GST Administration: Will it be simple?

One of the objectives of reforms in indirect taxes is to bring in transparency and simplicity in tax administration. A complicated administrative system causes harassment to the tax payers, breeds corruption and increases litigation. A simple administration, on the other hand, brings in transparency, reduces cost of collection as well as compliance cost, besides bringing down corruption. Whether the proposed GST will fulfil this objective?

With the introduction of VAT changes were made in the tax administration. Under the Sales Tax regime, for the purpose of tax collection, the State was divided into different Circles and a Circle was further divided into Wards. A sales tax officer was in charge of a Ward and he was allocated with a number of dealers. The officer in charge of the Ward was responsible for those dealers for all functions. He was registering the dealers, issuing waybills to bring goods into the state, assessing the dealers, raising demands, collecting taxes, initiating tax recovery proceedings, in case, the dealer failed to pay the demanded taxes, etc.

In other words, the relation between the officers with the dealers was a kind of a zamindar and his subjects and, in fact, the sales tax officer was treating his Ward which comprised a particular area as his fiefdom, and whatever might be the social standing of the dealer/taxpayer, he looked upon him as nothing more than his subject. The dealer knew fully well that he could not afford to displease a sales tax officer.

Function based administration replaces the client type of the Sales Tax regime. Wards are dismantled. Officers of the Circle are in charge of different functions such as registration, forms management, assessment, etc. For example, one officer is in charge of registration, another one remains in charge of assessment. Further, during sales tax period, all the dealers were assessed for each year of their transactions by the tax officer. The dealer or his representative had to come to the office with his books of accounts to be assessed by the tax officer. Self-assessment replaced assessment by the officer.

The dealer assesses his own tax liability and files returns with payment of due tax, which is accepted. Audit is done in cases of selected dealers who are selected on the basis of risk parameters/objective criteria. Audit is also done not in the tax office, but in in the business premise of the dealer with prior notice. Assessment is done on the basis of audit visit report and notice for assessment is issued along with a copy of the audit visit report so that the dealer can know in advance the charges against him. These changes along with computerisation/e-services has minimised interface with the tax officers and reduced corruption to a great extent. The result is average collection of VAT during last five years after its introduction is higher than the average growth rate of sales tax during last five years before introduction of VAT in 2005-06.

Constitutional Amendment Bill for GST introduced in the Parliament has been referred to Standing Committee. As per the proposed GST, the Centre and the States would have concurrent jurisdiction for the entire value chain. The incidence of taxation will be the same for the Centre as well as for the States. The Central authority would collect Central GST (CGST) and the State authority would collect State GST (SGST) on supply of goods and services, which would extend up to the retail level. For example, if a taxpayer has a turnover of Rs.1,00,000/ and the tax rate is 10%, the Centre would get Rs 10,000/ and the State would get Rs 10,000/. As it is contained in the First Discussion Paper on GST released by the Empowered Committee of the States’ Finance Ministers on 10 November, 2009 (the second paper is yet to come), functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax.

The proposed GST administration implies that a taxpayer will be subject to dual authority. Since the incidence of taxation is the same and the Central authority and the State authority would collect separately their respective dues on the same transaction, the Central authority and the State authority shall audit and assess separately the taxpayer for the same transaction. Facing scrutiny, audit, assessment twice by two different authorities for the same transaction will be a great harassment to the taxpayer, which will increase its compliance cost.

There is a correlation between compliance cost and voluntary compliance. Increased compliance cost decreases voluntary compliance. It will also lead to litigation. The result of audit as well as assessment by two authorities shall not be the same. When it differs, the taxpayer can go to the Court and challenge the differing orders/assessments passed/done by two taxing authorities and get both the orders/assessments nullified.

The UPA government is serious about implementing GST. Constitutional Amendment Bill for GST has been referred to the Standing Committee headed by Jaswant Sinha, a senior BJP MP. He is pro-reform. Empowered Committee of States Finance Ministers was constituted to co-ordinate among the States for smooth implementation of VAT when he was the Union Finance Minister of NDA Government. Dr Asim Dasgupta, CPM Finance Minister of West Bengal was made the Chairman of the Empowered Committee. Now mainly BJP ruled states are raising issues and opposing certain provisions of the Constitutional amendment Bill.

After his defeat Dr Dasgupta demitted from the chairmanship. Sushil Modi, the BJP Finance Minister of Bihar is made the Chairman of the Empowered Committee for smooth sailing of GST. As it appears, it is not possible GST could be implemented from April 2012. If everything goes on well, GST, at best, could be implemented from April 2013. The time available may be utilised in sorting out all issues including GST administration. If the administrative issue is not sorted out, instead of moving towards simplicity, GST would land in chaos, confusion and litigation detriment to the interest of the Revenue as well as taxpayers.
                                   
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# The author is Deputy Commissioner of Commercial Taxes (VAT), Orissa. Views expressed in the article are his own.