Frequent changes in GST may muddle the tax system

The Economic Times By ET Bureau Jul 11, 2018, 01.13 PM IST

The whole purpose of shifting to GST was to cut out the cascade of multiple taxes that products bear.

While tweakings are mandatory to bring things to perfection, it’s wise to recall that somewhere down the line, building the Tower of Babel had become a ‘perpetual incremental project’.

One sincerely hopes that the government’s 46 amendments to the goods and services tax (GST) laws don’t turn it into a ‘Babelous’ construction. The tweaks include letting employers claim credit for the taxes paid on food, transport and insurance given to employees under any law, allowing taxpayers to amend their returns, letting only e-commerce operators who need to collect tax to register under GST, and bringing more small taxpayers under the ‘composition scheme’.

All these are meant to the ease the compliance burden. That’s very nice. But frequent changes can also muddle the tax system. The whole purpose of shifting to GST was to cut out the cascade of multiple taxes that products bear. GST subsumes all taxes and allows producers to claim credit for all the taxes paid on inputs across the value chain.

The point is to make production efficient, and create audit trails to curb evasion. This brings down output costs, and producers must pass on the benefit of lower costs to consumers.

This also means retail prices must come down for all commodities and services with GST. However, if the consumer has to pay a higher price now, compared to the pre-GST regime, it defeats GST’s very purpose. It will also jack up costs for companies. This is Economics 101.

GoI must work towards not just simplifying procedures but also towards lowering and converging rates, and bringing large swathes of the informal sector under the GST net. This will create a built-in incentive to pay tax. Exemptions should be binned — they break the GST chain and raise the scope of evasion. Filing should also be made simple for businesses to claim input tax credit.

Industry is apparently miffed over GoI’s refusal to give in to its demand to provide the old transitional credit for cess. The tax collection at source for e-commerce, ostensibly to create audit trails, is irrational. GST must be truly be a simple and fair tax, not a babble or Babel.

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