New Delhi: The roll-out of the goods and services tax (GST) from 1 July on the back of information technology systems that will reduce human discretion and chances of corruption will face its first test in August, when millions of invoices filed by businesses and traders will be matched to ensure there is no “tax on tax” on transactions in a seamless market of 1.3 billion people.
Central and state governments, businesses and traders are racing against time to meet the 1 July-deadline despite calls from banks, small and medium enterprises (SMEs) and the West Bengal government for more time.
Federal indirect tax body, the GST Council chaired by finance minister Arun Jaitley, with members from state finance ministers and Union territories with legislature, on Saturday decided to stick to the July deadline and completed the fitting of commodities and services into various tax slabs.
Businesses have to upload invoices of their supplies made in July along with their returns by 10 August. The IT platform maintained by GST Network, the company that manages invoices, will process it and will allow the supplier and the recipient to reconcile their returns—a huge task which, if went wrong, could result in litigation. The supplier then has to file taxes collected from the recipient on those transactions by 20 August, on which credit will be given to the recipient.
“There, sure, will be teething problems in an enormous tax regime change such as this,” an official of the GST Council said on condition of anonymity, adding that August will be a crucial month.
West Bengal finance minister Amit Mitra said on Saturday after the Council meeting that GST roll-out from 1 July will have “serious problems” and that there was no harm in delaying implementation by a month. So far, 21 states and two Union territories with legislatures have passed state GST laws. Eight more states have to pass respective state GST Bills.
The weakest link in the indirect tax system is small traders—the last point of sale. In the case of a large section of small traders, compliance of state-level value-added tax (VAT) at present is low, explained the official. VAT compliance comes down once goods move from a town serviced by a large dealer to a village or a remote area of small merchants. This experience is likely to continue for some time even after the transition to GST, under which any trader with above Rs20 lakh annual turnover—or roughly Rs5,500 sales per day—has to file returns and pay taxes. What adds to the compliance challenge among them is lack of awareness and lack of access to Internet.
Another member of the Council, who also requested anonymity, explained that businesses and traders, even if they do not claim tax credits, have the obligation to file returns and pay taxes, violation of which would warrant penal action.
Confederation of All India Traders, a traders’ body with more than 60 million members, said on Sunday that 60% of the 57 million small businesses in the country are yet to adopt technology needed for become part of the GST system, which it called a “gigantic task.”
For a smooth roll-out of GST, the remaining states have to pass respective state laws by 15 June, giving a fortnight for businesses to prepare, said Muralidharan, senior director, Deloitte in India. “Small businesses will need more help from the government than the others in making the transition to GST. Besides, an assurance from the government that there will be no penal action on procedural infraction in the first year of implementation will go a long way in addressing concerns of the tax payers,” said Muralidharan.
News agency PTI reported on Sunday that Indian Banks’ Association (IBA) has informed the parliamentary standing committee on finance chaired by M. Veerappa Moily that banks are not yet geared up for implementation of the new indirect tax regime.
Sahi Ali, a paint supplier from a Maoist- affected area in West Bengal said during a visit to the capital in April that getting e-billing system and gearing up for digital infrastructure seemed to be a cause of worry. “Most of the places face internet connectivity issues and the fear of Maoist attack is a major obstacle faced by the traders in our region,” he said.
Experts said businesses and traders had voiced similar concerns when states shifted to VAT from sales tax in April, 2005.