TAX ADMINISTRATION IN GST REGIME

By: lawcruxadvisors | Posted: 11th November 2011

The scheme of GST should be supported by a strong tax-administration infrastructure for it’s optimum success. Without an efficient tax-administration the implementation of goods and services tax will be just like pouring water in the bottomless bowl. So, the structure, design and the business process of tax administration is an important factor in the determination of the revenue performance. To put in the words of Casanegra de Jantscher, "tax administration is tax policy."

Although various improvements have been recently made in the tax laws and administration over the past few years such as Large Taxpayer Unit (LTU) Scheme and Automation in Central Excise and Service Tax (ACES), the systems at both Central and state level remain complex. The tax systems suffer from substantial compliance gaps, except in the highly organized sectors of the economy.

Tax administration is a typical issue to deal with; but the Thirteenth Finance Commission’s Task Force has come out with some significant recommendations in this area. Without going into the details, their salient features are mentioned here:

PAN based registration of taxpayers:

Registration brings a person within the control of the tax authorities. As per Task Force, all persons who are liable to income tax or whose sales exceed Rs. 5,00,000 are required to obtain a PAN. All persons with annual aggregate turnover of goods and services exceeding Rs. 10 lakh (excluding CGST and SGST) should be required to register and obtain a GST registration number. Person with lower turnover may be allowed an option to register. Also, there will be single GST registration numbers for all branches in a state. Therefore, a dealer having branches across states will have as many GST registration numbers as the number of states in which he operates. Since the number is PAN based, it is not necessary to have any pre-registration verification. However, the states may, if necessary, undertake post-registration verification to eliminate any potential abuse. In future, the string corresponding to PAN will be replaced by the Unique Identification Number (UIN) proposed to be issued to all residents.

It should be mandatory for all registrant dealers to obtain an e-mail ID and also open an internet banking account with any bank. The form must capture the e-mail ID and the internet bank account number.

GST Invoice

According to Task Force, VAT Invoices are crucial control document of VAT since it forms the primary source of information. Recommendations relating to VAT invoices are as under:

i) The law should require a supplier making a taxable supply to another taxable person to provide a VAT invoice with that supply or the payment for it. The requirement should be enforceable by some penalty.

ii) The VAT invoice should be standardized across all states so as to contain a minimum of information.

Payment on monthly basis:

The Task Force has recommended that the VAT period should be a calendar month. Since the collection under VAT will serve as the dominant source of revenue for state governments it is imperative to provide for a collection mechanism which would ensure a periodic flow of revenue to the exchequer subject to a minimum compliance burden on taxpayers and risk of revenue loss.

CBEC for CGST and State Machinery for SGST:

As per the recommendations of Task Force the Central Board of Excise and Customs (CBEC) shall be responsible for implementing the CGST and the state tax administration will be separately responsible for implementing the SGST. All procedures under CGST and SGST should be uniform. Each taxpayer should be allotted a PAN based taxpayer identification number. The unit of taxation for the purposes of GST should be persons as defined under the Income Tax Act. Consequently, for the purposes of CGST, all production units / branches of a person located anywhere in the country will be treated as a single taxable entity eligible for CGST input credit across units / branches in that state.

Strong, Broad and common IT infrastructure:

The Central Government shall establish a common IT infrastructure which will serve the needs of both CGST and SGST. A Taxpayers Information Network (TIN) will be established by the centre keeping in view the information requirement of CBEC and the state tax administration. The TIN will be shared between the centre and the state.

The payment of tax and transaction reporting should be made through a combined payment and transaction reporting statement in form no. GST-1. This statement should detail all business to business transactions relating to sale. This statement should be common for both CGST and SGST compliance and it should be mandatory to file this statement electronically on a monthly basis while making payment of taxes.

Uniform Laws for SGST:

Electronic filing of all other returns, if any, should also be mandatory. Therefore, the return forms should also be common for CGST and SGST compliance. The information furnished shall be stored in a common database to which both the CBEC and the state tax administration will have access. For the purpose of audit, both CBEC and the state tax administration must coordinate to ensure that the same taxpayer is not subject to simultaneous audit under CGST and SGST.

Common Appellate Authority:

There should be a common appellate authority since the tax base will be common. Similarly, the authority for advance ruling will also be common. No authority should have any power to make preventive detention for the purposes of CGST and SGST. Procedures for collection of both the CGST and SGST should be uniform.

Conclusion:

Although the Task Force is very sure that the uniformity in the procedures recommended by them will considerably reduce compliance and administrative cost and shall result in improved voluntary compliance; it is advisable that the industry should also be consulted before taking any final decisions.

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Tags: salient features, sectors of the economy, goods and services tax, tax authorities, pouring water