CA. Chandrashekhar Chitale / GST-A Game Changing Reform

Specialised in Corporate Statutory Audits, Internal Audits and Tax Audits and Taxation advisory services, CA. Chandrashekhar Chitale, Central Council Member, Institute of Chartered Accountants of India (ICAI), has published several articles in newspapers and periodicals. He is an expertise on topics of auditing, accounting standards, taxation, investments, etc. He is also member of Cost Accounting Standards Board of the Institute of Cost Accountants of India. At a recent conference “GST Gyan Manthan”, at Sri Balaji University, Pune (SBUP), organised by Pimpri-Chinchwad Branch of Western India Regional Council (WIRC) of ICAI, Chitale talked to Corporate Citizen on how GST is a game changer for Indian economy and more

"GST is a legislation affecting each and every person, because whatever they consume and buy is subject to GST"

Is the present so called transformational GST, is actually badly designed and is there an urgency to simplify and debug India’s GST?

CA. Chandrashekhar Chitale: as far as design is concerned, I would like to place on record that the design of GST is appropriate, because it is based on an international model and it has been indigenised to suit our requirements. The real problem is in administration and execution. Particularly with the computer system, people are finding a bit difficult to cope up with. and again, there are physical challenges like cities which are beyond the metros, there may not be power supply, there may not be connectivity- they are not able to really connect to that network and so then the problem arises. and another thing is administrative issue-say if the credits do not match when I have purchased inputs from some enterprise, or they are not diligent in filing their information, and ultimately I suffer. It is not the government that is allowing me to suffer, it is my counterpart because of want of diligent on his part, I have to suffer.

There are many who say there is a need for a holistic overview of the entire GST, a need for a GST 2.0?

I respectfully disagree GST is based on an international system. It has become a fashion saying GST 2.0 so and so, there may be some changes required here and there. Ultimately certain industries want rate adjustments if I am paying GST, say like cement industry and steel industry paying at 28 per cent; I want that GST to be brought down to 18 per cent or something like that. Like the housing sector, earlier it was taxed at 18 per cent, after the revision it was 12 per cent and now it is even brought down to five and one per cent. Now if you say that this is a different version of GST, it is not. It is adjustment of GST rate to the current demand or reasonable view. and when the new law is enacted, on the day one we do not know what is appropriate. so, the government is open to adjustments, but taking into consideration the length and breadth of our country, those adjustments do not take place overnight, because of our federal structure. so whatever one state feels or whatever centre feels it, automatically it doesn’t get enacted. It has to go to all the states and again all the states have to confront it with their legislature if they are agreeable. and when there is a consensus developed, that consensus gets enacted. so, it has a natural process of maybe five or six months to get it enacted-and also because this GST Council, which is the supreme body for making the GST law, do not meet every month. They meet at intermittent intervals and in which decisions are taken.

The centre struggles on the revenue side and is setting the stage to revert the direction of rate cuts now there are talks to hike the GST rates. What do you want to say on this move?

What I want to say is, suppose my turnover is say one crore and the tax rate is 20 per cent. I will be able to collect 20 lakh rupees. But, if my turnover recedes to say 50 lakh, then rate remaining the same, my collection will be halved, and it will become 10 lakh. so, there are two ways to address this particular issue-one is to increase the tax rate from 20 per cent to 40 per cent, so the collection is stationary at 20 lakhs. and another is to support me to increase my turnover to one crore or maybe two crore and with the same rate or reduced rate, to collect 20 lakhs. so, presently what is happening is, because of this global recessionary trend, as the Indian economy is aligned to world economy, we are also facing this demand recession and industry is not doing well. so, their turnovers have come down and with turnovers coming down, as a consequence, tax collection comes down. so, I don’t recommend, adjustments by increasing rates. although it may immediately bring collection to the desired level, but in the long run, the government should support the industry to increase their turnovers, with present rate or with reduced rate, and also the government will be able to collect the amount that they want. When you increase the rate, ultimately consumers suffer, and this way the turnover will still come down. But, if you support industry, then turnovers will go up and that will prepare a platform for further reduction and if you further reduce the rate then the consumer is benefitted, and then consumption will increase. so, supporting increasing turnover is the real way for the purpose of augmenting more resources by GST.

"As far as design is concerned, I would like to place on record that the design of GST is appropriate, because it is based on an international model and it has been indigenised to suit our requirements. The real problem is in administration and execution"

Regarding the GST slabs, will the merger of 12 and 18 per cent slabs, result in revenue gain on a net basis?

As far as this merger of slabs is concerned, it is not merged for revenue gain or revenue loss. What the government is aiming at is that if there are lesser number of slabs, there is lesser confusion and lesser litigation. so, lesser confusion and lesser litigation is the focal point for the purpose of merging slabs. While merging slabs the government does not aim at suffering its own collection. so, they will do in such a manner that the amount of revenue remains the same and instead of 18 per cent you have 12 per cent for number of goods, because the government is concerned with the bottom line and what amount they are collecting. But, what rate they are collecting at, they are not much concerned with.

