The Damning Effects
The growing pile of pending refunds is slowing down the export sector in India at a time when it should have been riding the big wave of robust trade conditions across the world
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Nine months after the implementation of Goods & Services Tax (GST), Delhi-based exporter Pankaj Bansal, is in a rather precarious situation. His company TMA International, which exports engineering, electrical goods and metals to countries in the middle-east and Europe and has a turnover of Rs 10 crore, is fast running into a severe cash crunch. Reason? A GST refund of approximately Rs 25 lakh, receivable to him, is pending since a few months.
A few days ago, finally relieved, after the government announced setting up of the “Refund Fortnight”— a facility open to exporters across the country to avail their refunds — from 15-29 March, Bansal visited the Nehru Place (in New Delhi) GST office within a couple of days of its opening to claim his refund. But once again he was disappointed. He was told by the authorities at the office that they were not aware of any such window.
“My experience has been rather painful (after the roll-out of GST) and running the business has become a challenge. We will soon be hit by an acute cash crunch. I don’t know how to deal with this situation. We had filed all the required documents and ensured that there was no deficit on the compliance front. What is even more worrisome is the fact that many a times, tax officials are not willing to help us. My hard-earned money is stuck. Though I know I will get it back, the uncertainty is damaging,” says Bansal.
He says though the government has been prompt in paying small-ticket refunds, large-value refunds are stuck.
According to trade association Federation of Indian Exports Organisation (FIEO), an amount of Rs 30,000 crore is pending in refunds. The Central Board of Excise and Customs (CBEC), however, puts the total refund figure, due between July 2017 and January 2018, at Rs 28,117 crore, of which Rs 16,965 crore comprises integrated GST (IGST) and Rs 11,152 makes up for input tax credit (ITC). While 63 per cent of the claims have been settled (as on 15 March), an amount of Rs 6,000 crore is stuck with the GST Network (GSTN) — the body that provides technological support for the new system. And refunds of about Rs 6,000 crore is pending with CBEC (as on 15 March).
Like Bansal, many business houses and exporters, especially the micro and small enterprises, have found the going tough after the implementation of the overhauling tax structure. The reasons are more than one.
Delay In Refund Payment
The CBEC has settled 41 per cent of refund claims (between July and January). However, 30 per cent of claims have not been honoured due to invalid invoices, while, another 13 per cent, amounting to Rs 2,000 crore, have been rejected on grounds of duplication.
Besides the pending refunds at CBEC, a substantial amount is pending at the state level.
Under the new tax system, businesses have to first pay GST and then claim refunds. Exporters can claim refund after they file their returns under GSTR-1 and GSTR-3B. So basically, businesses need to file an initial simplified returns under GSTR-3B, while GSTR-1 reflects the summary of all outward supplies.
CBEC chairman Vanaja N. Sarna says discrepancies, errors and incomplete information while filing returns, have led to the disruption in the refund process. In many cases the refund claimed is higher than what is due and sometimes, there’s mismatch in information provided while filing GSTR 1 and GSTR 3B and the shipping bill.
“We have to match the data and information. This is an automated process and we have no role to play in this. In many cases exporters have filed the alphabet ‘O’ instead of zero. These create problems and discrepancies,” points out Sarna.
Other government officials also say that too much automation in the return filing system is causing disruption as many smaller exporters are not adept in online functioning.
Several such procedural problems are causing the disruption. “There is no provision to amend information given in GSTR 3B. That apart, there is no co-ordination between the centre and the states, which also need to pay a part of the refunds,” says Ajay Sahai, director general of FIEO. Business houses and exporters have also complained about the frequent breakdown of the GSTN portal.
In fact, both exporters and tax authorities — especially at state level — have to bear the cross for this confusion. More than the CBEC, the problem is arising from the state level tax authorities, many of whom are not conversant with the new system, says Sahai.
The World Bank Report
A recent report published by the World Bank said the Indian GST system is one of the most complex in the world. At present, there are four tax slabs under GST: 5, 12, 18 and 28 per cent. As if that wasn’t bad enough, several items including food products, printed books, newspapers, bindi and kajal attract zero per cent tax. Gold, on the other hand, is taxed at 3 per cent. Not just that. Petroleum products, power and real estate do not come under the GST ambit.
The report further said that India has the highest standard GST rate in Asia, and the second highest in the world after Chile.
While closer home, several analysts and even tax officials agree that the process pertaining to filing GST returns in India is complex. And the fact that it is fully online doesn’t help either. “Many businesses, especially those categorised as small and medium do not have the required wherewithal to adhere to such stringent filing norms,” says Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (FISME).
The Prime Minister’s Office, which recently swung into action and held a high-level meeting with top officials from finance and commerce ministries, has instructed tax authorities to clear up the dues (up to January) by March-end.
The centre also recently held a fortnightly camp from 15-29 March to expedite refunds. State governments too pitched in to ensure better and faster results.
Frequent changes in tax slabs, rules, and disruption in portal supporting the GST Network among others, have caused embarrassment to the Narendra Modi-led NDA government that implemented GST in July 2017 with much fanfare. In fact, while campaigning for Gujarat state elections last October, Congress president Rahul Gandhi called out the new tax structure as Gabbar Singh Tax, drawing a parallel to one of the most popular on-screen villain from the celluloid classic Sholay.
Political pundits say that with general elections approaching, the present government has to resolve the issue at the earliest. “While the problem is not unique to India, it can create problems for the NDA government. So it has to address this. But let us not forget that the GST implementation took place just after the demonetisation exercise and businesses had not had time to put their houses in order. If the problem continues, it will dent the country’s economic growth,” says an analyst, who did not wish to be identified.
Soumya Kanti Ghosh, chief economic adviser of the State Bank of India Group, says that refunds must be taken on priority basis. “There have been problems relating to timely release of refunds. This needs to be given utmost importance, else, the export sector, which is critical for employment, will be in jeopardy. Besides, this will have an impact on macro-economic fundamentals too,” says Ghosh.
The Way forward
“There is no cause for worry and we are working with all sincerity to resolve the issue. I have committed to clear all dues that come to CBEC by 31 March,” says Sarna. The government has organised “refund fortnight” between March 15 and 29 to address the woes of exporters who are either finding it difficult to file their returns or are yet to get refunds.
CBEC paid refunds of over Rs 1,000 crore in a span of five days (between 15 March and 20 March), says Sarna.
The GSTN has also opened up another facility, GSTR9A, from 23 March, for beleaguered exporters, allowing them to prepare and rectify all deficiencies. However, neither GSTN nor CBEC wants to take any chances this time and are ready with a back-up plan. In case this window too creates disruptions, exporters will be allowed manual intervention.