GST - Realising the Dream of One Nation One Tax One Market

"I am depending on Lord Hanuman and not govt., for guidance."

"I have installed GST software, but what's the use when there is no clarity."

"There are no guidelines for people like us - new entrants in tax system."

These quotes, randomly picked from a newspaper on July 1, eloquently exemplify some of the challenges that have to be faced as India steps into the brave new world of GST. Whether or not well-founded, the policymakers must heed the anxieties reflected in such statements by taxpayers and that means undertaking the task of serious institutional reform of the tax administration to radically improve taxpayer services. If a climate of high compliance is to be maintained, it is important that the administration provides guidance, clarity and certainty to the taxpayer as regards his compliance obligations and that is a crucial element of taxpayer services. Equally critical it is to ensure uniform application of the tax across the country, if the vision of "One Nation, One tax, One Market" is to be realized.

The Revenue Secretary and the CBEC deserve full credit for the proactive multi-channel communication strategy they have adopted for reaching out to the taxpayers, which includes releasing FAQs, responses on twitter and other social media and mass media campaigns. A large number of common and basic queries are getting answered through these channels. This now needs to be institutionalized and strengthened so that the efforts are sustained on an ongoing basis. Progressively, the questions and issues raised are bound to get increasingly more complex and may not all be amenable to answers through simple FAQs or tweets. Some of these would be fundamental issues of taxability in complex business contexts - with a part of the complexity arising from the very structure of the GST that has been adopted. In such cases both the tax officers and the taxpayers would be treading unfamiliar territory. Different segments of taxpayers and different industries will have differing issues unique to their respective contexts. There are complex business and legal issues that demand well researched and thought out answers and require multi-disciplinary expertise to be brought to bear on them. Hence the importance of institutional capacity building to resolve the issues in a wholesome and timely manner.

Hitherto, the approach has been to leave the determination largely to the assessing officers and let matters be eventually settled through lengthy and costly process of litigation, which is neither in the interest of the tax payer nor of the country. The inevitable consequence of this is a diversity interpretations leading to great deal of uncertainty in the tax environment. This approach has also earned the Indian tax administration the dubious distinction of being among the most litigious and taxpayer unfriendly regimes in the world. This situation is no longer acceptable as it fatally undermines the avowed objectives of the GST.

Cross-country experience shows that interpretative statements or circulars are a powerful way of promoting a uniform application of law. The power to issue such guidance exists in section 168 of the CGST Act and the SGST Acts, which is to be exercised by the Board in the case of CGST and IGST and the Commissioner in the case of SGST. This is broadly similar to the power of the CBEC under section 37B of the Central Excise Act. However, as the Tax Administration Reform Commission noted in its reports, the use of this power to prevent unwanted disputes has remained well below potential. This needs change and the authorities need to step up and use this power proactively to avoid multiple interpretations and consequent unnecessary litigation emerging and the new tax system slipping back into the status quo ante of tax uncertainty, festering disputes and litigation - raising the overall compliance cost.

The policy makers therefore need to create an institutional mechanism to issue detailed guidance where needed and in such a manner that it is binding on both the central and state administrations. This can only be some form of joint mechanism under the auspices of the GST Council in order that its guidance has universal application across the country. The kernel for this already exists in the form of the sectoral groups that have been constituted by the Council for addressing the problems of different sectors of industry. In time these can be developed into more permanent institutional mechanism, based on whose advice the central and state tax administrations could issue guidance in important matters, in exercise of the statutory powers vested in them under section 168 of the GST Acts. It is of utmost importance that in developing guidance, adequate expertise is applied and extensive prior consultation is done. The process adopted by the CBEC of publishing draft circulars for comments before finalization is a salutary one and needs to be continued.
Given the responsiveness shown so far, there is every reason to hope that such a mechanism will soon emerge and the taxpayers will have access to reliable guidance on interpretation.

Mr. Yashodhan Parande is Senior Advisor with Deloitte Haskins and Sells LLP