In his speech on July 1 during the introduction of GST, the Prime Minister said GST is a “good and simple tax” which “will end the harassment of traders and small businesses” while integrating India into one market with “one tax rate”. If we consider this as the primary vision statement of GST, then our bureaucracy is ensuring we are moving away from this goal with every passing day.
Not one but seven tax rates under this section
The 40th amendment to subsection (1) section 11 of the CGST Act 2017 was issued on the 23 October 2017 introducing yet another rate of tax (0.5 per cent CGST + 0.05 per cent SGST or IGST of 0.10 per cent) for merchant exporters, with the most bizarre conditions. This makes not one but seven tax rates applicable for this section — namely 0 per cent, 0.05 per cent, 2.5 per cent, 6 per cent, 9 per cent and 14 per cent. In just a little over 3 months, 40 amendments have been issued to the new act. Tax slabs have more than doubled and conditions have become much more difficult to both execute and enforce with each amendment. Ease of business is disappearing and the inspection by ‘jurisdiction tax officer’ is being added to all clauses in what was supposed to be a digitally monitored tax system.
It is great Revenue Secretary Hasmukh Adhia in a statement acknowledged that GST needs a rejig. However, amendments to the GST act is making an already complicated act even more unviable. The calculations by the fitment committee and the introduction by the GSTN council of new tax rates must take into consideration the Prime Minister’s vision to move towards one tax regime and not increasing the tax slabs mindlessly.
Niladri Biswas, head of the indirect tax division of Vertivco (previously Emerson Power Network), says that today all the provisions and tax slabs of VAT, Service Tax, Excise duty are making a backdoor entry into GST with their complicated structures. In 2005 when VAT was introduced, there were just 2 tax slabs. Slowly the states and the central Govt started increasing and adding taxes and by 2017, when GST took over, there were 17 tax slabs in VAT across the states.
The quiet entry of the jurisdictional tax officer
This amendment also says that the merchant exporter shall provide the GSTN identification number and tax invoice number of the registered supplier in his invoice and the duly signed warehouse receipt in the shipping bill to the jurisdictional officer of the supplier. After the goods have been exported, the registered supplier shall provide the proof of export to the jurisdictional tax officer. In case the goods are not exported within 90 days by the merchant exporters, no exemption shall be applicable.
Two issues arise here says Gagan Bhalla, a supplier of machine made borders to major export houses. “A merchant exporter of fashion garments usually buys from over a dozen smaller fabricators and few top designers before completing a shipment. It can take several months at times to assemble a couture collection and we have no control on how long he will take to compile his shipment. Besides all the export papers are already filed with the customs department by the exporter at the time of shipping and available with the Government. Why should suppliers have to collect those documents of merchant exporter and supply the same to the Government. This especially as nobody wants to disclose the export destination or the clients name to his suppliers in the competitive dog eat dog garment export market,” he said.
Also, the quiet arrival of the jurisdictional tax officer opens the gates of corruption, says Niladri Biswas. “We are a large engineering company in the organized sector having offices across a dozen states. We manufacture, we trade domestically and export a small part of our turnover. To get exemption on an export of just Rs 6.5 crore this quarter I have to keep a record of around 3000 documents for the inspection of the jurisdictional tax officer”. Usually most companies neither have the time nor will to go through this process. So he goes for the easy way out – corruption to avoid harassment. So there again goes the Prime Minister’s vision of GST out of the window. Are you listening Mr Revenue Secretary?