It’s possible to seriously simplify GST

The Goods and Services Tax Network is facing starting hiccups, which is hardly surprising. World over any new IT system takes six to nine months of trouble-shooting to get most things right. Remember the frequent system and software upgrades released by Microsoft and Oracle.

But the GSTN, being the mandatory clearing system of Indian businesses, has no such luxury. Even as the GSTN resolves issues, it has to think of possibilities to strengthen itself. Can we make the user interface simpler and the internal process flow straighter? We propose such a system.

The new system will involve creating a new module for use in both business and government. We may call it the Invoice Generation System (IGS). The Government will own the IGS.

Firms would use IGS for preparing business invoices and paying taxes. They would not generate invoices in their private systems as they do now. This will ensure that the Government gets the relevant data at the time of invoice generation; there’s no need to wait for the filing of returns by firms.

An example will explain this. Consider 2 GST registered firms A and B. Firm A has agreed to sell 100 shirts to firm B @ ₹200 a shirt. GST rate on shirts is 12 per cent. Firm A will use IGS to generate an invoice by mentioning Firm B’s GSTN number. For this, Firm A will enter the GSTN number of Firm B, details of the shirt and the agreed price. The IGS will fetch the GST rate from the system and details of Firm B from GST registration records to populate the invoice.

The invoice thus generated would show that Firm B has to pay ₹24,000 to Firm A — ₹20,000 as the price of the shirt and ₹4,000 as GST. The invoice data can be viewed online by both GSTN and Firm B. Firm B would accept the invoice details sent by Firm A to state its acceptance of the invoice. Firm B would make payment for the shirts to Firm A. At this point, the role of IGS will be over, and the GSTN will take over completion of processes such as calculation of input tax credit, invoice matching, and so on. Both A and B would pay taxes based on calculations by the GSTN from the invoice data fetched from IGS.

IGS would be a useful addition to the GSTN. It will end the need to file multiple registrations and returns. Retailers may use IGS to generate cash memos at the time of final sale to the consumer. The retailer’s IGS account will already have a record of the stocks received from the wholesaler. The Government could collect GST even at the last mile of the transaction, a weak point so far. Glitches in the existing system will come down with the addition of the IGS in the GSTN system.

Let us understand the issues faced by the existing GSTN system. Even though it was designed to handle 300 crore invoices uploaded by one crore traders every month, it faces frequent slowdown. It needs many design upgrades. For example, while processing an invoice with multiple items/rates, the GSTN identifies only the first item of the invoice and treats the rest as duplicate.

Data is sometimes lost if the user switches windows in order to obtain information such as details of supplier claiming input tax credit. Security issues such as access to unrelated firms have also been reported. Such issues are taken care of as they arise in any system. GSTN is no exception to this.

On account the GSTN glitches, the dates for filing of GSTR 1 has been extended to October 10, GSTR 2 to October 31, GSTR 3 to November 10, and GSTR 3B to December. But while the extensions give time to individual firms and the GSTN, they also block the processing of refunds and transfer of money to State governments. This delays the monthly settlement cycle of the GSTN.

Many are also concerned about the soon-to-be-operational e-way bill system. If it faces any glitches, the movement of goods will come to a halt.

Addressing tax administrators at the Rajasva Gyan Sangam event in New Delhi on September 1, Prime Minister Narendra Modi voiced his concerns about this. “We should work towards ensuring that all traders, including even relatively smaller traders with a turnover below ₹20 lakh, should register with the GST system,” he said. He asked the officers to design a system for this category to enable all traders to get maximum benefit from GST.

The Prime Minister rightly understood that the business opportunities for firms outside the GST system would be limited. Unregistered firms are not allowed to export-import, sell on e-commerce websites or sell to other States. GST-registered firms avoid buying from unregistered firms. Onerous GST compliance requirements such as filing three monthly returns is the major reason that deters small firms from joining the GST regime. Adoption of IGS in the existing GSTN system will allay these fears.

Adoption of the IGS will remove the difference between actual and reported business transactions. Tax collection will increase as there will be no unreported transactions. Audit and surveillance work will come down. Adoption of IGS will reduce the burden on GSTN servers.

IGS is an idea actively discussed among a small team of professionals who wish to see the GST succeed. We are sure it will be a game-changer and will help small firms join the GST world in large numbers.

The writer is with the Indian Trade Service. The views are personal