Is a revamped GST 2.0 on the cards? | Explained Premium

Public Accounts Committee calls for comprehensive review of GST framework, highlighting issues with refunds, cancellations, and impact on MSMEs.

The story so far:In a report to Parliament, its Public Accounts Committee (PAC) has sought a comprehensive review of the Goods and Services Tax (GST) framework to eliminate “unnecessary procedures and requirements” that can complicate compliance. It called for a “revamped GST 2.0” to be considered after consultations with all stakeholders.

The PAC observed that the absence of the mandatory CAG audit of the Compensation Fund Account for more than six years has “adversely affected” release of compensation to States. For context, GST’s introduction back in 2017 had instilled fears among States about loss of fiscal autonomy and centralisation of all collections to the Union, particularly those housing heavy manufacturing units as Tamil Nadu and Karnataka, among others. The GST (Compensation to States) Act, 2017 was instituted to compensate States for this loss of revenue. About the present lack of audits, the committee observed that it was due to the CAG not receiving the relevant information of the accounts in the appropriate format containing the quantum to be paid and due thereafter, among other things. The PAC also critiqued the Ministry’s “lackadaisical” approach for not responding to the audit, seeking clarification on 2,447 inconsistencies that have kept a total of ₹32,577.73 crore in balance. This was based on an examination of 10,667 cases.

There are issues regarding the taxation process, which is either delaying the inflow to the government, or tax refunds to businesses requiring working capital. The audit came across instances of incomplete tax refund (to businesses) owing to confusion over tax jurisdictions. The other significant part of the problem relates to cancellation of registrations. The GST Act provides that registrations cannot be cancelled without issuing a ‘show cause notice’ to the concerned entity and providing it “reasonable opportunity” to argue its defence. The committee noted that of the 14,998 cases where cancellations were done suo motu, notices were not issued in 6,353 cases. The Finance Ministry apprised the committee that this process has been automated. However, the committee said it was concerned about the alleged “lack of proper documentation” and the “effectiveness of the automated system”. Brijesh Kothary, partner at law firm Khaitan & Co, told The Hindu that taxpayers are not given an option to withdraw or edit the application for registration. “In some cases, the application for registration is rejected without providing clarity on the reason for such rejection,” he stated.

With respect to filing and refunds, the committee said existing mechanisms are “inadequate”, pointing at prolonged waiting periods for refunds which could result in potential cash flow challenges to businesses. The Ministry, as per the report, indicated that efforts were being made to streamline the refund process. The committee has sought the refund processing system provide clearer timelines for processing claims and regular updates on their status. At the centre of all GST functions, such as filing, registrations and cancellations or tracking, is the quality of reference data to ease scrutiny. The committee highlighted concerns about manual records not being maintained and a poor documentation rigour. The Finance Ministry said that the ‘Antarang portal’ would help in streamlining the procedure.

The reported impact on micro, medium and small enterprises (MSMEs) and exporters is noteworthy. The committee expressed concerns about ensuing issues relating to exporters’ cash flow requirements and MSMEs due to “complexity” of GST norms. Delays in processing of refund claims for ITC and complexities with export-related documentation requirements can potentially create cash flow constraints. The committee thus underlined a need to simplify the overall regime, pointing out that ITC claims be processed within a specified timeframe at priority. The committee said a total of 19,730 cases entailing tax implications of about ₹1.45 lakh crore were pending for investigation as of March 2022. Mr. Kothary observed that most of these cases were pending for more than two years. “The government must expediate the handling of appeals and establishment of the GST Appellate Tribunal so as to reduce pendency of cases,” he stated.