India’s rich tapestry extends to its taxation system, marked by diverse taxpayers, a variety of trades and professions, and distinct technological and institutional approaches. To upboost India’s tax revolution, fostering a culture where individuals willingly discharge their tax obligations remains a concept needing cultivation.
It prompts us to ponder whether the nation’s tax framework possesses the necessary features to shape a compliance mechanism focused on self-regulation rather than heavy oversight by tax authorities. The current era, characterized by the ‘Amrit Kaal,’ provides a fitting opportunity to scrutinize the two fundamental taxation laws in the country, evaluating their capacity for self-regulation, with a special emphasis on compliance by design.
Transformative Potential of GST in India’s Tax Revolution
GST has been one of the revolutionary changes in the indirect tax regime and has brought a constructional shift in how the multiple taxes in our country have been administered. A transactional tax with transformative potential has unleashed a wave of transparency, simplification and harmonisation in the taxation regime. It has dramatically boosted the ease of doing business in the country. The GST regime is based on constructive, cooperative federalism between the Union and the States.
It is premised on the destination-based consumption tax that accrues to the concerned State or Union Territory in which the goods or services are consumed. Taking a cue from the fact that the erstwhile taxation regime was technological and institutional competence, the GST regime has consciously worked towards uniformity and harmonisation.
The primary role in this has been played by the GST Council, which has emerged as a shining example of how the principles of federalism and pooled sovereignty can co-exist within the framework of diversity. The GST Council has not only shaped the broad contours of the GST architecture but has provided impetus to the organic growth of the GST over the past six years.
The constant attention of the GST Council towards simplifying the GST law, rationalising the tax rates, and technological improvements in the GST system underlines the government’s commitment, both Centre and States, towards enhanced compliance through design.
Read in-depth – 52nd GST Council Meeting
Trust-Based Compliance
The GST law is based on trust between the tax authority and the taxpayer, symbolised by the self-assessment theme that defines the new taxation regime in India’s tax revolution. The said belief is further fortified by the requirement for the supplier and recipient to have a strong bond based on trust and mutual confidence as the declaration by the supplier becomes the fulcrum of the availment of Input Tax Credit (for brevity, “ITC (Input Tax Credit)”) by the recipient.
After that, the electronic furnishing of returns, declaration of movement of goods through the generation of e-way bills and provision of information regarding supply made through e-invoicing are the added features of the trust-based system.
The crucial aspect that requires consideration here is that the GST, being a value-added tax, necessitates a deep and engaging model of self-policing where the trade and industry bring it upon themselves to establish a model relationship which is fulfilling and enriching for all stakeholders.
The interplay between the information being provided by the supplier and the recipient, the auto-population of details being furnished by the supplier in FORM GSTR-1 in FORM GSTR-2B of the recipient and after that in FORM GSTR-3B demonstrates the design of a system, which is based on mutual compliance.
Any break in the supply chain that creates wrinkles in the availment of the ITC has the potential ripple-off effect for all the participants in the entire supply, thereby making KYS (Know Your Supplier) an essential element of the business practice.
Collaboration Between Trade and Tax Authorities
Another exciting aspect worth exploring is how the tax authorities engage with trade and industry and among themselves. The flow of information between the trade and tax authority is so smooth that trade facilitation and interaction have become the new favourites of the taxation regime India’s tax revolution.
The amendment(s) carried out in law, the constant changes in the rules, the issuance of nearly two hundred circulars, and the rationalisation of tax rates are all outstanding specimens of how responsive the tax administration has been to the needs of the trade and industry and how the said partnership is being nurtured in the new taxation regime.
Similarly, the constant sharing of ideas and best practices among the various tax administrations and the essential requirement of cooperation and coordination between the State and Central tax authorities have opened new vistas of tax-tax cooperative federalism, which hitherto has been unheard of in the country.
Embracing Technology
The charm of GST lies not only in the uniformity and harmonisation of laws across the country but is primarily enamoured by how the practices and procedures across tax administrations are being synchronised on a common platform. The maturing of the GST network and the coming of age of GSTN (Goods and Services Tax Network) as the service provider are harbingers of the new era of taxation where the IT (Information Technology) platform and the system-based interventions with minimal human interface will be the order of the day.
The simplification and enhancement of transparency in the refund process with automatic credit of refund amount to the taxpayer’s bank account has transformed how the trade and industry used to see the tax administration and has significantly boosted the positive perception of tax administrators as facilitators rather than regulators.
The growing digitisation of the economy, the phenomenal growth in the service sector and the opening of trade across borders have enhanced the attention of tax administrators towards the cross-border supply of digital services. The simplified taxation regime with minimal registration requirements coupled with well-defined rules and regulations have provided a big thrust to collecting tax from the suppliers of services located abroad.
With the reverse charge mechanism being the preferred mode of taxing the B2B (business to business) cross-border supply of services, trust and self-regulation have been taken to a new level under GST. Similarly, in the quest for taxation of B2C (business to consumer) cross-border supply of services, the GST regime, drawing inspiration from the OECD model, has adopted the OIDAR (Online Information Data Access and Retrieval services) taxation framework where trust, self-regulation and self-assessment, are the key ingredients.
The system is entirely based on self-compliance by the service providers located outside the country. It is designed so that the taxpayer finds more comfort in securing tax for the country rather than evading it and consequently earning a bad name worldwide.
Growth and Taxation
The realisation that growth in economy and taxation go hand in hand and the reaching of understanding that simplification and self-compliance promote harmony and increase in revenue has shaped how the country’s tax administration is responding to the challenges of the volatile future.
The GST regime has given a transformational perspective to the Indian economy and has emerged as a critical driver of the formalisation of the economy. Similarly, the direct tax regime has been looking at exemption & deduction-free taxation marked by enhanced dependence on data sharing within and outside the country.
The vagaries of the country’s tax can be positively harnessed if the system-based interventions become the order of the day and a trust-based mutually beneficial relationship defines how various stakeholders interact. The developments in artificial intelligence and machine learning are opportunities that the taxation regime can ignore at its peril.
