpayers have got used to their present set of officers and appellate authorities. Bringing in a fresh set of officers is only going to increase their compliance costs and levels of discomfort.

The necessity to arrive at a formula for dual control now needs to be questioned. For everyone, GST is a new levy and no one knows how it will pan out when CGST, SGST and IGST invoices are generated. The Government should think of continuing the current system at least for a couple of years. Section 138 of the Model GST Law has a provision for compliance rating of taxpayers.

The Centre can choose cases for dual control on a random basis or where there has been a drop in the compliance rating that would invariably have happened because of not following the law. Once all officers know the nuts of bolts of GST, it wouldn’t matter by whom and in what manner the assessments are done.

The writer is a chartered accountant