We always knew it and the World Bank has now certified
it.

The Goods and Services Tax (GST) launched with much
fanfare and a midnight session of the Parliament (apparently all the efforts
went into creating the hype, rather than in preparation) has the dubious and
unenviable distinction of being the most complex tax structure in the world in
a survey of 115 countries by none other than the World Bank.

The laudable objective of GST was ‘One Tax for One
Nation” to bring the entire nation under the roof of this new found taxing
structure.

The World Bank’ report provides that 49 countries
employ single tax slab of GST, 28 countries use dual tax slab of GST, 5 nations
including India apply four non-zero slabs of GST and rest of the countries
(in list of 115 countries) enforce four or more slabs of GST.

In the bi-annual report India Development update, the
World Bank has mentioned that during the initial days of the GST inception the
state administrations had experienced disruptions.

It was detected that as a consequence of the GST,
firms are forced to bear increased administrative costs at a burdensome rate
and the snail process of tax refund caused the firms to lock up the working
capital.

The reason for high compliance costs is the prevalence
of multiple tax rates mandating the firms the necessity to classify inputs and
outputs based on the applicable tax rate.

The GST comprised of five tax slabs of Nil, 5%, 12%,
18%, and 28%. Since the inception of the GST, so many revisions were made on
constant basis to adjust the tax slabs to meet the challenges aroused as a
consequence of the implementation of the GST.

Taxpayers are obligated to match invoices between
their outputs and inputs to be eligible for full input tax credit along with
the requisite to validate correct rate also the element contributing to the
augmentation of the compliance costs on the firms.

The World Bank is of the opinion that such adjustment
process has the knack to affect the economic activity of firms as a consequence
the GST benefits are likely to outweigh its costs in long run.

I have not come across a single professional or
corporate house who is satisfied with the implementation of GST. In fact, many
single-person small businesses have closed down due to the scare for
formalities and tax-terrorism.  

It may not be too late. The government may some of the
following steps to make things easier for businesses to ensure smooth
implementation of GST:

· Reduction in the tax slabs and limiting
exemptions will aid the firms in plummeting the compliance burden.

· Replacing complex and complicated steps
involved in the GST process with simple laws and procedures.

· Providing relief to small traders /
professionals.

· Well organized GST structure and right
allocation of resources for the successful administration and implementation of
the GST.

· Compliance strategies based on a balanced mix
of education and assistance programs and risk-based audit programs.

· Educate the common men, GST practitioners and
administrative professionals engaged with the GST regime about latest
modifications and clarify any anomalies at the earliest.

It is high time the government seriously considers the
World Bank report as eye opener and take timely corrective measures to retrieve
the situation. Otherwise, generally the government thinks as long as it has
majority in the Parliament, it can do anything without any bothering about
concerns from any quarters. What most of the businessmen and professionals have
been saying regarding GST implementation is getting acknowledged and being
publicized worldwide. This is certainly not what government would want it to be
and a swift action may be better else the honeymoon with GST too will soon end
up as another failed effort (like demonetization).

Research and inputs by Paruchuri Baswanth Mohan

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About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at [email protected]