Why it makes sense to rewrite the entire GST law

Since the present law threatens to unleash an avalanche of litigation over a period of time, it makes sense to replace it with a simpler law and build complexities as more experience is gained, says T N C Rajagopalan.

Recently, Sushil Modi, a key member of the Goods and Services Tax (GST) Council, said 80 per cent of all issues relating to GST rates had been addressed, with only a few more rate changes before the next financial year begins.

He also said the focus shifts now to simplifying the process on filing of returns and removing of legal glitches, for which expert panels have been constituted.

Perhaps it is necessary to constitute an expert panel to write a new GST law itself, the way one has been constituted to write a new law for direct taxes.

The problem today is that the government has put in a complicated GST law and is trying to simplify it through patchwork amendments. Why not put in a simple GST law and then introduce complications in stages?

There is a template for doing so. When the law for taxing of services was introduced in 1994, only three services were covered.

Over a period, more and more were brought into the net.

By 2012, all services were taxed, except a few in the negative list.

Through the years, the procedural aspects were also refined. Input tax credit was initially confined to services; inter-sectoral credit was later introduced, allowing manufacturers to take credit for tax paid on input services and service providers to take credit for excise duty paid on inputs and capital goods. That way, major disruptions were avoided.

To be fair, the draft GST Act and draft GST Rules were placed in the public domain well in time and comments sought.

Based on the feedback, many amendments were also made.

However, the apprehension that too much was being attempted, with onerous compliance obligations, were summarily dismissed.

The consequences are now all too obvious. We have a law with several provisions temporarily held in abeyance.

The government now wants us to forget that it rushed into the GST regime in haste, without adequate preparation.

And, instead, wants appreciation that it is making the necessary changes in response to complaints.

Certainly, the government deserves credit for admitting mistakes and quickly making needed course correction.

But, this virtue will really shine through when it recognises the original mistake, of introducing an over-ambitious and complicated law in the first place.

The government can work on a new law with single registration for an entity, a single tax (instead of Central tax, State tax, Integrated Tax and so on) and distribution of the tax to states on the basis of data collected through the returns.

It can re-work its dispensation for export of goods and services and deemed export.

All tax compliance procedures and monitoring mechanisms can be thought through, with ease of doing business as the central focus, not revenue or data collection, especially for small businesses and exporters.

When an edifice is built with too many faults and patchwork is often resorted to, the risk of the entire edifice collapsing increases significantly.

It is better to bring down the edifice and build afresh.

The present law threatens to unleash an avalanche of litigation over a period of time.

That can be avoided by replacing it with a simpler law and building complexities as more experience is gained.

Photograph: PTI Photo.