The problems with the GST system were apparent when the tax collections for September dropped to Rs.91,000 crore. Somehow, the GST has not been able to convincingly sustain above the Rs.1 trillion mark; forget about the ambitious budget target of Rs1.15 trillion a month. After 2 full years, it is time to think in terms of a revamp of the GST basics.
Make on-boarding simpler
That is where the GST story begins. To make the GST effective, the process of on-boarding businesses has to be made a lot simpler. Currently, the time to register and the documentation needed are just too stringent. When businesses are willing to voluntarily register and pay the GST, they should be allowed to do so purely on the basis of their PAN card. Once this issue is resolved, the new GST payers will automatically rise and add to the GST kitty. PAN and Aadhar succeeded due to its simplicity.
Adopt the TDS approach
One of the main reasons income tax is so simple is that the process flow is more efficient. Today the vendor bills the GST to the client and then has to file returns. Instead, all businesses having turnover up to Rs.5 crore should be exempted from all compliance except an annual return filing. Clients of these companies can deduct GST and deposit with the government. It is as simple as that and also makes things smoother.
Look to rationalize rates
This has to happen at two levels. Firstly, the number of slabs, sub-slabs and rates must be reduced to the bare minimum. Ideally, if GST has to be effective, then the government must only impose two slabs; merit and non-merit. It does not make sense charging 28% GST on cars because they are anything but non-merit products. Also, there are multiple slabs like the 0% slab and on top of that there are slabs like 2%, 3%, 5%, 12%, 18% and 28%. This is as complicated as the old system, except that all the taxes are subsumed into GST. Remember that indirect taxes like GST are regressive in nature as they hit all customers in equal measure. That must be taken into account while setting the GST rates.
How to improve compliance?
One of the basic theories of any tax system is that if it is too complex, it becomes hard to monitor. For starters, shift all businesses with turnover up to Rs.5 crore to the TDS mode with just one annual return. This also resolves the working capital issue for vendors and makes any tax credit seamless. Today, the GST has become an all-India monster but the infrastructure to track, monitor and follow up is just not there. Instead, apply indirect pressure by making proof of GST mandatory for everything from business loans to overdraft facilities to any business level empanelment. That could be the key! ©