Why Streamlining the Goods and Services Tax Rate is Urgent – The New Indian Express

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Express press service

NEW DELHI: With multiple Goods and Services Tax (GST) rates, taxpayers find it difficult to classify goods and services under the correct bracket.

Although the GST Department has provided frequent clarifications, there are still loopholes in the current system that allow many taxpayers to avoid paying high taxes.

In order to improve compliance measures and alleviate these classification complexities, the government has been thinking about streamlining the GST rate and it even formed a panel of the Group of Ministers (GoM).

“At present in India there are more than 10 GST rates (including special rates). When there are multiple tax rates, there is a risk of misclassification, as taxpayers try to classify their goods or services in the lower tax bracket, while the tax authorities would try to classify them in the lower tax bracket. higher tax. Thus, a lower number of tax brackets/rates will reduce the possibilities of such classification conflicts,” said Pritam Mahure, a Pune-based chartered accountant.

Mahure gave an example of ‘musca khari or twist khari’ which is a ‘grilled product’ and should attract 5% but tax authorities in some cases argue that it should attract 18% GST. “The relevant tariff entries of the GST Rate Notification provide for a 5% GST on rusks, toast and similar toasted products,” he said.

Easier compliance

Multiple rates under the GST are a compliance nightmare for taxpayers. Tax experts say streamlining tariff brackets will help make the compliance process easier for small businesses.

“As we have completed five years of GST, it is now essential to focus on streamlining tariff bands and making the compliance process even easier, especially for small businesses,” says MS Mani, Partner at Deloitte India.

For small businesses, higher rates, as well as multiple tax rates, are equally inconvenient.

Kunal Singhal, the senior partner at Suresh Chandra & Associates, an accounting firm, explains:

“Small businesses don’t have as much working capital as larger businesses, so they often tend to delay paying taxes with interest. When they do, the customers to whom they supply their products are not eligible for an input tax credit. And if big companies can’t take credit for it, they won’t pay small companies.

READ ALSO | TPS Tribunal: States seek power to appoint members

Singhal says small businesses often face problems because of this and therefore he thinks if rates go down, smaller businesses will be more compliant.

Three-rate structure

The objective of the whole rate rationalization exercise is not just to increase tax rates, but to reduce the number of tax brackets. Various Ministry of Finance sources have told TNIE that the government is considering a three-slab structure for the GST, so that rate rationalization targets can be achieved.

The ultimate goal is obviously to improve compliance and increase revenue collection.

“All footwear products fall under 12% slabs, but some rubber products fall below 5%. Thus, some shoe manufacturers claim that their products are less than 5%, which is false. In accordance with GST rules, a more specific description should be used for the classification of goods and services and not the general description. Streamlining rates will help overcome these obstacles,” a senior government official said.

“There are taxpayers who abuse the GST law and wrongly classify their goods and services in the lower tax bracket, because of which their customers cannot claim an input tax credit,” said he added.

Meanwhile, according to the sources, there is a huge problem of reverse duty structure in the textile sector.

An inverted tax structure refers to a situation where the GST rate on purchased inputs is higher than the tax payable on production.

READ ALSO | TPS investigative wing urges officers to refrain from summoning CMDs/CEOs

“Although many situations of inverted duty structures have been corrected in recent years, it is essential to remedy the same situation in the textile sector and also have the same rates throughout the value chain. of a particular sector,” Mani said.

It should be recalled that in December last year, the government had postponed the correction of the inverted tariff structure on textiles from 1 January 2022. It had asked the Mauritian government to look into the rationalization of rates and to suggest a special rate item rectifying the inverted tariff structure. .

“Correcting the reverse duty structure will lead to a reduction in the tax refund requirement,” Mahure added.

According to government sources, any rate changes in the upcoming holiday season will be a bit disruptive, so the reverse tariff structure in the textile sector will only be adopted after two to three months.

In addition to the textile sector, some shipbuilding products require reverse duty correction.

Rate rationalization is probably the biggest “reform” needed to make the GST system more efficient.

