View from India: GST is a work in progress

The Goods and Services Tax (GST) Council slashed tax rates on 177 items from 28 per cent to 18 per cent at its 23rd GST Council Meeting held in November. The new package, which came into effect on November 15, only leaves 50 items in the highest tax slab, thereby bringing some degree of relief to consumers and businesses. All this and more was revealed at the GST- Post Implementation Issues, a national conference organized by ASSOCHAM India.

GST, tipped to be the country’s biggest tax reform, came into existence on July 1. As a tax, GST is good for everyone, but it requires collective measures for bringing in the desired result. As a long-term perspective, GST is not just a tax reform, but an economic reform. It’s challenging to reform the economy more so, as GST has been initiated to replace around 20 federal and state levies.

Since GST is the first of its kind in India, several advisory committees have been formed to fine tune its outlook. Ever since GST was implemented, there have been GST Council Meetings from time to time. But this one, which is the 23rd, has been a significant one. What has hit the headlines is that 177 goods will undergo a reduction in tax and, correspondingly, the price will also soften.  

What’s more, the incidence of GST lies on 125 crore Indians. “In the process of lowering tax rates on 177 items, the Government had to compensate various states that would have earned tax revenue through these items. In order to compensate the states, the centre has decided to collect cess on those items and give it to the states,” said S Dutt Majumder, former chairman, Central Board of Excise and Customs (CBEC). He was speaking at the national conference on GST Post Implementation Issues organised by ASSOCHAM, an acronym for the Associated Chambers of Commerce and Industry of India, which is the representative organ of Corporate India.

The applicability of tax deducted at source (TDS) and tax collected at source (TCS) has been postponed until March 31, 2018. The E-way bill has also been postponed until April 1 2018. The reverse-charge mechanism system has been suspended as the liability to pay tax resides with buyer instead of the seller.

The fact is that GST has come to stay and hence it requires a simple approach. “GST is a work in progress and is expected to stabilise after about a year. That’s probably due to the fact that there were initial tech glitches. This could have been avoided if the GST Net underwent more test runs before becoming fully operational. Initially, GST hit small businesses very badly because they didn’t have the wherewithal to file compliances,” added Majumder.

The GST Council in its meeting has decided that the composition scheme taxpayers for whom the threshold limit was earlier 1 crore is now 2 crores. This then brings the composition scheme taxpayers under 1.5 crore threshold.

However, tax experts have felt that there are many issues that call for attention. Various aspects in sectors like real estate, cement and paint need to be ironed out. Car leasing companies continue to pay tax at 28 per cent without enjoying the benefit of input tax credit (ITC).

Petroleum is also another such sector and it includes crude oil, petroleum, high-speed diesel (HSD) fuel, automatic transmission fluid (ATF) and aviation fuel and natural gas. Together, this contributes 50-55 per cent of state VAT, and this needs to be addressed. VAT and GST are both indirect taxes, as the tax is levied on commodities or services and this is paid by the consumer.

The genesis of GST goes back to the February 2006 Union Budget as outlined by the then finance minister P Chidambaram. It has finally been implemented after an 11-year wait. What we need to understand is that as an offshoot of GST, the idea is to bring unorganised sectors into the registered net. We must not lose sight of the fact that small businesses contribute towards employment generation. Hence the tax measures too will have to be worked out accordingly.

“Now that we have GST, the concern is to bring more people into the tax net. GST’s dual focus should be to lower tax evasion and increase tax revenue. The fundamental principle is that the tax payer should get seamless flow of tax credit,” summed up J.K. Mittal, Co-chairman, National Council on Indirect Taxes, ASSOCHAM.

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