Why GST in India is Unique?
France was the first country to pioneer a comprehensive GST Regime in 1954. GST rates in various countries ranges from 5 per cent to 25 per cent. At present, GST has been embraced by more than 150 countries around the globe. The GST Journey in India has been long. Almost 17 years!! However, presently it appears that GST will at long last observe the light of the day on first July, 2017.As the law gets finalised, it has become very certain that GST in India is unique in its own way.
There are two significant viewpoints which make me say that GST in India is going to be unique- A four-fold dual GST system Invoice Matching Concept Four Fold Dual GST System- Many countries in the world have a single unified GST system i.e. a single tax applicable throughout the country. Nonetheless, in nations like Brazil and Canada, a dual GST system is prevalent whereby GST is levied by both the central and state governments. India has adopted dual GST system. For quite a while it has been argued that GST will be a single tax. However, it is quite evident that “Single Tax” in a nation like ours is just a myth. GST in India is going to be fourfold, i.e. there will be four different types of GSTs – CGST – Central Goods and Services Tax SGST – State Goods and Services Tax UTGST – Union Territory Goods and Services Tax IGST – Integrated Goods and Services Tax. It is worth noting that concept of UTGST will come into play only when the transaction happens within a union territory “without legislature”.
Union territories without legislature mean union territories governed directly by president of India or any other person appointed by him. They are Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu and Lakshadweep. Union Territories with legislature mean the union territories which have their own elected legislative assemblies and the executive councils of ministers with partially state-like function.
Currently, out of 7 union territories only DELHI & PUDUCHERRY are union territories with legislature In addition, there are specific provisions for allowance of credit- Further, SGST/UT-GST tax credit of one state cannot be used to pay SGST/UT-GST of another state/union territory. For e.g., SGST Tax credit available of Maharashtra state cannot be used to set off SGST liability of Gujarat State. Whether, credit of CGST paid in one state will be available for payment of CGST of another state is still vague.
In GST, every Business to Business (B2B) Invoice will be cross matched with the filing done by counter party. For e.g. Shah Traders have disclosed purchase of Rs. 10,000/- vide Invoice 101 from Mehta Enterprises. This purchase entry will be cross verified with the sales entry submitted by Mehta enterprises in its return. If it does not match the mismatch will be communicated to both parties. If the mismatch is not resolved in 60 days the Input Tax Credit taken by Shah Traders on purchase will be reversed. All this will be automated with minimum manual intervention. Further, if tax is not paid by the supplier the purchaser’s input tax credit will be automatically reversed. Hence, purchasers will have to render the role of recovery officers of the government. Because until and unless their suppliers have filed accurate returns and have paid the tax on purchasers’ input tax credit is at stake. This demands a lot of discipline from Indian Businesses.
As Finance Minister had mentioned in his budget speech this year, “India is largely a non-compliant society”. It seems such reforms are stepping stones of a compliant society. I will not be surprised if other countries will follow India and introduce invoice matching in their compliance systems.