GST puts a premium on honesty, will take steps to address concerns of SMEs: Revenue secretary

There are concerns over the way GST has been implemented. How do you respond to it?
This is a long-term structural measure which will yield us benefits over a period of time but the transition pain is immediate and short-term. It was a reform that was coveted by the country, including by businesses and economists, for the last 10 years. Once there was political consensus on the Constitution Amendment Bill, the government did not lose any time in the GST Council, where the draft rules were discussed at length and all important issues were deliberated upon in detail before the framework was finalised.
The short-term transition pain will have to be absorbed by all of us. We are burning midnight oil to ensure that everyone is comfortable and so are businesses. It’s a learning experience for all of us. There will be pain because the rules are different and the IT systems are different. Even before GST, in most states VAT filing was online and nine states had the requirement to match invoices, which has now been adopted for GST. But as long as the government is willing to listen, as long as the GST Council is flexible and comes out with solutions in very meeting, it is good news for everybody. Most people benefit from the Council’s decisions but one or two people, who are adversely impacted, such as the auto sector, are ones who complain.
The auto sector says there has been policy flip-flop. Do you agree with the criticism?
I do not agree with this. The fact is there is no change in taxes pre- and post-GST. We had made a mistake in calculating the tax, which we have corrected. In Denmark, the registration fee for large cars is 180% and for smaller ones 150% of the value of the car and there is 25% VAT. Yet, they have the highest level of happiness.
There is also criticism of frequent changes in the rules.
Is it bad to respond to difficulties being faced and make suitable changes? It’s better to be flexible and give immediate relief to people. Unfortunately, the entire thing is criticised for the slightest problem. It’s the same with the cricket team – it is glorified when it wins but the mood swings after just one loss. This is not the correct way to deal with it. For honest taxpayer there cannot be anything better than this because GST puts a premium on honesty. At the same time, it will make it very difficult for dishonest businessmen to evade taxes and that’s why there is some opposition. Those who were not paying taxes will face some pain initially because for the first time, they have to put everything on record, maintain proper books of accounts and file returns. Some of the provisions, such as the reverse charge mechanism, are there to stop evasion. That’s why some people dislike it.
There is a perception that small businesses are suffering because the larger players are not sourcing from them. How do you address that?
I don’t think that will happen. What we have said is that for a registered dealer to take credit for purchases from unregistered dealers, he has to pay tax on reverse charge. But that does not have to be paid in every transaction – it’s an adjustment that will be made in the monthly returns. There is no physical payment or refund. All that is required to be done is to show the reverse charge transactions, which are inputs, and input tax credit is given against that. We are aware of the concerns of SMEs undertaking B2B transactions and the GST Council will take appropriate steps to address their concerns. We are trying to look at steps to alleviate the compliance burden of SMEs.
There are repeated concerns about GST Network, from bunching towards the deadline to the system collapsing. How do you propose to address that?
GSTN is constantly improving. The problem is not with the server capacity. Currently, it is not allowing more than a certain number of transactions at a time, which is to ensure safety and security. Even on the last day, when 13 lakh returns were filed, only 10% of the serve capacity was used. Only for an hour or so, there was a break because the limit was breached. We will not compromise on security of the system but GSTN is looking at the issues and if it is possible, it will allow more returns to be filed on the last day too. We will also try to come out with a time table to allow filing of returns to be staggered, instead of the same deadline for everyone. We have already started with it from October by allowing big companies to file earlier.
The PM has talked about registering businesses below the Rs 20 lakh threshold and there is a move to simplify the return for such small businesses apart from a proposal for quarterly filing by them. When can we expect the changes?
GST Council will respond to problems being faced by small scale industry. The FM had a meeting with industry, including the SMEs. The export committee has discussed the issue. The problems are identified and the solutions are being worked out.
In terms of filing, the compliance rate is 60-70%. How do you propose to increase this?
