In the pre-GST era (before July 1, 2017), the business community was strangulated with multiple levels of taxation, ambiguities in tax laws, arbitrary and unfair provisions, prolonged litigations, non-accountability of tax administrators, etc.

The business community was highly optimistic that the implementation of the GST would be a fair and simple tax law, resulting in the ease of doing business, as well as elimination of the inspector Raj and corruption. Although the intention of the government to implement GST indeed was noble, the presence of some unreasonable, atrocious and objectionable provisions in the GST legislations have defeated some of the avowed objectives of the government.

On 4th anniversary of the GST regime today, it is time to take stock of the ground level reality. It appears that small businessman, professionals, and the general public are disappointed with the manner in which GST has been implemented.

Here are a few genetic defects in GST legislation which requires serious re-consideration by the government:

Taxing Advances:

Taxing advance means the collection of tax before the occurrence of the taxable event. Payment of taxes on advance hinders ease of doing the business as it inflicts following hardships on the tax payers:

• Maintaining parallel records of receipts and billing
• Cumbersome reconciliation of financial statements and GST returns
• At the time of receiving advance, the supplier may not be in a position to classify the transaction whether it will be an inter-state supply or intra-state supply
• Issues of tax adjustments in case of refund of advances
• TDS applicability on such advances
• No input tax credit (ITC) for customers on advance payment.

Denial of ITC to Purchasers for Failure of Vendor to Deposit the Tax:

This is akin to collecting tax of one citizen (tax defaulter) from another citizen (tax compliant assessee). It is unfair to penalize the honest tax payer for the wrongdoings of tax-evaders. Vendor charging GST is like the government’s agent and hence it is unfair to pass on revenue loss arising out of failure of the government to recover tax from its agent to the honest tax payer.

Ringfencing of ITC:

The taxpayer is not allowed to claim ITC of CGST and SGST accruing in other states. This ringfencing of ITC is defying the avowed objectives of One Nation One Tax and seamless credit which was promised to the nation on introduction of GST.

Blocked Credits:

Section 17(5) gives a long list of blocked ITC even though such expenditure is incurred by business entities in the course of or furtherance of business. This defies basic principle of Value-Added Taxation (VAT) system and has caused a mammoth working capital shortage for businesses, already reeling in a post-pandemic business environment.

Non-adjustment of Tax Erroneously Paid to Other Governments (other than the appropriate Government):

Presently, any error in classifying transactions as intra-state or inter-state results into tax payment to the wrong government. In such a case, the tax payer is obliged to pay the tax again to appropriate government and claim refund from the government to whom the tax was erroneously paid.

This inflicts great hardship on tax payers. Hence, express provision should be made in legislation allowing adjustment of erroneous payments between two governments. This is also a basic tenet of cooperative federalism and basic coordination between two state governments is not too much to hope for, especially considering our aspirations to become a 21st century economic superpower.

No Opportunity to Revise Returns:

The taxpayers should be given the right to rectify the returns filed by them as GST is based on the principle of self-assessment. Limitations as to revision of returns puts the assessee in a vulnerable position leading to penal consequences, even for genuine and honest mistakes.

Multiple Proceedings:

Self-policing on a monthly basis is a prime feature of GST and in spite of constant surveillance through data mining by department, the law prescribes a very long period of limitation, going up to six and half years, in case of raising tax demand.

In addition to this, there are multiple proceedings such as scrutiny / summary assessments, revision power of commissioner, departmental audit, inspection of records and accounts, access to business premises, inspection of goods in movements, etc. resulting into voluminous compliance burden. It hampers ease of doing the business and leads to interface between tax payer and department resulting into corruption.

Prohibitive Amount of Pre-deposit:

The GST legislation provides a pre-condition of depositing 20 per cent of disputed tax dues for admission of second appeal with GST Tribunal. High pitched demands are common and such heavy pre-deposits are a great hinderance for the assessee to approach higher authorities for justice.

Inordinate Delay in Setting up of GST Tribunals:

Tribunals have not been set-up even after 4 years. The assessee is left with no option but to move High Courts against refund rejection orders as well as proceedings for the recovery of demand confirmed by department.

It is high time for the government to revisit the above referred issues and take corrective actions to achieve the avowed objectives of the greatest tax reform (GST) such as the ease of doing business, one nation one tax, elimination of hardship and harassment of tax payers and minimising corruption. At a time when a large portion of SME businesses, the backbone of the Indian economy is struggling, it will be vital to ensure at least some relief is given to them by way of these corrective measures.

The author is Partner, NA Shah Associates

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.