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Frequent changes in GST regime: caught between a rock and a hard place

We are now more than 4 months into the GST regime, and there have been several changes announced by the GST Council at regular intervals. Changes can signify two things: The Government is receptive and ready to course correct, but that also means it is an admission that they were on the wrong course on some issues at least. While there are bound to be course corrections during the implementation of such a massive reform, it may be important to analyse the reasons behind the same.

In chemistry class, students often have to deal with classroom lectures known as “theory” and then lab experiments, known as “practical”. GST implementation can also be split into “theory” and “practical”. The “theory” part consists of the GST Act, the rules, the law which specifies which transactions are taxed, and how. The “practical” side of GST is the compliance requirements, the compliance interface, which the end users have to deal with.

The GST Act can also be split into 2 parts: The first being the actual law and the second being the GST rates on various goods and services.

A look at most of the changes made in the past few months would indicate that law related changes have not been too many, but we have seen many changes in the rate schedule, and also the compliance processes. There may be a reason for this.

The GST law although new, was a fairly evolved law. A draft model law was initially put up for public consultation. Then a revised draft law was brought in, which rectified many flaws in the original. Finally, the final GST Act was notified from 1st July 2017, which had further improved from the revised draft law. This process had begun many months prior to 1st July 2017.

In contrast, the rate schedule for goods and services was first released only in May 2017, less 50 days before the launch of GST. As a consequence, industry and consumer feedback was limited and hence the rate schedule had to be tinkered several times after 1st July 2017. The Government could have had apprehensions of hoarding etc, hence they may have delayed the rate schedule announcement.

The worst hit though was the compliance interface part of GST, the “practical” aspect. The task of developing he GST portal was given to the Goods and Service Tax Network (or GSTN), a non-profit, non-government organization. The contract for developing this vast technological backend was awarded to Infosys in September 2015.

While the law was released to the public months in advance, and the rate schedule came out days in advance, the GST portal was made operational for compliance matters only 24 days after launch of GST. Even then, many of the features which were provided for by the law, were not made ready on the portal. In fact even today, more than 4 months later, many features are still under development.

And this is the main reason why GST has had to undergo so many changes. Every-time a feature on the GST portal was delayed, due dates for the same had to be extended. Every-time it was noticed that certain mechanisms were not working as smoothly as they should have been, timelines were extended (and are being extended even today).

A massively overhauled IT system should have ideally been thrown open to public in advance, before the launch of GST, for testing and corrections. Instead, the actual users became the test cases and based on these tests, systems were constantly tinkered with.

Now, we are at a phase where there is no going back. It is a fact that GSTN has massively under-performed on its promises. But at the same time the Government has to deal with it. It is hard to say who is at fault: Was the Government given false assurances by the GSTN on the readiness of the system? Or was GSTN pushed too hard with inadequate time to release a stable GST portal?

In hindsight, the case may seem 20-20, and in hindsight, it would have served the Government much better to have started GST with a very easy set of compliances. Instead of rolling back complicated compliance requirements, and making way for simpler GST returns, the Government should have started with simple processes. Once the users were accustomed to it, they could have gradually stepped up.

This approach would have also given the GSTN adequate breathing space to develop the more complicated tools and programs needed to run and support complex processes. Instead, we see the Government constantly firefighting, dousing the flames ignited by the GSTN.

All this has left a bad after-taste among the business community. A poorly functioning IT system is terrible, but keeping track of constant changes is only slightly better. While the Government can claim to be responsive and ready to change, in the heart of hearts, it knows it is dodging bullets on a regular basis, and at some point of time, the dodging may just not be good enough.

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