Indirect Taxes

INDIRECT  TAX  REFORM

Indirect taxes need to be reformed. Most businesses (especially MSMEs) are crippled by a poorly designed indirect tax regime. The situation today is that of reform in process. But the view from the MSMEs is that the reform process has slowed down.

GST

GST is here and is here to stay. Nothing wrong with that, every country in the world needs a good indirect tax system.

The question we have to ask ourselves - is our GST system good or can it be made better?

A major issue that creates discord is the ITC or Input Tax Credit. This issue can be solved by having an automatic invoice matching system. A simpler solution would be for every party to feed in sales invoices only. The system can then allot the ITC based on the customer's GSTIN. Sounds complex but in reality it's a simple software solution to an annoying issue. This was proposed in the original GST draft. Why was it removed or discarded?

Another change that can be made is to have an accrual system for organisations with turnover greater than Rs 10 crore per annum. For all other organisations, it should be a receipt based system. This one move will free up working capital, a major pain point for most organisations.

Currently we have a composition GST band for firms with turnover less than Rs 1.5 crore per annum. Why? Is it really helpful? Why do we need this band? Why not get rid of the composition system and switch to one system only? Makes life easy.

Lawyers and law firms do not pay GST but their clients have to reverse credit GST and pay on their behalf. Unfair? Discriminatory? Absolutely. But then lawyers in India seem to have a special status. This needs to be abolished and let lawyers and law firms charge and pay their GST like everyone else.

GST rates should reduced to three slabs - 0, 10 and 30. 30% slab for all goods like tobacco, liquor, fossil fuels etc. White goods should be brought down to the 10% slab. All goods in the 5%, 12% and 18% slab should be brought to the 10% slab. The initial six months following this change can result in a lower collection but it will lay the foundation for a boom in GST collections after that.

An easier online software to interact. Why cannot we have a simple software that automatically does the calculation after data entry? Maybe even an app where MSME's can just upload their sales details on a daily basis. A daily habit that helps the business owners to keep track. We have plenty of software companies. Run a hackathon asking them to make a software and an app for the same. This activity itself will generate more than a hundred user friendly product,s aimed at different segments of the market, which the tax payer can then choose from.

TDS/TCS

Do we, in this day and age, yet need to persist with TCS and TDS? Is it even necessary? If it is abolished, what will be the savings made (when you consider the man hours needed to track and review this) and what will be the costs incurred (the upfront 1,2,3, 5 and 10 % deduction rates)? And what is the need for so many rates for what is essentially a way to front load tax collection?

Stamp Duty

Stamp duty is an ancient relic that needs to be done away. It is a burden on the tax payer and is no indicator of the health of the economy.

Instead of stamp duty being charged on every property transaction, we propose a property value levy. This property value levy will be calculated as between 0.15% to 0.25% of the ready rate reckoner value of the property.

This levy will serve two purposes. It will give the states a fair idea of their annual tax intake thus enabling them to plan their expenditures accordingly. For the people, it will help them by reducing the burden at the time of purchase. And an annuity style payment is always easier on the pocket than an upfront payment.

As the levy is based on ready rate reckoner value, it will be an accurate indicator for the market rates. Currently, the rich and well connected people buy property at low rates with low stamp duty. Then when a major announcement is made, the land prices jump. And the rest of the public then pay a higher stamp duty. This levy removes this ethical hazard. Another benefit is land banking will be reduced, as the value of the land will be revised every year by the State Govts if necessary.

Miscellaneous Taxes

What is the need for any other taxes or levies or cesses? Has a CBA (Cost Benefit Analysis) been ever done on all these?

Let us get rid of all other taxes, duties and levies. This change, though it looks insignificant, will free up a lot of resources for the productive population of our country.

Custom Duties

We are signatories to the WTO and have to align our duties as per it's norms. However, we are a sovereign nation and we have the right to protect our sovereignty and integrity. If a nation indulges in inimical behaviour to us, we should take action against it economically as well.

WTO allows action against dumping. China gives all its manufacturing industries a flat 16% tax free subsidy on all goods that they export. Corporate tax is 25% in China, so effectively the subsidy works out to 21.33% before tax. Should not the Govt of India apply this 21.33% levy to all goods that are made in China and imported into India? This single action alone, which negates the massive subsidy given by a foreign country, will result in a more level playing field for Indian MSMEs. This levy can be applied as long as the Chinese keep subsidising their manufacturing industries.

This levy should be applied to the Bill of Lading and Invoice generated in China, not the Bill of Lading and Invoice that is produced in India. Further, there can be EDI exchange between the Customs department of the two countries, to make this process smooth and error free.

The above few changes that we have proposed, will go a long way in making life easy for all - the MSMEs, the citizens and the Government of India. It's time to implement them.

Sim Khirid
www.simforindia.in