22 January, 2018: The fiscal policy of India took a monumental turn on July 1, 2017 as the government implemented Goods and Service Tax (GST). The discussion on this reform started nearly two decades ago, inspired by positive empirical evidence from nearly 160 countries around the world, including advanced, emerging and developing economies. India adopted a dual GST structure based on a pragmatic federal relationship that requires both the Centre and States to play a crucial role in determining GST rates.
The GST Council has been able to successfully pass unanimous decisions on tax slabs and rates by conducting frequent meetings and engaging in discussions with all stake holders. Illustratively, GST council has met 25 times in past 15 months where several contentious issues have been resolved. Since the launch of GST, slabs have been substantially rationalized and various other measures initiated to amicably address complaints of consumers and markets.
However, despite very best initiatives, challenges pertaining to GSTN, matching of invoices, filing of returns, low financial literacy etc. still remain to be addressed. In this context, based on research we have created a list of suggestions that can increase the adoption and acceptance of GST in our country.
- GST Voucher – To counter the regressive nature of GST, some countries have introduced a permanent GST voucher scheme for low income consumers. Illustratively, Singapore and Canada are running GST credit schemes whereby they reimburse a portion of the tax collected from low-income tax paying consumers. The underlying principle is to help low-income consumers to cope up with increased cost of living. GST credits are directly received in the bank accounts of eligible individuals to avoid leakage. The scheme clearly specifies eligibility criteria which depends on parameters like family income, number of dependent children, age, etc.
- Sector specific GST publications – To ease implementation, Government can emulate Malaysian government’s strategy to increase financial literacy and smoothen the transition process. The tax authorities can create sector specific guidance papers and FAQs charting out the ‘to be tax practice’ concerned with each business segment.
- ‘Dial-In’ or a Hotline to resolve the issue – Multiple slabs and rates have created confusions in the mind of Consumers and traders. This has led to a growth in the underground economy as some merchants insist on selling without invoices for items that they lack clarity on, fearing unnecessary tax litigation. While there are others who are over-charging tax from the consumer on items with less clarity to avoid paying tax from their own pockets.
Although the Government has launched an app to find rates of goods with the aim of increasing financial literacy, the reviews have been lukewarm. A part of the reason is that a majority of consumers and traders still do not own a smartphone or internet connection. Many sellers are not tech-savy either. A specialised 24-hour toll-free ‘Rate finder helpline’ can be set up where consumers and traders can call in and ask their GST rate and slab queries to the operator. This ‘Dial-In’ model can help in reducing uncertainty surrounding the tax rates and curb the underground economy to a certain extent. Similarly, SMS based query-operations can also be considered. The reply will be sent back via text within 2-3 minutes.
- Simplified filing of returns through mobile app – To accomplish the benefits of GST, it becomes quintessential to make the tax filing process easy for users. Mobile app based invoicing linked to GSTN can be initiated to shift part of the burden from the time of filing to the time of invoicing itself. By generating e-invoices in a standard format, accuracy of recording and reconciliation can be improved. At the time of tax filing, the details can be automatically extracted from the e-invoices.
Standardisztion of invoicing and use of app will increase the efficiency of systems in matching seller buyer details and returns. It makes the tax system more robust, along with other set of benefits such as saving of paper, effort and money, and leads to increased transparency etc.
With the introduction of GST, the nation has taken a transformative approach to a better fiscal policy. It comes as another tool after demonetization to raise tax revenue and address deep rooted corruption in the country. A robust and simple tax structure can increase India’s ease of doing business and thereby its global competitiveness. The above suggested initiatives can help address the teething issues that GST currently entails by streamlining and simplifying procedures and thereby increase tax compliance and revenue in the country.
About authors: Prof. Charan Singh is a Visiting Faculty, Economics and Social Sciences Area, IIM Bangalore.
Ms. Shreya Agarwal and Ms. Itee Ashok are working on GST under the mentorship of Prof. Charan Singh.
very explained sir it will help us alot