Avoid dual control to make GST admn simple

One of the objectives of reforms in the field of indirect taxes is to bring in simplicity in tax administration and make conditions easy for business and investment. In term of ease of doing business, India’s position is very poor. The World Bank in its report on ease of doing business for 2014 ranks India at 142 out of 189 countries it studied. Singapore is at one, Hong Kong, the US, Germany and Japan are at three, seven, fourteen and twenty-nine, respectively. The conditions in our neighbouring countries like China (90), Sri lanka (99) and Pakistan (128) are better than ours.

The proposed GST (Goods and Services Tax) is purported to bring in transparency, simplicity and a hassle-free tax administration and to be a factor for ease of doing business in the country. But the way GST is designed will it achieve its stated objectiveIJ This needs to be pondered and sorted out at this stage before GST is rolled out.

GST replaces a plethora of taxes such as Central Excise Duty, Service Tax, etc., administered and appropriated by the Central Government and State taxes like VAT, CST, Entry Tax, etc. Presently, the Centre does not have power to tax on trading, and the States do not have power to collect Service Tax. A 22nd Constitution Amendment Bill has been introduced in Parliament and has already been passed in lok Sabha which empowers the States to tax services and the Centre to tax on trading. Article 246A of the Bill empowers the States to make State GST law and the Union to make Central GST law, and Parliament has exclusive power to make law with respect to inter-State transactions.

After the Bill is passed, the Centre will pass Central GST (CGST) Act; the States will make State GST (SGST) Acts and Parliament will also pass an Act to regulate inter-State transactions, to be called Integrated GST (IGST) Act. At present, the States administers the CST Act, a Central Act passed by Parliament that regulates inter-State transactions, but under GST, the Centre will make IGST Act and administer it (Article 246A(2) read with Article 269A of the Bill).

If a dealer has a turnover of rupees one lakh during a period and the rate of tax is ten per cent, he has to pay Rs 10,000 to the Centre and Rs 10,000 to the State where he is located. The Centre and the States have concurrent jurisdiction. The design of GST thus gives rise to dual control. It envisages that the Central and the State authorities shall have the power to inspect, audit, and assess, if necessary, the same dealer for his transactions/turnover for any given period. In case the State authorities point out certain discrepancies in SGST, it will have implication also for CGST, and after the visit of the SGST authority the CGST authority may visit the dealer for inspection. This will never be hassle-free and the dealer will be subject to harassment by both the authorities to comply for the same transaction.

And it will also lead to litigation. The report of the audit done by two authorities cannot be the same, so also the assessment orders. The dealer can produce or utilise the report or order of one authority to the other authority and challenge the findings or assessment. He can also produce before the High Court/Supreme Court that how two different orders are possible on the same transactions. Most likely, the superior courts will strike down both.

The most ideal situation would be not to have a dual control system. But that is not possible in a Federal country like India where the States have also certain fiscal autonomy. Collection of sales tax is major source of revenue that contributes more than 50 per cent of the States’ total receipts. To avoid dual control system, the Centre could collect taxes for the States and give the States’ SGST share to them. That is not possible as the States have their own machinery to collect taxes and the States’ official cannot make it possible, and there is also the question of the States’ fiscal autonomy. The second option is the States can collect both the taxes and give the CGST portion to the Centre. That is also not possible for the same reason.

The third option is a common forum beginning from selection of dealers for audit to the second appeal stage. In this option, joint committees constituting of CGST authority and SGST authority at each level from selection of dealers for audit to hearing of second appeal, shall select dealers for audit, do assessment, hear appeals and also second appeal. There will be one report and one order which will be binding for both CGST and SGST authorities. Provision for this kind of administrative arrangement can be made in respective Acts. But there is a snag here also.

To make it workable, officers of both all India Services and State cadres have to work in tandem as in the committee both the State officers and Central officers have to be members. But the officers of all India Services are reluctant to share the bench with State officers. They are rank conscious. This is best described in the book Bureaucrazy Gets Crazier authored by MK Kaw. (Kaw, an IAS officer, was Principal Secretary to Chief Minister, Himachal Pradesh, and had worked at the Centre and in the State in different capacities.) But in tax administration experience counts more than the rank or position.

Presently, in Central Excise or in Service Tax, a Commissioner hears appeal. An officer becomes a Commissioner in the Central Government after around 25 years of service. But in a State, 25 years of service makes an officer an Additional Commissioner. So, the Committee of Appeal may comprise a Commissioner of Central Services and an Additional Commissioner of the State, which may be designated as Commissioner (Appeal). It is not important what rank one holds or what pay-scale one is in, but it matters how many years’ experience the officer has in tax administration.

The Constitution Amendment Bill is likely to be passed in Parliament’s monsoon session. After the Bill is passed Central GST Act, State GST Acts and Integrated GST Act have to be passed. The above arrangement in the administration has to be made in the Acts. Dual control has to be avoided to make the GST administration simple. Otherwise, the administration will be complicated defeating the very purpose of reforms instead of being a boon; and GST will be a bane for the taxpayers.

(The writer is a Joint Commissioner of Commercial Taxes, Odisha. The views expressed are his own)