But, besides the zero category, wherein around 13 per cent items come and then there are five categories. Now under the 18 per cent slab, there are 50 per cent of the items.

What happens is that 18 per cent is the GST rate, then there are certain priorities like, suppose you require dayto- day supplies like rice or you need education, or medicines, so they may not be brought into the net of GST. Then there are certain items which are important but not necessary, maybe clothing, maybe shelter, so they maybe taxed at a lower rate of five per cent. Then there are certain luxuries and there are certain things which the government aims to discourage the consumption, may be cigarettes or wine, so they will charge premium rate to them. Cars, it cannot be said that it is a luxury nowadays, but as far as that section of the society which purchases cars, is a segment that can afford. If you take something more from that segment, there is nothing wrong in it. so, this is the way it is structured. But again, what happens is that if you have too many slabs then litigation hovers around these slabs because consumer or seller would always like to classify himself at a lower slab and an officer would always like to classify him at a higher slab. In my opinion, ideally, there should be three slabs, one is the central rate, one is an incentive rate and one is discourage rate.

Since the roll-out of GST in the year 2017, the council has held over 19 meetings and it has undertaken around ten rounds of rate cuts. Now there is going to be another meeting. So are we going to see further rate cuts?

You see GST is a legislation affecting each and every person, because, whatever they consume, whatever they buy is subject to GST. Whatever services they consume is subject to GST. Now for this country with a population of say 130 crores, and the number of items being fairly large, at one go you cannot be appropriate at a point. after you introduce it, you realise that somewhere it is errored and then from the process of identifying that error, taking consensus of all the states and so on, and then rectifying that error it takes time. so wherever and in instalments they are considering various such shortcomings or refinements and they are making these adjustments, and this is not unknown. When the GST was introduced, government itself stated that alright, whatever we are introducing, we are not saying that this is the final product and hereafter nothing. They said that alright, at this point-of-time whatever wisdom is there, it has been reflected in the law and whatever more wisdom comes with experience and suggestions by the subjects, we are open to amendments. so, they are making amendments. Now if I suggest that I am really hurt by your charging of 12 per cent on house property, and you should reduce it. and then, as a reaction to my call, they had a meeting and reduced it. They are considering the steel and housing sector at one go, then the manufacturing sector at one go, the automobile sector at one go; in instalments they are considering various sectors.

Now this friction between centre and state, regarding this GST.

Friction is only about IGST, say if there is a seller from Maharashtra, who sells out of Maharashtra state, then he is not charged state GST, he is charged IGST. That IGST goes to the consuming state, because he pays in the selling state. so, the government is making delay in payments to those states and central government is already starved of funds, so those funds are getting applied for central objectives and rightful claims of states are getting delayed. so, if state has grievances, it is there, on law there is no grievance.

"As far as this merger of slabs is concerned, it is not merged for revenue gain or revenue loss. What the government is aiming at is that if there are lesser number of slabs, there is lesser confusion and lesser litigation"

When GST was introduced we were told that the GDP will grow by 1 to 2 percentage point and that it was once in a lifetime chance. The second point was that the export will become competitive. Third is tax compliance will improve and revenue collection will go up. How much have we achieved and failed on all these targets?

No, we have not failed as far as GDP going up, it has not been achieved today. But, you cannot solely attribute the reason to GST, because world-over there is a recession. India cannot remain immune from the global scenario, because our economy is now aligned with the world economy. as far as the increase in exports is concerned, yes, it is happening, because you are now absorbing certain indirect taxes, which otherwise were getting absorbed. Now entire indirect tax in the case of exports, is available by way of refund to the customer, and that brings down the price of the cost to the manufacturer and therefore his exports become competitive. once the market realises that the exports are competitive, they will definitely source from India and that is happening. But, now each country is protecting their own borders, their own industry, therefore they are putting some artificial barriers. so, it is not that because of GST our exports are getting effected, because of artificial barriers by other parties , we are facing the problems.

Another layer of compliance called E-invoicing has been introduced for the taxpayers, what is your opinion on that?

These are the measures required for arresting tax evasion and nothing more than that. Ultimately, if the goods move and a bill is not issued, because for particularly consumer- oriented goods like garments, umbrella, travelling bags, the consumer is not interested in really having a bill. That particular thing may go. When the goods are moving, if they are tagged, then you are able to arrest the tax evasion. and our country being so big, physically it is not possible. small countries like sri Lanka or singapore, they can physically check. What is moving and what is happening in India you cannot do so. so, this is a requirement necessitated by our country’s size and complexity.

What will be future for CA’s role in the near future, with AI taking over CA’s job?

some of the routine work will be taken over by aI, which is amenable of mechanisation. Now, if I am told to prepare GST return, what I will do is that I will match my sales, purchases, taxes etc. If there are thousand vouchers, maybe within one week I will be able to match. But, if there are ten lakh vouchers, then how will I be able to match. so, ultimately I will have to go to machine and the machine will do that job of matching the ten lakh vouchers in ten-twenty minutes. so, my job of matching, which would have stretched to one month long will shrink, and in the bargain, I will get accuracy and I will get discharged from doing monotonous work.