Impact of GST Waiver: Analyzing Taxpayer Fairness and Compliance Issues

Introduction

In a significant move, the Central Government, with approval from all states, introduced a waiver of interest and penalties for the financial years 2017-18, 2018-19, and 2019-20, coinciding with the initial rollout of the Goods and Services Tax (GST). The initiative aimed to alleviate pressure on taxpayers during the inaugural period of this complex tax regime, where inadvertent errors were likely from both taxpayers and administrative perspectives, including issues related to the GST Common Portal.

Another motive may have been to alleviate the anticipated caseload for the GST Appellate Tribunal, set to commence operations in 2025. Without such interventions, the Tribunal could become inundated with cases from the outset, leading to inefficiencies and increased litigation costs. Many taxpayers, lacking adequate guidance, made inadvertent mistakes and were willing to settle their tax dues but found themselves burdened by substantial interest and penalties. For instance, a tax liability of Rs. 100 from FY 2017-18, compounded by approximately 70% interest by 2022, could total a demand of Rs. 170, an undue financial strain on businesses. Early scrutiny by the department could have identified these issues sooner and mitigated the interest burden.

Recognizing these challenges, the GST Council, during its 53rd Meeting in New Delhi on June 22, 2024, introduced Section 128A of the CGST Act, 2017. The announcement was met with enthusiasm from taxpayers, tax professionals, and stakeholders. However, subsequent amendments to the Act and rules, alongside clarifying circulars, were necessary for effective implementation.

Despite the timely release of forms (GST-SPL-01 and GST-SPL-02) aimed at assisting taxpayers in accessing the waiver scheme, the GST Common Portal experienced significant delays and technical issues, still being rectified by GSTN experts. A critical question remains: Did the waiver effectively meet its intended objectives and expectations?

Winners and Losers: Did the Waiver Create an Uneven Field?

To analyse the impact of this waiver, we must consider its implications on different groups of taxpayers. On one hand, the scheme benefitted non-compliant taxpayers, while compliant taxpayers felt penalized for meeting their obligations promptly.

• Refund Limitations: The scheme explicitly prohibits refunds of interest and penalties for taxpayers who have previously settled these amounts. Consequently, compliant taxpayers often felt remorseful for their timely diligence.

• Coercive Recovery: In some cases, the revenue authorities had already collected interest and penalties by seizing bank accounts or directly recovering dues from debtors. These coerced payments are non-refundable, creating a perception of discrimination against compliant taxpayers.

If the government genuinely aimed to provide leniency for early years, it should have extended waivers to taxpayers receiving notices or orders under Section 74, with appropriate conditions. Tax professionals note that Section 74 is frequently applied without justifiable grounds. For example, discrepancies in GSTR 2A and GSTR-3B (when GSTR 2A was not yet available) are unjustly adjudicated under this section. It is regrettable that the central government appears to overlook the widespread misuse of Section 74, favouring higher revenue collection despite its questionable justification. Cases involving misapplication of Section 74 are excluded from the waiver, perpetuating ongoing litigation and failing to recognize that not all taxpayers under scrutiny are fraudulent.

The waiver scheme should have aimed to promote fairness among all taxpayers.

Another significant issue pertains to penalties under Sections 122(1) and 125 of the CGST Act. Penalties levied alongside notices under Section 73 qualify for the waiver; however, penalties issued separately under Section 122 or Section 125 do not, resulting in inconsistencies. This aspect is perceived as discriminatory and contrary to the scheme’s intention, with taxpayers ultimately bearing the brunt of these discrepancies.

Additionally, the government amended rules just four days before the tax payment deadline. Such last-minute changes create confusion and underscore the unresolved practical challenges within the system.

In summary, while the scheme holds promise, extending due dates and addressing administrative challenges would have better aligned its outcomes with the original intention, building trust among taxpayers.

Conclusion: Does Honesty Pay in Taxation?

This analysis leads to a critical question: Does the adage "Honesty is the best policy" genuinely apply in the realm of taxation? The reality suggests that the system may reward non-compliance more than adherence to regulations. In the context of taxation, the lesson may well be that "disobedience is the most effective strategy."