Next month, the government will roll out its biggest tax reform aimed at bringing more people into the tax net, treating the country as one tax-administrated unit. Commendable in scope and intent, the challenge for the goods and services tax (GST) may come from the lack of skill among taxpayers in using digital tax reconciliation.

The new tax rules have changed much from what was originally intentioned: to have a single flat rate for all goods and services. Instead, to accommodate unrelenting states and hard-lobbying industries, the taxation now offers five different slabs with 28% as the top rate. GST excludes drinking alcohol, which was held onto by the states that often get up to a quarter of such tax revenues through excise levies. All in all, what was meant to be a simple tax plan that could be easily communicated, is a somewhat complex maze to be mastered overnight. Still, that can hardly be the reason to hold back tax reforms.

To ensure that GST works as it should, everyone falling under its purview will have to file into the giant government digital backbone, the GST Network (GSTN), an online bookkeeper. It will tally and link every entry in the supply chain of goods or services, to the central as well as state tax databases. That’s a few billion invoices each month. Some taxpayers have already expressed dismay after they failed to register their businesses through GSTN.

These are teething troubles. Soon, users, including millions of small businesses, will be thrust into e-filings three times a month. Some would have never seen an e-filing. They will have to log 37 filings a year. And if they operate in more than one state, then each jurisdiction needs a separate set of filings. And then there is the issue of filing accurately. A single erroneous entry from supplier to manufacturer to retailer means the invoices will not compute as part of the same goods or services. Each taxpayer will have to ensure accuracy not just for himself but also for other stakeholders to make tax reconciliation possible. That’s around 15 details to tally, including accurate addresses and duty rates.

Take just one invoice detail in the tax filing that is "a consecutive serial number, in one or multiple series, containing alphabets or numerals or special characters, hyphen or dash and slash symbolised as ’-’ and ’/’ respectively, and any combination thereof, unique for a financial year". Now imagine a shopkeeper in a small town, who suddenly has to come to grips with an e-filing, and do so accurately, without a single error — on any of the parameters. Lace that with other issues he may face, such as inadequate internet connectivity, or the inability to use software that will help him book-keep electronically.

This is where GST filings may start to frazzle taxpayers. It’s a process that relies heavily on the coming together of many things: no fat fingers, online access, glitch free technology, ability to understand how offsets work and sticking to deadlines. For this migration to be everything GoI wants, it needs to massively train taxpayers so they are able to use e-filings effectively. That means holding taxation boot camps in areas far and wide and ensuring all stakeholders understand what it takes for GST to work. It might also mean embedding all businesses with electronic input software to eliminate manual inputs. Several software firms have seized the opportunity to create electronic filing software. But a lack of standardisation could present new problems.

Besides, there will be thousands of questions on everything from a classification of goods to inter-state invoices. Many of the answers won’t be readily available in an automated system. It needs the setting up of helplines in regional languages with trained tax officers at least in the first six months of the rollout. If all this is executed, the GST rollout promises to become what it’s meant to be: an effective tax model. Left to users to figure out, it might fester into a messy swamp.

 21 Jun 2017, 01:07 PM