One of the great promises of the Goods and Services Tax (GST), which was rolled out from July 1 this year, was that it would greatly simplify tax compliance, bring every state in the country under the same tax, and thus reduce the incentive to do cross border shopping and tax arbitrage. The assumption was that since the goods would attract the same taxes and therefore be at the same price in every state, there would be less incentive for sellers to sell in one state but generate invoices in another because of the different rates of taxes in the two states.
A corollary to that promise was that there would be no delays at inter-state border checkposts, which often delayed goods by as much as two or three days, if they were to cross several states from point of shipping to destination. The smooth movement of goods across the country was therefore one of the promised benefits.
Now it appears that the central government and the state governments have reason to believe that goods are being sold at one state and invoiced in another, despite having common tax rates. Or at least, that seems to be the reasoning behind the GST Council deciding to advance the date for implementing the e-way bill - an electronic way of tracking movement of goods -- system. Now, trial runs can be conducted from January 16, and the full implementation will take place from June 1.
The logic behind the e-Way bill is to track the movement of goods above Rs 50,000 within the state, and from one state to another. It is supposed to check GST evasion and put to rest the worries of different states that they were losing out on GST revenues. The central government was equally keen to shorten the mismatches and delays in matching invoices that is taking place at the moment. One theory behind the advancement of the e-way bill implementation is that the government got spooked by the October GST collections, which had slowed to Rs 83,346 crore. The e-way bill is being seen as a panacea to check GST evasion.
But the current form of the e-way Bill, despite the promises of technology like RFID that it promises to apply, is quite regressive and puts onerous conditions of compliance. Any good worth Rs 50,000 or above needs an e-way bill if it has to go beyond 10 kms. Any person or firm registered under GST will can generate the e-way bill - including the transporter. The e-way bill needs to be generated before the good is moved, and it has a limited validity period based on the distance covered. For up to 100 kms, an e-way bill is valid for 1 day. For 200 kms, it is valid for 2 days and so on.
If the good fails to be shipped on the date of generation, the e-way bill can be cancelled within 24 hours. If a mode of transport is changed, a fresh e-way bill needs to be generated. If some goods are sent back by the receiver, another e-way bill needs to be generated.
All these are likely to only delay the smooth movement of goods from one state to another. It could also unleash exactly the kind of border check posts the GST had promised to remove. And finally, it can create problems galore for everyone ranging from physical dealers to e-commerce firms. For example, suppose a high end television or audio set that costs over Rs 50,000 is shipped by a truck from the factory to the dealer, and then sent on further by the dealer to the customer's house, it will need two separate e-way bills. If the customer in the meantime, cancels the order before it reaches him, another e-way bill will have to be generated.
All these e-way bills will then also have to be matched with the invoices. In general, it adds a layer of complexity to the whole process of shipping goods from one state to another. It adds also to the burden of the GST Network (GSTN), which is already facing multiple problems in matching invoices.
The e-way bill makes no sense in a system which promises one country, one tax. It brings back some of the imperfections of the old VAT regime, and is a big step backwards.