The number of returns filed for July, the first month, was 53.5 lakh. It fell to 46.5 lakh in August. Traders attribute the fall to glitches in the GST Network.
The issue of stuck refunds was causing a scarcity of working capital for exporters, who were allowed duty-free imports and sourcing earlier.
The Goods and Services Tax was rolled out with much fanfare in July, but three months later Finance Minister Arun Jaitley does not seem as exuberant about the new indirect tax regime. He is unlikely to get much to cheer about any time soon as a number of issues will continue to bother the government. About 98 lakh businesses registered themselves for GST but more than 40 per cent of them have declared ‘zero’ or ‘nil’ returns. “We are receiving a substantial portion of tax from the large firms (about 80 per cent). But the number of those in the nil category is also very high,” Jaitley said after the GST Council meeting in Delhi on October 7.
According to him, 72 lakh tax payers have migrated to the GST system from the earlier one, and 25.26 lakh new assessees joined. “This does increase the tax base for the future, but at the moment this additional number is not contributing anything,” he said.
The number of returns filed for July, the first month, was 53.5 lakh. It fell to 46.5 lakh in August. Traders attribute the fall to glitches in the GST Network. “Invoices for GSTR-1 (the first stage) are still being filed. So far 35 to 36 crore invoices have been uploaded in the system. We expect the number to be a little more than double, once all returns are filed,” said Prakash Kumar, CEO of GST Network. “The problem is that many people are dealing in kachha (handwritten) invoices. Converting these invoices into logical Excel sheets in our system is taking time. We are trying to have an uncomplicated process of doing it.”
Faced with the problem of an IT infrastructure that is incapable of supporting the volume of online procedures for return filers, the GST Council has formed a special group of ministers under Bihar Finance Minister Sushil Modi to look into the matter. “I had met with the team in Infosys, who are developing the GST-N software, to understand how soon they can resolve the issues identified by us earlier,” he said. “Their problem is practical, too, as the parameters we had given them earlier were different and need to be changed now, to accommodate the entire scale of activities on GST-N on their servers. They have assured me that the solutions will be perfected in the next one to two months.”
Infosys and NASSCOM, which is assisting in the formation of the GST Network, were livid that rules were being added or amended at the eleventh hour. “The task on GST is not a simple one; it requires an enormous amount of testing to ensure a foolproof system. The worries are more when you know that the system has not undergone a pilot long enough to detect those flaws,” said R. Chandrasekhar, president of NASSCOM, at an event on IT readiness for GST implementation.
He said the benefits of GST would become apparent to every return filer once the software glitches were addressed and the rules under the new tax were concretised. “It will be a smooth ride for all once the GST-N is fully ready. Especially for IT and IT services sectors, GST will become a boon and provide additional employment opportunities,” he said.
The problems on the ground, however, are unlikely to be fixed that easily. On October 9 and 10, transporters observed a token strike against GST, diesel price hike and increased corruption on road after the implementation of GST. “There is utter confusion, chaos and disruption due to the multiple structure of GST governing the goods transport vertical. It is leading to coercive registration and unnecessary compliances for transporters,” said S.K. Mittal, president of All India Motor Transport Congress. “Sale of used trucks and business assets is attracting GST, which is leading to double taxation for us. Also, the manner in which the government wants to introduce e-way bills is impractical and not in tune with the working of the transport sector. If the government does not relax GST rules for transporters, we are planning to hold an indefinite strike after Diwali.”
At the GST Council meeting, many states demanded a change in the e-way bill system, citing practical issues. They said feedback on the functioning of the transport industry was not sought while developing the system. “Under GST, we want to promote borderless transit of goods and abolish inspector raj. Yet we see the return of the same with the current e-way bill system. I have suggested that the e-way bill system should be totally abolished and done away with,” said Delhi Deputy Chief Minister Manish Sisodia.
The anomalies in the new structure are striking. For instance, Pankaj Mittal, a fly ash brick manufacturer in Noida, thought the government would push for the use of environment-friendly fly ash bricks instead of burnt red bricks that contribute to soil depletion and coal fumes emission. “Power plants have fly ash stock that can last for the next 50 years,” he said. “Considering this, fly ash brick was notified as a white industry (one that produces environment-friendly products) and was earlier subject to 5 per cent duty.” But in the GST regime, the tax rates jumped to 18 per cent, whereas the duty on the polluting red bricks, which was 12 per cent earlier, was reduced to 5 per cent. “This has made it unviable for consumers to make the choice of environmental-friendly building material,” he said.
It has been a painful quarter for small exporters. “We had to cut short our production and relieve about 40 per cent of the workforce on an average,” said Ujwal Lahoti, chairman of Cotton Textile Export Promotion Council. “Owing to lack of GST compliance, a majority of our members’ stocks are still lying in the ports. A lack of coordination between customs and GST Network has caused huge delays for our exports. A bigger problem for us is the higher duties on yarn under GST (18 per cent), which largely inflates our cost and makes Indian textile exports uncompetitive in the global market. We are expecting the GST Council to rationalise yarn rates to 5 per cent as was prevalent in the VAT regime.”
Two of Kashmir’s biggest industries—tourism and export of handicrafts and fruits—were already hit by the unrest in the valley. The demonetisation and the GST have made things worse. “GST has made our products expensive at a time when the demand has fallen,” said Ashiq Sheikh, a leading carpet exporter. “We met the state finance minister a few times. He has promised help, but nothing has materialised yet.” Sheikh said around 2.5 lakh people depended on the handicrafts trade, and he wanted the Centre to reduce the freight charges as well. “Geographically we have a disadvantage because we have to airlift our goods from Srinagar to Delhi. That, too, depends on weather and the availability of flights,” he said.
Some GST facilitators are also having a tough time implementing the tax system. “We are seeing that small traders are still sceptical as they are not ready to file so many returns. It would take six months more for service providers to stabilise our tools once the GST-N is ready,” said Praveen Dhabhai, CEO of Payworld, a company which runs GST Seva Kendras for small traders in Bulandsahar in Uttar Pradesh and Rajkot in Gujarat.
The government has also realised that a step down is imminent. “States have represented to us on many issues and these are being considered. The council adopted a concept paper today which will guide us on how future rates can be tailored keeping in mind the interest of not only small traders but also common people,” said Jaitley.
A step back on exporters’ compliance and speeding up their refunds worth Rs 70,000 crore have also been announced. The issue of stuck refunds was causing a major scarcity of working capital for exporters, who were allowed duty-free imports and sourcing earlier in the VAT regime. To address the situation, the GST Council fixed a nominal rate of GST for all inputs to be used for exports as a corrective measure. “Patterns on performance of GST collection are not yet clear, as this is still the transition phase. Rates of goods and services will be rationalised on advice of the fitment committee,” Jaitley said, when asked about his view on the performance of GST after its first quarter.
To ensure a brighter future for the indirect unified tax regime, the government would be launching a probe to understand why compliance and return filing are low. Revenue secretary Hasmukh Adhia is expected to issue orders to this effect soon to fellow taxmen.