It has been 100 days since the rollout of the landmark goods and services tax (GST)— India Inc is making the transition to the new indirect tax landscape– there have been many tweaks by the GST council on tax rates and to ease the compliance burden on small business– the government says more will follow.Only 73 percent have complied with return filing for July– the initial deadline to file returns for July was the 10th of august— this was extended by 2 months to the 10th of October– but even then, we have just 73 percent compliance so far.In Maharashtra, which accounts for 13 percent of the total registered assesses, nearly 79 percent have filed their returns for July.The government is standing firm– the clear message to people is to file their GST returns for July by midnight tonight and that there will be no extension this time.
Revenue Secretary Hasmukh Adhia has written to GST commissioners in 21 states asking them to conduct survey among those who haven’t filed their returns to find out what’s hampering the process.Taking stock of all the compliance issues and how the rollout has been so far, CNBC-TV18 speaks to an esteemed panel of the GST Council members from four crucial states– Haseeb Drabu of Jammu and Kashmir, Thomas Isaac of Kerala, Sudhir Mungantiwar of Maharashtra and Mauvin Godinho of Goa.Below is the transcript of the discussion.
Q: In terms of compliance now, in terms of getting people to actually file their returns and this is the exercise that the government is now working on, what do you believe in your assessment is the issue that we are facing today?
Drabu: One of the key issues that is facing compliance is the fact that we should all accept that there have been tax evasive accounting pre GST. Transactions in cash have been going on historically and under GST it doesn’t make any sense or it is not profitable to do transactions is cash because then you lose the input tax credit (ITC). Traders and businesses to me have been under the apprehension that if they have closed their books as on June 30 with a certain turnover which will be the cash component, how do they move to July 1 and declare the entire turnover? Will the government open their books which is provided for then it becomes a bit of an issue. Not only that then they open up books for income tax as well. So, the whole retrospective tax enquiry has been a major deterrent for compliance and registrations.
Q: I was given to understand that this was an issue that the GST council was to deliberate on in your last meeting which happened on October 6. So, has there been any discussion on whether the government can provide some assurance that there will be no retrospective investigation into business done under the VAT regime for instance?
Drabu: I think it has come from the highest level, the Prime Minister spoke about this in his lecture at the company secretaries where he said that there shall be no retrospective examination. The GST council also kind of discussed it but you must appreciate the fact that you cannot actually bring out a notification saying that we will not do it. However assurances have gone at the level of the Prime Minister, also I think even Finance Minister must have communicated to the various stake holders that this was discussed in the GST council and an informal gentlemen agreement has been that, what has happened in the previous regime, let us not get into that, let us see how compliance works post GST regime because it is a historical fact, it is not that we have suddenly stumbled upon and discovered it. So, that is one part of it.
Second, is the whole thing of getting used to it, accounting norms which you follow for businesses, a large part of businesses so far have been mom and pop stores not with accounting standards and all. So, suddenly you find a certain degree of compliance has to be done, accounts have to be maintained. Even if you take a slightly different angle almost 30 percent of Indian businesses operate with savings account not current accounts. So, the way the informal banking is done, subsequent business accounts are not formed, it is a bit of a stretch to actually move from that to a GST regime which is where there has been some kind of delay in meeting the compliance norms.
Q: This gentlemen’s quote that Haseeb Drabu is talking about, have you been able to suitably send out that message within the tax administration in your state? What is the state doing to ensure that you do get more people on to the GSTN to adopt to the GST? If you can also share with us the latest numbers as far as the state of Kerala is concerned for instance?
Isaac: I broadly agree with Haseeb Drabu said but it must be admitted that for the small suppliers, not traders and manufacturers, the demand for compliance is cumbersome, they are not used to it. GST council has accepted that by saying that they need to give only quarterly returns, payment quarterly. So, it is a recognition of the fact that for small dealers there is a real problem over there, that is something which has to be kept in mind. It is not a simple process, it is a complicated process.
Q: So, as you are saying, you are saying that the GST Council is cognisant of the fact that the compliance process was cumbersome at least for small businesses and you have hence taken the decision to allow quarterly filing, etc. Do you believe that now a large part of that pain has been addressed by the decisions that the council took on October 6?
Isaac: Yes, I think largely it has been addressed. But still, there would be problems. Suppose 40 percent of the suppliers give nil returns, 30 percent did not, that would be something like 70 percent of the entire registered GSTN suppliers. There is some problem to be addressed to. And certainly, we are going to look into it. But I think it is important, government makes available free of cost an accounting package for the small dealers which they can use free of cost. It is very important to have that.
Q: What is the degree of shortfall that you have seen in terms of revenue collection because what the member CBEC told me was that in fact on the compensation cess side, they have actually seen a surplus and they have already started to refund states for any loss of revenue. Was there any loss of revenue for the state of Kerala?
Isaac: There is something like 25 percent but it is short-term in the sense being a destination state, IGST would continue to increase over the months and we should be very shortly, near 3-4 months out of compensation bracket.