As the exercise is completed, it is expected that the GST will be a less complex system that would not only facilitate compliances but also increase revenue collection.

NEW DELHI: With multiple Goods and Services Tax (GST) rates, taxpayers find it difficult to classify goods and services under the correct bracket. Although the GST Department has provided frequent clarifications, there are still loopholes in the current system that allow many taxpayers to avoid paying high taxes. In order to improve compliance measures and alleviate these classification complexities, the government has been thinking about streamlining the GST rate and it even formed a panel of the Group of Ministers (GoM). “At present in India there are more than 10 GST rates (including special rates). When there are multiple tax rates, there is a risk of misclassification, as taxpayers try to classify their goods or services in the lower tax bracket, while the tax authorities would try to classify them in the lower tax bracket. higher tax. Thus, a lower number of tax brackets/rates will reduce the possibilities of such classification conflicts,” said Pritam Mahure, a Pune-based Chartered Accountant. Mahure gave an example of ‘musca khari or twist khari’ which is a ‘grilled product’ and should attract 5% but tax authorities in some cases argue that it should attract 18% GST. “The relevant tariff entries of the GST Rate Notification provide for a 5% GST on rusks, toast and similar toasted products,” he said. Easier Compliance Multiple GST rates are a compliance nightmare for taxpayers. Tax experts say streamlining tariff brackets will help make the compliance process easier for small businesses. “As we have completed five years of GST, it is now essential to focus on streamlining tariff bands and making the compliance process even easier, especially for small businesses,” says MS Mani, Partner at Deloitte India. For small businesses, higher rates, as well as multiple tax rates, are equally inconvenient. Kunal Singhal, the senior partner at Suresh Chandra & Associates, an accounting firm, explains, “Small businesses don’t have as much working capital as big businesses, so they often tend to delay paying taxes with interest. When they do, the customers to whom they supply their products are not eligible for an input tax credit. And if big companies can’t take credit for it, they won’t pay small companies. READ ALSO | GST Tribunal: States seek power to appoint members Singhal says small businesses often face problems because of this and therefore he thinks if rates go down, small businesses will be more compliant. Three-rate structure The objective of the entire rate rationalization exercise is not just to increase tax rates but to reduce the number of tax brackets. Various Ministry of Finance sources have told TNIE that the government is considering a three-slab structure for the GST, so that rate rationalization targets can be achieved. The ultimate goal is obviously to improve compliance and increase revenue collection. “All footwear products fall under 12% slabs, but some rubber products fall below 5%. Thus, some shoe manufacturers claim that their products are less than 5%, which is false. In accordance with GST rules, a more specific description should be used for the classification of goods and services and not the general description. Streamlining rates will help overcome these obstacles,” a senior government official said. “There are taxpayers who abuse the GST law and wrongly classify their goods and services in the lower tax bracket, because of which their customers cannot claim an input tax credit,” said he added. Meanwhile, according to the sources, there is a huge problem of reverse duty structure in the textile sector. An inverted tax structure refers to a situation where the GST rate on purchased inputs is higher than the tax payable on production. READ ALSO | GST Investigative Wing Asks Officers to Refrain from Summoning CMDs/CEOs “While many inverted duty structure situations have been corrected over the past few years, it is essential to remedy the same thing in the textile sector and also to have the same rates across the entire value chain of a particular sector,” Mani said. It is worth recalling that in December last year, the government had postponed the correction of the inverted tariff structure on textiles from 1 January 2022. He had asked the Mauritian government to look into the rationalization of rates and to suggest a special rate item rectifying the inverted tariff structure. . “Correct the Inverted fee structure will result in reduced tax refund requirement,” Mahure added. According to government sources, any rate changes during the upcoming holiday season will be a bit disruptive eur, so that the inverted tariff structure in the textile sector will only be adopted after two to three months. In addition to the textile sector, some shipbuilding products require reverse duty correction. Rate rationalization is probably the biggest “reform” needed to make the GST system more efficient. As the exercise is completed, it is expected that the GST will be a less complex system that would not only facilitate compliances but also increase revenue collection.

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