Big businesses will have to start filing goods and services tax (GST) returns in the new form before others, with the authorities planning a gradual approach for all future changes to the indirect tax system to avoid disruption when economic growth has slowed down.
The authorities were expected to adopt tough enforcement measures to shore up revenue receipts, especially with the two-year transition period for GST ending in June. However, the GST Council has decided that changes in the tax system and steps to enforce compliance have to be gradual to avoid a backlash. The priority for the Bharatiya Janata Party, which has been returned to power at the centre, is to stimulate the economy and avoid turbulence on account of taxation. The Union and state governments share voting rights in the council and cannot get decisions approved without each other’s support.
The council had in December recommended that the new returns should be adopted on a pilot basis from April and compulsorily by 1 July. It will soon finalize the details of the roll out of the new returns.
“A gradual and nuanced approach will be taken as far as changes to GST is concerned. The priority before the council is to roll out the new tax returns. The approach to improving compliance will be to utilize data to identify individuals and businesses with risk of revenue leakage in a non-intrusive manner,” a person familiar with the discussions in the council said on condition of anonymity.
The move is being made against the backdrop of the problems that businesses had faced initially in the GST regime that forced authorities to suspend or modify some of the self-policing features of GST and defer return filing deadlines several times. The focus on hand-holding businesses rather than enforcement in the transition phase, combined with tax rate cuts, led to the Union and state governments collecting ₹22,000 crore less than the targeted ₹12 trillion for FY19.
The authorities do not believe the answer to the shortfall is an aggressive enforcement. Stimulating economic growth, which has decelerated from 8.3% in the last quarter of FY18 to 6.6% in the third quarter of FY19 is a priority for the National Democratic Alliance government. “Some tightening of tax administration is already taking place in a non-disruptive way,” said the person cited above.
The centre recently authorized the income tax department to share details, including sales and profits, that businesses reported in income tax returns with GSTN, the company that processes GST returns, to scale up scrutiny, Mint had reported on 1 May.
The gradual approach also implies that future structural changes to GST, such as inclusion of jet fuel, petrol and diesel in GST, as well as convergence of the two standard rates of 12% and 18%, will be a slow process keeping in mind economic realities. There is unlikely to be any major GST rate reduction soon, considering the centre’s revenue requirements for welfare schemes at a time it has had to deviate from its fiscal consolidation road map.
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