A nationwide GST identification mandate can simplify the regime

Paper: GS – III, Subject: Indian Economy, Topic: Economic Reforms, Issue: India’s Goods and Service Tax.

Context:

The complexities of India’s Goods and Services Tax (GST) system eight years after its implementation. While initially envisioned as a “good and simple tax,” the GST has evolved into a complex structure, particularly for businesses operating across multiple states.

Key Highlights:

Current Challenges in the Indian GST System:

Despite the overarching goal of creating a unified tax system, the Indian GST framework faces several challenges:

• Dual GST System: The dual GST system, comprising Central GST (CGST), State GST (SGST), and Integrated GST (IGST), was a compromise due to India’s federal structure. While it aimed to replace the previous origin-based taxation approach with a destination-based one, it has introduced complexities.
• Compliance Burden:
  • Businesses with a Pan-India presence is required to obtain separate GST Identification Numbers (GSTINs) for each state or Union Territory (UT).
  • They must file individual GST returns using separate usernames and passwords for each jurisdiction.
  • This leads to complex compliance procedures and increased costs, especially due to the extensive reconciliations needed on a monthly and annual basis.
• Inter-Governmental Settlement Issues:
  • Excess IGST allocations to certain states have led to inter-governmental settlement issues.
  • An internal committee has been set up to review the IGST mechanism and develop strategies for recovering these excess transfers.
  • These issues highlight the operational complexities and financial implications associated with the implementation of GST.

A Single GSTIN: A Vision for the Future:

With e-invoicing and PAN 2.0 initiatives, a single all-India GST identity can eliminate the need for state-wise registration and make revenue sharing easier among various governments.

• Seamless Tax Allocation: Tax allocation can occur seamlessly at the back-end, using place-of-supply rules and data captured through e-invoicing.
• Elimination of Integrated GST Administration: Such a framework would eliminate the need for an integrated GST administration across levels of governments under the GST Council.
• Equal Revenue Allocation: Since transaction-wise granular data would be available, GST revenues can be allocated equally between the Centre and states and, on a destination-based principle, between states.

Lessons from the UAE VAT System:

Lessons can be learned from the experience of other federal countries such as the United Arab Emirates (UAE), where a single VAT registration number is used for operations across all its constituent emirates.

• Unified VAT System: In the UAE, a unified VAT applies to intra-emirate, inter-emirate, and import transactions without the need for separate registration in each emirate.
• Simplified Compliance: This simplifies compliance for businesses operating across the UAE.

Recommendations for the GST Council:

India’s next GST Council meeting should discuss this crucial aspect as well, since taking such simplification steps for GST compliance could significantly ease operational challenges for businesses and reduce administrative overheads, thus fostering economic growth by creating a more efficient and business-friendly tax regime.

• Consider a Single GSTIN: Explore the feasibility of implementing a single GSTIN for businesses operating across India, similar to the UAE VAT system.
• Streamline Compliance Procedures: Simplify compliance procedures and reduce the need for extensive reconciliations.
• Address Inter-Governmental Settlement Issues: Develop strategies for resolving inter-governmental settlement issues related to IGST.
• Leverage Technology: Leverage technology to enhance efficiency and transparency in the GST system.

Conclusion:

While India’s GST system has made progress in unifying the tax structure, challenges remain in terms of compliance burden and inter-governmental settlement issues. By leveraging e-invoicing and PAN 2.0 initiatives, and drawing lessons from other federal countries like the UAE, India can simplify the GST system, reduce operational challenges for businesses, and foster economic growth. The GST Council should prioritize these issues in its upcoming meetings and take steps to create a more efficient and business-friendly tax regime.

https://www.pressreader.com/india/mint-ahmedabad/20250718/282205131919210

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