Additional Structural changes in GST Needed for Simplification

It has been around 30 months that the reformation of the Goods and services tax has begun to make it the “Goods and Simple” tax. Reports suggest that the effective rate of tax and supply chain efficiencies for businesses has been reduced substantially. However, word on the street is that it is not simpler and the compliance burden has also increased. In this backdrop, policymakers should focus on building on its successes and addressing its drawbacks to achieve its full potential.

To address these challenges, certain structural changes need to be observed closely to make the GST more stable.

• Reduction in the number of slabs: There is no guarantee that the increase in tax rates will ultimately lead to the collection of more GST collection, especially given the current economic slowdown of the country. A necessary requirement for simplifying the structure by reducing the rate slabs to three has been raised. The frequent tax rate changes have led to the need of collapsing 12% & 18% or 5% & 12% slabs into a single rate.
   
• Ease of input tax credit: The current ITC system requires broad-basing on a large scale. For starters, liberalizing of credit is not possible at all times. That is why a flat denial of about 5% of total input taxes can be considered at the option of the taxpayer without going through the entire procedure of detailed scrutiny of the nature of the expense.
   
• Expansion of tax net- A considerable section of the economy consisting of real estate, petroleum and electricity are outside the purview of the GST council and measures must be taken to include these within the GST net.
   
• ITC Rework- One of the reasons businesses have experienced a setback of cash flow is GST. However, several businesses have credit accumulation but they have to pay tax in cash in other states. Other than allowing for an offset against income tax, a national pool can be considered beneficial for central GST.
   
• Setting realistic goals- In the current fiscal year, the monthly average GST collection has crossed 1 lakh crores. However, the set budget target will be missed by a lot. Revenue collection must not be used to determine the success of GST collection.

However, the revenue collection is likely to improve with the new compliance regulations that also include e-invoicing and real-time tracking of input credits as claimed by businesses.