Starting right from the confession:
Chetan: I have spent the last several hours trying to figure out the Indian government's GST return filing processes. I am still somewhat confused. This, when I have a business degree, worked at an investment bank for a decade and analyzed hundreds of annual reports for companies.
Me: Tax practitioners have spent months on this and then they got the understanding on this particular, no one can understand GST return filing process in hours.
Also, understand GST filing process one must have the understanding of Act and rules which I believe cannot be studied in just few hours. This clearly shows that all the following statements made are based on your few hours of reading which itself reduces the validity of the coming points.
Technically complex design of the GST returns
Chetan: The technically complex design of the GST returns process assumes every businessman in the country is an experienced munimji and entrepreneurs have nothing better to do (such as running their businesses) than fill out multiple GST forms in the form of puzzles every month. So while an American business may be figuring out how to make app-based sales or invest in new technologies, the poor Indian business is busy scrambling to figure out and meet three (yes three!) monthly deadlines for GST returns.
Me: First for small taxpayers who have turnover upto 1.5cr have to file returns on quarterly basis. Which is approximately 90% of the registered taxpayers in GST. So the above point is only valid for rest 10% and every big business have tax experts hired so they don't have to focus on compliance they can run their businesses. When you compared the Indian business with American business this topic itself got huge and out of the scope of GST as you will have to compare everything in the economy, GDP, factors affecting business, mindset of people in America, education level of business owners, compliance by the businesses and lot of other factors.
Let us analyze practical suggestions given by Chetan to save GST's reputation and India's economy.
Chetan: GST rates are too many.
The more the rates, the more complex the forms and processes get, and the more discretion the authorities get to tinker around. This is the complete antithesis of GST. There needs to be only one GST, and an exempt list. If you are itching to have more rates, just have two. No more.
Me: First of all this is a good point and govt. also is trying to do the same. Do you have any suggestion on how to do it for those highly qualified and experienced law makers or as you said "tax nerds".
No one is itching to have anything, at that level everything has to be taken care of. India is a country where Income inequality is high and as per your statement one rate should be charged on every item which means a person earning 50k a month pays the same rate as the person earning 500k or 5000k a month. Just check again what exactly you have asked for you might take it back after a detailed analysis.
Also what would be that one GST rate from your side, any suggestions?
Chetan: The GST rate is too high.
There are too many items in the 28% category, and even 18% is too much. Right now input cost GST reductions are not being passed to consumers, and probably won't be for a few years. GST rates, hence, must be reduced a lot for the medium term. The government must note that for many who pay income taxes, GST comes out of post-tax income. To gouge people is to upset people. The ideal GST for the moment would be 10% flat for almost all goods, with a peak 15% for some if you must.
Me: Talking about tax rates, everyone was happy in the previous regime when they were paying tax on tax(cascading effect) when businesses where not getting the credit of tax paid on services at manufacturing level and also VAT was being levied on value including Excise. Effective rates where the same as in GST also various CESS where involved in previous regime which are abolished now. Since it was not directly visible everyone was happy to pay taxes.
Revenue Neutrality has also to be taken care of otherwise states might get into trouble with lack of revenue. Once we attain that level we can definitely expect rates to be relaxed further.
And here we are, I asked for the rate of tax in previous answer and got one in this suggestion of yours. Ideal GST rate would be 10% for almost all goods. I would love to understand the maths behind this rate. What all factors you considered while giving this ideal rate of 10%?
Also you have mentioned "The government must note that for many who pay income taxes, GST comes out of post-tax income". What exactly was happening in VAT regime then? Seems like GST is the step brother of VAT.
You also mentioned "Right now input cost GST reductions are not being passed to consumers, and probably won't be for a few years". Amongst all major purposes of applying GST one is to stop this tax on tax problem, if ITC is not passed to the users this means that will be included in cost and the purpose of GST will be gone. Instead of getting strict on businesses and making them tax compliant to pass ITC to users you want Govt. to reduce the rates. This makes only business owners wealthy by cheating on to the common people. In other words you mean to say if a student is disturbing the class teacher not try and stop that student instead try any innovative way to avoid that student and let him disrupt others.
In India, people have the habit of taking the law for granted and you want us to do the same again.
Chetan: The ‘pleasure equals more taxes' attitude has to go.
To tax things like air-conditioned venues or readymade garments more as they are luxuries is archaic, obsolete and fake-socialist. After all, people should be free to spend their post-tax income however they want. Should I sweat to deserve a lower GST? Really?
Me: Before answering to the above question I can't stop myself from asking this question: Do you have the stats that how many people are sweating after GST? Also how many have always been sweating who couldn't even afford to buy AC with or without GST.
Also how much increase in tax for that industry have been there in terms of numbers.
Let me give you an example, yesterday I met with a friend of mine who was furious that when he went out to restaurant for an outing the amount of bill has increased comparatively in GST regime. Let me tell you he didn't want their because he was hungry it was just to have fun with friends and he paid high tax which will be used by govt. for the welfare of common man who can't even afford to go there. It will help in their employment.
Is it wrong? Really?
Chetan: GST returns are too complex.
The government has an ambitious plan of tracking every invoice for every transaction for every business in the country and matching the GST collected and paid, every month. While this may be a dream for the tax department, it makes life super complicated for entrepreneurs, many of whom have never done such an exercise their entire lives.
A simpler method is to go by aggregate cash outflows and inflows of GST, and arrive at a net number, on a quarterly basis (unless a business specifically wants monthly refunds). In other words, a businessman says: I paid this in GST, I collected this much, hence the net amount due to/ from government is this much. That's it.
Right now you have three returns a month, every month, with multiple complicated entries that have to be matched with every buyer and seller you did business with. Google the GST F5 form for Singapore, a simple quarterly online form with 14 boxes to be filled. It can be that simple. (Oh, and Singapore's GST is 7% flat. Just saying.)
Me: Let us focus on this statement "a businessman says: I paid this in GST, I collected this much, hence the net amount due to/ from government is this much. That's it.". Do you think business when they have to give only a number and no details of invoices declare GST like this. If yes, then definitely take me to that dream world too.
We are a country where business owners are always ready to evade taxes if they can.
Now coming on this line "Right now you have three returns a month, every month, with multiple complicated entries". If you are not familiar then let me tell you that in GST council meeting held on 6th October they have already made the returns quarterly for small businesses.
Talking about large businesses they have an army of team and they are already supporting the GST mission.
(Oh, and all these things are available on Google. Just Saying)
To conclude let me give you some points on GST.
1. In India once the e-way bills are finalized the transport sector will be able to increase their efficiency. As compared to US of 800km per day in India a transporter travels 200-250 km a day. Also with the upcoming road project this will help much to the industry.
2. With GST we expected one tax one nation but to make it successful we will have to focus on the right areas, GST is not a problem its a solution but we are still in the transitional phase and need another year to come up with better solution.
3. IMF chief Christine Lagarde described demonetization and the rolling out of GST as a "monumental effort" and said it is hardly surprising that here "is a little bit of a short-term slowdown" as a result.
The author is a corporate consultant of GST, currently associated with RGNL and co as a partner.
Disclaimer: This article is not to offend anyone who is not in favour of GST, this is just to help them understand GST deeper and clear their myths regarding GST.