Introduction
Hailed as ambitious and historic tax reform that transformed the indirect tax system and brought into compliance with the international norms, Goods and Services Tax (GST) marks its sixth anniversary on 01st July 2023. A new era of ‘One Nation One Tax’ began with the consolidation of multiple state and central levies into one tax. GST has significantly contributed to India’s impressive rankings for ease of doing business by fostering a conducive business environment for domestic and international entities.
The last year was remarkable for the government as GST witnessed exponential growth in GST collections, maintaining a monthly average of around 1.5 lakh crores for the financial year 2022-23. On one side, this indicates an exceptional progression, however, the journey has not been easy as it has encountered its due share of procedural and technical hindrances, where at times, it has gotten vexatious for the taxpayers. Let us relook at the key hits and misses on this journey.
Hits
Digitisation of Taxation System
The implementation of GST prompted a complete turnaround from the erstwhile offline compliance management system to an advanced and dynamic online system equipped with real-time reporting.
Predicated on the premise of complete digitisation of compliances, this has eased the burden of both the taxpayers and the authorities. After an initial unsteady experience, the GST portal is now equipped to effectively handle and manage vast amount of data. Introduction of the e-way bill, e-invoicing mechanism, integration of GST portal with ICEGATE system of Customs and other tax departments, and data analytics makes it easier to track instances of non-compliance or fraudulent activities, allowing appropriate actions to be taken.
Streamlining Compliances
GST made significant progress in streamlining and simplifying the compliance framework. The auto population of data has reduced manual efforts, with GSTN fetching information from various sources to pre-fill GST returns. The government has been actively issuing guidelines to highlight disclosure requirements for consistency and uniformity of the taxpayers.
Cracking down on Tax Evasion
The government has been effectively leveraging robust data analytics and artificial intelligence to detect instances of tax evasion and identify risky taxpayers. Launch of a special drive to identify fake registrations besides mandatory Aadhaar-based authentication for new registrations are some of the initiatives to crack down the tax evasion. During the first week of the special drive, over 10,000 fake registrations were identified, serving as a testament to the success of this drive.
Addressing Industry issues
The government has been proactively addressing the issues to put the industry at ease and has put a halt on certain issues like the taxability of perquisites given to employees, the applicability of GST on liquidated damages, cancellation charges, dishonor charges, etc., by providing express clarification to bring down unwarranted litigation.
Misses
ITC Conundrum
Over time, there have been frequent amendments aimed at tightening the process of claiming ITC. The shift from provisional availment to invoice-level reconciliation via Form GSTR-2A/2B for availing credit has been a significant change. The taxpayers are bombarded with the mismatch notices even when the default lies with the supplier. While courts have ruled in favor of buyers, stating that GST cannot be demanded from them due to the seller’s non-payment of taxes or that the recipient’s ITC cannot be denied if the supplier becomes non-existent or their registration is canceled retrospectively, the issue of claiming ITC persists. Moreover, investigations have started demanding the reversal of ITC on expenses related to IPOs, buyback of shares, marketing activities and more.
Absence of GST Tribunal
The evolution of GST has been accompanied by a rise in litigations and disputes, which are burdening the High Courts and Supreme Court due to the absence of a robust appellate tribunal. Despite receiving approval from both houses, the constitution of the Goods and Services Tax Appellate Tribunal (GSTAT) has kept the taxpayers on their heels. The immediate constitution of the GSTAT is the need of the hour not only to curb the hue and cry but because delayed justice can be seen as denial of justice which adversely affect both taxpayers as well the efficiency of GST system.
Unresolved issues that await resolution
Despite the GST Council providing sufficient clarity on certain issues, the industry eagerly awaits the prompt resolution of key concerns related to GST taxability. The lack of definitive guidelines regarding the taxability of intermediary services has confused businesses, resulting in inconsistent interpretations across jurisdictions. Furthermore, taxpayers receive notices demanding GST payment for activities such as use of brand name or logo, issuing corporate guarantees on behalf of group companies or holding shares in subsidiary companies, treating them as services. Until the government provides clarifications, these notices will continue to haunt taxpayers.
Contradictory Advance Rulings
Ever since the implementation of GST, there have been instances where different states have provided contradictory advance rulings or made pro-revenue decisions. Recognizing the need to address this issue, the government proposed the establishment of a Centralized Appellate Authority for Advance Rulings in the Union Budget 2019. However, despite the proposal, the authority has not yet become operational. The delay in establishing and operationalizing the Centralized Appellate Authority has led to ongoing uncertainty for taxpayers who have received conflicting rulings.
Challenges faced by Virtual Digital Assets and Online Gaming Sectors
The prolonged ambiguity surrounding the taxability of virtual digital assets and online gaming has created significant challenges for both sectors when engaging with GST authorities. Taxpayers in these industries are grappling with their own unique set of issues. In some instances, demands raised by the authorities exceed the actual profits the taxpayers, exacerbating the predicament further. By offering explicit guidance on the taxability of virtual digital assets and online gaming, the government can bring clarity and consistency to the GST treatment in these sectors
Conclusion and Way Forward
It has been established that changes can sometimes be ‘taxing.’ As we ambitiously usher into the Amrit Kaal, the emphasis should be to make GST more assessee-friendly to form a synergistic alliance with the taxpayers.
This article was originally published on Taxsutra.