Q: A couple of months to actually move to a convergence of a two rate structure?
Drabu: No, of course not. I do not think that should be done also. I do not think that is desirable. You cannot keep changing this. One thing of course that will happen is that the 28 percent bracket will be trimmed down. There is no denying that. I think it will come down, but eventually, it cannot be a two-rate structure. Whenever it happens, it has to be a three-rate structure in terms of the main GST rates which will come out of collapsing 12 percent and 18 percent which is like 14.5 percent, somewhere there.
And then you will have the merit good rate of 5 percent and a demerit rate of 28 percent. So it will be a three band which is globally accepted. So the idea really at this point of time, even if we do not collapse the rates would be to increase the 12-18 percent bracket and reduce the 28 percent bracket which is causing a lot of concern. That is where the focus of our thing in the GST Council should lie.
Q: Let me ask you about the possibility of the items that are currently out of the ambit of the GST being brought under the ambit of the GST. I will specifically ask you about petroleum products because today, we have got the vice-chairman of the Niti Aayog saying very clearly that he believes that by the Budget next year, we should be in a position to bring petroleum under the ambit of the GST. Is that the direction that the GST Council is likely to take?
Isaac: After constitutional amendment, it is for the GST Council to decide when petroleum product should come into the spectrum. But, as long as the central government is willing to compensate for the loss fully as in the case of other commodities, we can definitely consider that. To set the atmosphere for that, let the central government reduce the excise tax rate they raised since they came to power since three years back.
Q: But they have just brought down the excise duty. They have asked states to follow through. Gujarat and Maharashtra have cut VAT. Is Kerala going to cut?
Isaac: Now let me answer you. They increased excise duty by Rs 14 for diesel then reduced it by Rs 2 and say you have reduced it. What about the other Rs 12 per litre.
Q: Will Kerala cut VAT?
Isaac: I will not cut VAT until central government reduced the excise duty they increased. That is my condition. I never raised my tax rates. Know, for the state of Kerala, the last four years, there has been increase in the rate of tax. In fact, do you know what is the present existing incidence of excise tax? 51 percent. Calculate and see. Which state if imposing 51 percent. After imposing an effective rate of 51 percent as a basic cost of the petrol and diesel, you are saying the state should reduce the rate? Now way.
Q: Let me come back to you because the decision taken on October 6 was to suspend the reverse charge mechanism and to stagger the implementation of the e-way bill mechanism to at least April of next year. Most tax experts that we have spoken with suggest that in fact this suspension should be permanent. What are the thoughts within the GST Council on this?
Drabu: Two very major decisions were taken in the Council or I would say three decisions which were really critical to the entire architecture of GST. One was postponing the reverse charge mechanism till March. Then again the e-way bill. It is again effectively April 1, states can start implementing it from January and then go on till March which again is a deferment. And the third is the route of exemptions. These three have, IN some ways, impacted the way GST was conceived and designed in the architecture of GST.
None of them when seen in themselves are decisions which should be seen as good decisions but these are decisions which are practical and we are facing a situation, not just of compliance but also of a certain optics across the country. There is a slowdown. Which I do not agree with, incidentally, it is not the cause of slowdown.
But for whatever reason, the fact is we are responding to a situation. It is an evolving situation and we felt that this could have been, both all three of them are very key parts of the GST system that has been designed and should not, in any case, get deferred beyond April. Now this is an exception and should not become the rule.
We should get into reverse charge mechanism because that is the only way in which you will get a small unregistered guy also into the larger framework because you have to understand that we have moved to a different system. Now do not try and make changes in GST, whether these are tax experts or others which will make it look like a VAT regime.
Again, the thing of e-way bill is that the moment you do it, you are actually breaking up the whole concept of one nation, one market, one tax, in which ever way and you are forced to then go back to your system of checkposts and tolls and nobody will avoid them now. So you are again putting barriers to movement of goods across the country which is not intended under GST.
And similarly, while we fully support and GST Council also understands the issue of exporters, it should not have been an exemption but a reimbursement. The reason why it was done was because of the ill-preparedness or the lack of preparedness of the reimbursement mechanism because of a particular IT vendor. So, we have gone back to a system for a certain period of time because once there is an exemption then the chain breaks. So that we should understand very clearly that that is not the route forward.
Q: So do not mess with the design?
Drabu: I do not think we should. We have done certain things marginally up to this. Again while we are doing it, we have addressed the compliance issue because this is something you were asking. We have addressed the compliance distress of exporters. We have not addressed substantive few exporters which is in terms of information duty or whatever else or the carried forward taxation, embedded tax as we call it. These will have to be addressed in the next thing, so while all of us understand that these are issues that you are taking care of, we have resolved the procedural compliance part. We have not addressed yet the other part of it. But, to answer your question, I do not think we should forever drop these things because then, the GST will start looking more like a VAT regime.
Q: What has been the biggest highlight of the 100 days so far?
Isaac: Three. One, exports have suffered. Two, prices have risen. Three, it has been a set back for small scale sector. The last meeting, we tried to address some of them.