E-invoicing for B2C transactions and centralized assessments
GST has been a pathbreaker with compliance now mandated digitally. This has not only put the entire transaction database online but has also substantially reduced the taxpayer’s interface with government authorities. With e-invoicing extended to most taxpayers for passing credits, the probability of fake invoicing has gone down and data matching to avail credits has become more efficient. The next stage of GST compliances would be to move the Business to Consumer (B2C) transactions to mandatory e-invoicing, which allows this data to be reported and help in reducing credit frauds.
While a lot has been achieved in digital compliance, there are still areas that need to move toward effecting full digital compliance.
GST collections have increased from around INR 90,000 crore per month in the first year to INR 140,000 crore per month in the current year. Revenues are reaching their optimal level and there has been a positive economic impact. This is a result of various factors at play. Intrinsic growth of the economy and inflation are two of these factors, but effective anti-evasion measures taken by the authorities have also played an important part in plugging revenue leakages through fake invoicing and other credit frauds.
The flip side of these anti-evasion measures is that honest taxpayers with registrations across multiple states have had to undergo multiple audits or assessments across jurisdictions, resulting in a higher cost of tax compliance. Also, multiple interpretations lead to unnecessary litigation with a large amount of working capital getting stuck in these disputes. Therefore, like income tax and customs, it is time for GST in India to move to faceless assessments, which would be centralized for a given taxpayer. Centralized assessment might free up taxpayers’ resources for more productive use and give further impetus to the growing economy.
Filling the gaps in credit flow
As the GST Council looks at rate rationalization and digitalization, an area that needs a re-look is credits. The main principle of GST is not to have any cascading taxes, and that is achieved by having a seamless flow of credit. While the GST Council has imposed certain rates on goods and services where credits are not permitted, the GST law also outlines certain inputs and input services on which credit cannot be attained. For a truly seamless credit flow, there should ideally be no breaks in the credit chain as that leads to cascading and inflation in the cost of supply of goods and services. At present, taxpayers cannot avail credit for expenses like those related to employees, cabs, mobile phone towers, and many others, which are genuine business expenses and integral to providing supplies. These credits may can be reconsidered and permitted under GST tax reforms in India to reduce the cost of supplies.