GST AT 7; road ahead on rates, compliances and reducing notices

GST AT 7; road ahead on rates, compliances and reducing notices

As it struck midnight and the calendar showed the date July 1, 2017, it was a new era in the world of taxation in India with the introduction of Goods and services Tax regime. And now seven years after, the indirect tax regime, has not only overcome the teething troubles but the government is now aiming at the next level of reforms for this tax regime.

In last seven years, including the challenging period for the economy getting impacted with Covid-19, the journey of GST has moved from rate correction to revenues realisation from a subdued ₹95,633 crore as first month collection, the lowest was witnessed in April 2020 at ₹32, 172 crore and the highest in seven years was achieved in April 2024 at a whopping ₹2.10 lakh crore mark.

And as we progress, the government is now aiming for slowly moving towards discussions to rationalise rates, from a current four-tier structure, probably, to a three-tier slabs. Sources say that the next council meeting, which was scheduled to take place in the end of August 2024, the 54th Council meet will pave way for moving towards the next regime under GST.

Union Finance Minister Nirmala Sitharaman, after the 53rd GST Council meet, said that she has now asked the Group of Ministers on rate rationalisation to come back to the GST council with a status update and begin discussions on how rates should move in the future.

Sources said, “Rate rationalisation was a demand raised by the opposition ruled states in the 53rd GST Council meeting. Few state FMs asked for a review on compensation cess, especially Karnataka. In the next meeting we will hold the discussions as to where we are on the repayment of back to back loans facilitated to states. Can the slabs be merged to a three-rate structure, all of this discussion will now begin.”

Another crucial movement under GST will be the ceasing of the compensation cess, the cess, which was introduced for five years, to help states tide over the initial revenue loss and for the system to stabilise so that as revenues grow, states are back in financial health and this five-year period was to provide the cushion for the financial comfort.

But, with Covid=19, the financial health did take a toll and council had to borrow from the market, for which the back-to-back loans were taken for the states and the repayment was made via the collections of the cess, which was extended beyond the prescribed five year period. The cess has now been extended till March 2026. Sources say that the next council meeting will also begin the discourse on how and what should be the way forward for the cess.

“It was clarified to the states that repayment of back to back loans will take time. The repayment will not end by March 2025. The repayment will end somewhere near August to November 2025. The extended window of cess has been notified till March 2026. The council will now discuss and decide what will it do with the additional collections that will be made after the repayment is cleared and till March 2026.”

Another, next generation reform under GST is what happens to the Anti-profiteering clause. This too was for the initial five year period and the 53rd GST council decided to have a sunset for the anti-profiteering. The 53rd GST council meeting had an extensive agenda, which significantly impacted the regulatory landscape for businesses and taxpayers alike. The Council decided to introduce a sunset clause for anti-profiteering cases, setting a termination date of April 1, 2025. This move is seen as a step towards streamlining the adjudication process, especially as the Competition Commission of India (CCI) has struggled with handling these cases due to a lack of expertise.

Consequently, anti-profiteering matters might be rerouted to the Principal Bench of the GST Appellate Tribunal (GSTAT) for resolution. This will be the third authority handling the cases, starting from National Anti-profiteering authority (NAA) to CCI to GSTAT.

The erstwhile NAA had passed 380 orders since its inception establishing profiteering of ₹2,563 crore (approx.), out of which an amount of ₹563 crore (Approx.) has either been passed on to the buyers or deposited in the Consumer Welfare Funds or deposited with the High Courts.

With effect from 01.12.2022 till 31.03.2024, the CCI has forwarded 127 complaints to the respective Authorities for further necessary action. For the quarter ending on 31.03.2024, out of 12 complaints, 5 complaints relating to profiteering in terms of Section 171 of the CGST Act, 2017 were forwarded to respective Screening Committees/Standing Committee for further action/examination and seven complaints which related to other GST/Enforcement issues were forwarded to the Jurisdictional State & Central GST Commissioners/Chief Commissioners for necessary action.

The road ahead for GST, apart from reducing rates is also focused towards bringing in more simplification in the law, ease the compliances and yes, later on bringing in more and more taxpayers under the formal economy, so that the entire system runs on an auto-pilot mode. As opposition, has often termed GST as the "Gabbar Singh Tax", Sitharaman on June 22 reassured taxpayers of easing their lives, especially at the level of CGST or the part, which is monitored by the centre. Sitharaman said that the council’s decisions of the 53rd meeting are with an aim to enhance ease of doing business and building on the investor confidence.

On the notices, that are being sent across the country claiming as a measure to plug the revenue leakage, she clarified that “we want to reassure the assesses that out intent is to make their lives easier. Under CGST, notices are not being sent left, right and centre. By December 2023, 1,14,939 assesses have been sent notices by the CGST authorities. Only 1.96% of all active tax assesses have been sent any notices from central GST out of 58,62,886 active assesses.

Our intention is to make it easier, simpler and less cumbersome. We Want to make process easy, reduce compliance. Rather States have sent over 14 lakh GST Notices.”

On the revenue side, the government is aiming to continue an average run rate of ₹1.8 lakh crore to ₹2 lakh crore in the current fiscal. Some of the key outstanding issues include: whether states will agree to give away their rights and let petroleum products and alcohol be brought under GST or not. Wil more classification issues continue to persist, leading to more and more clarifications for both the industry and the common man in the future GST council meetings.