We
have been talking about GST since 2004 when Mr. Vijay Kelkar mooted the idea of
National GST. During 2006-07, the then Finance Minister set April1, 2010 as the
date of introducing GST and asked the Empowered committee of state Finance
Ministers to prepare a road map and work with Central Government for this
purpose. On account of lack of adequate preparedness, the implementation of GST
further postponed beyond 2010 till date. However ndthe government has passed
122 Constitution Amendment Bill to address the issue of GST in May 2015.
The
existing indirect tax regime consists of a multi-layered structure of taxes
imposed on various transactions by the central and state governments. No single
levy covers the entire value addition in the supply chain. Most taxes are also
not fungible against each other. This triggers a cascading impact making the
effective tax cost of goods and various services extremely high. Thus, tax
compliance and administration is complex and onerous.
The
constitutional amendment to give right to central government to tax the sale of
Goods and state to tax services is the pre-requisite for introduction of GST
because at present Central Government has the right to tax the Goods up to
manufacturing state and states have no right to tax services. This
constitutional amendment is required to be passed by both the houses of
parliament by majority of at least half of the members of total strength of
each house and by at least two third number of members present for voting.
Further this constitutional amendment has to be ratified by at least half of
the state assemblies. This ratification by states is required before sending
the constitutional amendment for the assent of the president of India.
In
addition to passage of the Constitution Amendment Bill by Parliament and state
assemblies, it is also imperative to have a robust countrywide information
technology (IT) network and infrastructure to make the implementation seamless
across state boundaries. GST's implementation faces political hurdles as it
could divest state government of discretionary fiscal power. States also fear
that they will suffer heavy revenue losses once GST is implemented.
GST
will subsume central levies like central excise duties, service tax, additional
customs duty, surcharges and cesses and state levies such as state VAT/ sales
tax, entertainment tax, luxury taxes, taxes on lottery, betting and gambling.
As
regard Petroleum products, the present status is expected to continue for the
time being. States will continue to collect sales tax/VAT on petroleum
products, while the centre will levy excise duty as is the case now. It appears
that alcohol for human consumption will be kept outside the GST regime.
Exclusion of the alcohol sector would mean that companies manufacturing alcohol
may not be in a position to avail credit of GST paid by them on their
procurements.
GST
will be a dual levy imposed concurrently by the Centre and the States, jointly
& severally. It will have two components; one levied by the Centre referred
to as CGST, and the other levied by the States and Union Territories (UTs)
referred to as SGST.
A
new model is developed under proposed GST to monitor the interstate trade of
Goods and Services called IGST. Accordingly, there will be no Central Sales Tax
in the GST regime. It should also be cleared that IGST will not be a Tax in
addition to the SGST and CGST but it is only a mechanism to monitor the
interstate trade of Goods and services.
The
current system of entry permits/way bills not only increases transaction costs
but also delay the business cycle. The GST Network is expected to facilitate
the introduction of online information input at each check post and thereby
eliminating the cumbersome procedure of entry permits/way bills.
The
GST Network (GSTN) will need to be a robust automated system for registrations,
movement of goods, returns and payment. However, before the advent of the GST,
current systems should be revamped in order to create databases for procedures
such as registrations that can be replicated in the GSTN. It is therefore
desirable that States adopt common GSTN based procedures for registration,
payment, etc.
GST
will make a financially strong Centre than state and this is based on two
reasons. First is threshold and second one is the fact that now centre will get
the tax up to selling stage instead of manufacturing stage which it is getting
under Central Excise.
The
threshold limit under central excise is Rs. 1.50 Crore and in service tax is
Rs.10 Lakhs. Further in case of VAT the limit ranges between Rs 5 Lakh to Rs.
10 Lakh. In Delhi it is 20 Lakhs. Now the question is what will be the minimum
threshold limit where dealers will start paying tax under GST. Different
threshold levels may cause confusion amongst the trade and also encourage
unethical practices. Ideally, the threshold level should be uniform across
goods and services and be the same for both CGST and SGST. A sufficiently high
threshold level will enable ease of tax administration since the tax will be
collected from only those taxpayers who have a sizeable turnover (and thus, tax
liability). A high threshold level will also ensure that small and marginal
traders do not face any hardship on account of the rigorous record-keeping and
compliance requirements anticipated under the GST. A large segment of trade and
industry comprising of micro, small and medium scale enterprises will require
time to transition to the GST. Suitable threshold limits and composition
schemes should be incorporated in the statutes to provide relief to this
sector.
A
uniform threshold limit be set and further that this limit for registration
under both the CGST and the SGST be set at a gross turnover of approximately
Rs.50 lakhs p.a. Thereafter, a Composition Scheme could be introduced for
annual gross turnover between Rs.50 lakhs and Rs.1 crore.
To
ensure seamless implementation of GST and full compliance with the provisions
of the GST, including all documentation, all Invoices, Returns Forms, Challans,
Accounting Codes and so on must be uniform across the country. In addition, the
procedures and documentation for collection and payment of tax, movement of
goods, returns, assessments, etc, under GST must be simple, transparent and
assessee friendly with reliance on private records rather than on maintenance
of voluminous statutory records.
Multiple
jurisdictions and multiple filing of returns are undesirable under GST.
Assessee should be required to submit one composite return covering CGST, SGST
and IGST and be subjected to one common jurisdiction with uniform assessment
proceedings. It is recommended that the jurisdiction and consequently,
assessment, scrutiny, audit, etc. be the responsibility of a single authority,
representing both the Centre and the States.
Under
the prevailing tax regime assessee are subjected to audits by the central tax
authorities, i.e., Central Excise and Service Tax Audit. At the State level,
VAT was supposed to usher in an era of self- assessment and audit of a few
assesses on a sample basis. Under the GST, the concept of a risk based audit
should be introduced based on international practices and audit by the
Department should only be conducted in cases of any attempted tax evasion. The
assesses with proven track record should be given the facility of
self-assessment.
There
is currently no understanding on how transitional issues will be dealt with
upon the introduction of GST. For a seamless changeover to the GST, it is vital
that information on transitional provisions be placed in the public domain well
in advance to enable industry and policy-makers to engage in determining the
best way forward. Further, the IT solution service providers can also make
modifications in the ERP and MIS systems in order to ensure easy adaptability
of the GST. Particularly, the following issues need to be addressed as on the
date of changeover to the GST:
-
Treatment of accumulated Cenvat and VAT credits in the hands of the tax-payers;
-
Treatment of tax -paid inventory-both with manufacturers as well as with
traders;
-
Taxability of un-invoiced Services and Goods lying from unregistered
dealers;
-
Taxability of continuing contracts / work in progress.
GST
proposes to economically unify the country and provide a more efficient
indirect tax regime.
It
is now-well-recognized and understood that the GST is a necessary condition if
the country has to go back to double digit GDP growth.
