New Delhi: The GST Council is scheduled to meet October 8 to take up the next phase of reforms in the indirect tax regime, which include proposals to speed up refunds, make it easier to register companies, and introduce a trust-based administration by taking a large number of offences out of the criminal provisions of the taxation law, according to sources.
The proposals focus on five key areas, which include process reforms, structural reforms, ease of doing business, e-commerce and exports of services.
As part of the process reforms in the GST system, refunds are proposed to be acknowledged within 10 days, with 90 per cent released on a risk check after necessary details are drawn from customs and banking systems in an automated mode in order to further facilitate the ease of doing business.
In the case of litigation, a common standard for notices, hearings and orders, and no notice at all below a threshold, is being worked out.
For filing returns, the objective is to streamline the process in which the corrections made are recorded properly so that there is a trail of the changes and corresponding changes are recorded in the buyer’s ledger automatically. This is called invoice matching so that input tax credit is validated at the stage of recording itself. This would avoid a large number of mismatch notices being issued.
While for 61 per cent of the taxpayers, registration is already being granted in three working days without an officer, for the remaining taxpayers, the process is being streamlined to avoid unnecessary queries and rejections.
Closing a business is to be made as simple as starting one. A registration suspended for a procedural lapse is to restore itself (without an officer’s intervention) once the lapse is made good. Besides, small taxpayers who supply only to consumers are to file their returns once a year instead of every month.
The basic rationale behind the reforms is that the system should do what can be done from data. The officer should be left with what needs judgement.
As part of the structural reforms that are being proposed in the case of input tax credit, a buyer who holds the invoice, has received the goods and has paid his supplier in full, including the tax, should keep his credit. It should not depend on whether someone further up the chain has paid.
Ordinary business costs that are kept outside the credit chain currently are to be brought back into it. The tax on them at present becomes a cost that is factored into the price. A service resold in the same line of business is not to be taxed twice, and the refund is widened to the tax paid on services and on plant and machinery.
Services are the fastest growing part of India’s external trade, and in order to facilitate this sector, it is proposed that billing a foreign client through a branch abroad will not cost an Indian firm its export status.
Testing, repair, certification and research done in India for a client abroad will qualify as exports even where the goods stay here. Besides, one standard for when payment counts as received, aligned with the Reserve Bank’s own rules, in place of two.
It also proposed to widen refunds to services and equipment, which is where a service exporter’s costs actually arise.
It is also proposed to make e-commerce easier for small sellers with a verification that will be done once, in the home state, with reach across the country thereafter. A seller at present needs a registered place of business in every state he sells into. This is not practical for a small seller and keeps them inside their home state while larger sellers sell across the country.
As part of rolling out a trust-based tax administration, enforcement is to work through fines rather than through custody, and through a system that detects fraud rather than a provision that deters it.
A large number of offences are to be taken out of the criminal provisions of GST. A taxpayer who is late, mistaken or short of cash faces recovery, interest, and a penalty in proportion, and no more. Besides, invoice matching identifies fake credit close to where it arises and stops it before it travels down the chain.
