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Dr. Amit Mitra Minister-in-Charge Finance Department, Industry, Commerce & Enterprises Department, Micro, Small & Medium Enterprises and Textiles Department And we afte fra wire gt ae fret, Fare, aufstes ¢ Beasia frets, "ga, cal e arena Semel aes se SI &R 7 . Information Technology and oy fe exe Cafes (2-s1e rte aR) fewret Electronics (including e-Governance) Department often Fae Government of West Bengal D.0. No. 425/FM/2019 Dated, the 1* July, 2019 Dear Smt. Nirmala Sitharamanji, | write to you on a significant day when we have just completed the launch of the two years of the Goods and Services Tax (GST). In these two eventful years, the GST Council in its collective wisdom and in the spirit of cooperative federalism has been able to put in place a GST law and confront some intial hiccups Unfortunately, we stil stand at a watershed, plagued by numerous problems relating to the structure, function and the implementation mechanism of GST after two years of the launch. This occasion, gives me the opportunity to reiterate some of the issues that adversely affect the trade and industry especially small traders, service providers and MSME sector. | have in the past raised these issues both within and outside the GST Council, but unfortunately many of the distortions and deficiencies still continue. (i) The first and foremost concern is the huge complexity in the rules and procedures especially those relating to the return formats. The scale and magnitude of complexity is s0 high that it defeats our basic objective of introducing GST, ie. to simplify the indirect tax system, make it more tax-payer friendly, and thereby improve the ease of doing business. May | touch upon the serious drawbacks in the entire retum structure. (2) We had initially come up with GSTR 1, 2 and 3. The idea was to get the supplier first upload all outward supplies which gets auto populated in GSTR 2A of the recipient to facilitate the fling of GSTR 2. The retuin GSTR 3 was to be prepared and filed on the basis of GSTR 1 and GSTR 2. This design had an inbuilt mechanism to carry out invoice wise matching. “NABANNA”, 325, Sarat Chatterjee Road, Howrah 711 102, Ph, : 2214 5525, Fax : 2214 1338, e-mail : & 4, Abanindranath Tagore Sarani (Camac Street), 6th floor, Kolkata 700 016 Dr. Amit Mitra Minister-in-Charge ws afte fig wri af Finance Department, Industry, ad fer, Commerce & Enterprises Department, farm, artes ¢ Sorts ets, ‘Micro, Small & Medium Enterprises "Fe, CaS @ sania Gomi wax ay fer and Textiles Department Ca “ 2 Information Technology and wey ere aes Capon (Ester aR) Reis, Electronics (including e-Governance) Department faa Hea Government of West Bengal While all along the GST Council was informed that the GSTN system was ready, but at the eleventh hour, the Council was informed that due to serious glitches the returns cannot be introduced. So we were forced to introduce GSTR 3B as a purely adhoc arrangement til the complete set of retum is rolled out. Unfortunately, what was fo be 2 temporary measure has acquired permanence. We have not been able to introduce complete retums tll now. The result is that for want of inbuilt system based matching, hawala billing and fake trade has grown in leaps and bounds and the realization of tax has suffered. (0) We are now in the process of introducing @ new Retum. | fear, even the new retun format that isto be rolled out, retains many of the complications of the earlier return system of GSTR 1, 2 and 3 with some minor changes. Form GSTR 1 has taken a new name of Form ANX-1. The Form ANX-2 is nothing but a new version of Form GSTR- 2. Normal monthly/quarterly return in Form GST-RET 1 would be prepared mostly from the auto-populated information in Form ANX-1 and Form ANX-2, which is akin to the previously thought of Form GSTR 3. Further, the timeline prescribed for introduction of the new return format appears to be unrealistically stringent and leaves very short time of 3 months for test runs and pilot studies. My apprehension is that without adequate testing and pilot studies it may backfire and we may again be forced to come back to GSTR 3B. (c) While some simplification has been introduced for tax payers below the threshold tumover of Rs 5 crore through the ‘Saha’, ‘Sugam’ and quarterly return systems, there will be a massive confusion for the small taxpayer as to which return format to use. Even condition of eligibility of dealer for use of Sahajis highly restrictive. Only B to C tax payer can avail the benefit of fling Sahaj retum 2 , Sarat Chatterjee Road, Howrah 711 102, Ph. : 2214 $525, Fax : 2214 1338, e-mail : & 4, Abanindranath Tagore Sarani (Camac Street), 6th floor, Kolkata 700 016 Dr. Amit Mitra Minister-in-Charge Finance Department, Industry, Commerce & Enterprises Department, ‘Micro, Small & Medium Enterprises and Textiles Department we afte fire wae it ad rer, Frm, arfsien ¢ Granta frets, "Fa, caid @ wiatls Some oa ay Fert a ‘and - Information Technology and Sey erg ae Caepfion (B-stecA 7) FREI Electronics (including e-Governance) Department ofesaan Haat Government of West Bengal (ii) Another worrying aspect which has unnecessarily been lingering for the last two years is our failure to remove the distortions in the rate structure. The basic principle which | had advocated and which was duly endorsed by the GST Council is that the basic items of mass consumption should be either exempted or attract a lower rate of tax and other goods and services should have GST rate of 12% or 18%. The rate structure of 28% should be completely abolished on items other than sin goods and services. Also there should be rationalization of rate ‘on goods and services attracting 12% and 18% GST rate so that as practicable as possible most of the items are brought in the 12% category. In attempting to do so, we may adopt a time bound staggered approach, subject to empirical evidence on sustainable revenue buoyancy Again, there are a large number of goods and services which suffer an inverted duty structure. You may recall that | have recently drawn your attention to the inverted duty structure prevailing in the wagon industry, employing lakhs of people in this vital manufacturing sector, spread across the country. | believe that you have kindly taken cognizance of my serious concem. This is only one of the many such instances. This needs to be immediately corrected to avoid further loss of jobs in the affected industries. The grant of refund has also been another major area of concern as blocking of working capita of exporters has adversely affected our exports. The system glitches in the grant of refund of IGST paid on export goods has further worsened the problem, The refund system is stil not completely done on electronic basis thereby causing unnecessary delay and subsequent blocking cof working capital. The manual process also promotes rent seeking in the refund process. We need to streamline the system so that exporters are ensured prompt and hasslefree refunds of the input tax credit. (iii) The GST revenue for the last two years has béen in the range of Rs 90 thousand to 1.14 lakh crore, Although the revenues have seen a marginal improvement in the last few months, we ae sil fa from reaping the benefit of revenue buoyancy which was expected after introduction of GST. This indeed is a great cause of concern. We feel that inadequate collection of GST revenue is partly due to our failure to rationalize the GST rates and remove the prevailing distortions and continuing complexities in the rules and procedures. The frequent changes in GST rules and numerous circulars have further contributed to the uncertainties in businesses. Unless we are able to address these issues along with putting in place corrective steps to check tax evasion, our expectation of garnering the GST Revenue will remain elusive. 3 “NABANNA”, 325, Sarat Chatterjee Road, Howrah 711 102, Ph. : 2214 5525, Fax : 2214 1338, e-mail : & 4, Abanindranath Tagore Sarani (Camac Street), 6th floor, Kolkata 700 016