I don’t think that those who have not filed are large tax payers – they may be small tax payers or may not have any transactions. Out of those who have filed returns, 12 lakh have filed zero returns, which means they have no liability to pay tax. We will ask officers in the states and Centre to conduct a study of 300-400 people in each state to find out the reasons for non-filing. After that we will decide the suitable course of action.
Exporters say that Rs 65,000 crore is blocked. What are you doing to address their concerns?
That estimate is incorrect. For three months (up to September), we had allowed duty drawback. So, there is no impact on 66% exporters who avail of drawback based on their exports. For the rest, who opted for refunds, there was always a blockage of three-five months. The Council will address the issue of blockage of funds due to payment of taxes on inputs and various options are being looked at. Fast-tracking of refunds will be done for everyone so that refunds are paid after matching of GSTR1 and GSTR 3B (forms).
Exemption of tax for inputs is an issue with advance authorisation and EOUs and as they have to refunds now. So, will you allow exemption or provide refunds?
As a policy, exemption is not the preferred option because there is scope for misuse. If you try to plug it, there will be inspector raj. The self-policing objective of GST does not go well with inspector raj. But the Council will examine all options.
Transitional credit is an area of concern given that you have asked for a verification.
Subsequently, I found out that it’s not a reason to worry. On our books, as on June 30, unutilised credit for central excise and service tax was Rs 1.27 lakh crore. The only thing is that some of the claims may not be allowed under the law. We have to verify only those claims which are not allowed under the law.
The government is blamed for extracting too much tax from petrol and diesel and petroleum minister Dharmendra Pradhan has been pushing for their inclusion under GST. Should that be done and are you ready for it?
It’s not the Centre, which is opposed. We need to estimate the revenue that we can expect from these products. In most countries even there is VAT or GST, there is always an additional excise duty on petrol and diesel.
Is a decision expected soon?
That’s entirely up to the Council. But most members will want to look at the trends over a longer period of six-eight months before deciding. The issue of compensation will also have to be looked at.
Government data showed that collections in August were lower. Will you meet the annual target?
More people have filed since the data was released. Till the evening of September 30, GST collections were Rs 93,135 crore. As of now, it seems to be on course but let’s watch the trends for a few more months.
One of the things the PM said on the first day was that the system of kuchcha-pucca bills will end. But in the market, shopkeepers ask you to pay GST only if you pay by card. When will this end?
This problem can only be fixed if we match GSTR1, 2 and 3 (returns). Unfortunately, because of the compliance burden and demand for more time (from industry), we had to postpone the matching. Second, a foolproof system can only be put in place once we have nationwide E-way Bills to track movement of goods. People are just not ready for it and want it deferred. A lot of goods move without payment of taxes but with E-way Bill it will all be reported. Technology will do it, we won’t have to send inspectors to track goods that are moving. It will enable us to match movements with data filed in the returns. We will only have to check if people are carrying E-way bills or not. We will develop mobile solutions. We hope to ready the software in around a month. However, the implementation date will be decided by the GST Council in the next meeting (October 6).
The speed with which GST was introduced is being blamed for the current state since people say they were not ready for it. Do you agree?
That’s not true. The draft GST regulations were released in June 2016 and the processes were developed over a period of three years. Everyone knew of the three-stage filing process and matching of returns. Ultimately, you have to set a deadline and recognise there is always scope for improvement. No amount of time is adequate for people to get ready. We were flexible and extended the deadline by three months beyond April 1, which was the original date for the launch.
Is the case to review some of the rates such as leather, inputs for the textiles sector?
The Council has put in place a fitment committee and it is also looking at the parameters to fix the rates. All this is under discussion. Once the concept paper is ready, the fitment committee will look at all the grievances that come and try to fit into the criteria. If it fits it will be referred to the Council.
Is the noise because people don’t want to pay taxes?
That is not the only reason. There are issues of compliance for small scale industry, which we are going to address. There were several sectors which earlier exempted and there may be some resistance from some quarters.