FOCUS NATION Dr Anil Singh
The lofty goal of implementing GST from April 2016 is a welcome move, but a preparedness deficit is evident
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BURB
It is argued that too many issues have been left to the proposed GST council — like drawing a list of the goods and services to be exempted, fixing the turnover up to which a firm being exempted from GST etc. Such an eventuality can be a sure invitation for politicking and polemics
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The passage of the Constitutional Amendment Bill for introduction of Goods and Services Tax (GST) by a two-third majority in Lok Sabha has cleared the first hurdle along its way and the real test for the NDA government will now be in Rajya Sabha where it is in a hopeless minority. A Constitutional Amendment Bill requires two-third majority in both the houses for approval.
The Modi government aims to introduce GST from April 1, 2016. A GST regime is expected to subsume central indirect taxes such as Central Excise and Additional Excise Duty and Service Tax among others into the Central Goods & Services Tax (CGST) and state levies such as VAT and entry tax into States Goods & Services Tax (SGST). Many observers in industry and business view the GST as a panacea to most of the indirect tax challenges which are presently faced by the tax payers. The Modi government expects GST to play a transformative role in the way national economy operates.
Undoubtedly, the lofty goal of implementing GST from April 2016 is a welcome move. Nevertheless, the protracted negotiations between the Central and state governments and their helplessness to arrive at a consensus do suggest that there is a preparedness-deficit in facing the challenges of GST.
The states have been resisting this on various counts. They demanded that they be compensated by the Centre for the losses. They also insisted on excluding excluding certain taxes and goods from the GST purview. Experts are generally of the view that the success of GST depends on trust and consent of both Central and state governments. A brief overview of the GST along with contentious issues within it can be helpful in overcoming the challenges to pave way for the effective and
successful implementation of GST.
It needs to be stressed that it has taken almost eight years to get the Constitution Amendment Bill on implementing GST passed by the Lok Sabha. The erstwhile UPA government in its Budget for 2007-08 had announced implementation of GST from April 1, 2010. A lack of consensus resulted in missing that deadline, leading to the announcement of another deadline of April 1, 2012. However, the second deadline was also missed in the wake of refusal of the non-Congress-ruled states to budge from their demands of fiscal autonomy. With the advent of BJP-led NDA government at the Centre in May 2014, a new deadline of April 1, 2016 was set and accordingly a bill was introduced with some changes in the Lok Sabha in December
2014, and this was passed by the Lok Sabha May 6, 2015.
As per media reports, the proposed GST will be levied on buyers of goods and services, or where the service is consumed. In other words, big consuming states such as Uttar Pradesh, West Bengal and Kerala could get a high share of the taxes at the expense of manufacturing states such as Gujarat, Maharashtra or Tamil Nadu. It is further reported that in order to compensate for this, the bill provides for 1 percentage point extra tax on goods for at least two years. This extra
revenue will go to the state from which the goods are deemed to have originated, or where it was originally manufactured.
Reports also indicate that the Goods and Services Tax Network (GSTN),set up in 2013 as a not-for-profit, non-government private limited company, is going to act as the backbone of the GST operations by ensuring fair and transparent administration of the GST, with incentivizing compliance by taxpayers and ensuring that tax evasion is
dealt with firmly.
The demand of the Congress and the BJD, during the deliberations on Constitution Amendment Bill on GST in Lok Sabha, to send it to a house panel, was, however, rejected by finance minister Arun Jaitley with a warning that the government would not be able to meet the deadline if this was done.
There are those who draw attention to some of the disquieting features of the GST Constitution Amendment bill. In the first place, the bill maintains a distinction between inter-state sale of goods and services and local sale of goods and services — an issue that has been the bone of contention between states on the one hand and the Centre. According to one opinion, the Central Sales Tax Act of 1956 has been struggling with this vexed issue with judicial precedents at
best being hazy. Now, it would be the lot of the Parliament, through enacting a separate law to provide guidelines and yardsticks for what constitutes inter-state sale of goods and services.
Besides, fact is, it is more difficult to pinpoint where exactly the services originate or terminate, than goods. This is more so if the services are provided online. It has been pointed out that the GST Bill ought to have taken the bull by its horns rather than delegating it to Parliament in a manner of buck-passing. Furthermore, it has argued that too many issues have been left to the proposed GST council — like drawing a list of the goods and services to be exempted, fixing the turnover up to which a firm must be exempted from GST etc. Such an eventuality can be a sure invitation for politicking and polemics.
Moreover, manufacturing states want two per cent additional levy beyond two years, instead of the proposed one per cent additional levy for two years. Some states are worried over the reduction of the pool size due to additional 1 per cent levy promised to manufacturing states. Apart from these, there remain other concerns like keeping purchase tax and entry tax in lieu of octroi outside the GST, period of compensation for probable losses on account of implementation of
the new indirect tax regime etc.
It has been opined that an ideal GST system warrants inclusion of all goods and services within its realm. However, there are certain revenue compulsions that appear to have prompted the exclusion of certain sectors from the GST fold and these inter alia include:alcohol, petroleum and tobacco, which are touted as big revenue earners. It is noteworthy that in 2014, taxes on alcohol represented 22 per cent of Kerala’s revenue; and petroleum tax accounts for 35 per cent of the states’ revenue. These are, therefore, viewed as representing equally big holes in the proposed GST’s coverage.
There are those who see the exclusion of real estate from the GST as Being problematic. “It would mean that credit would not be available for the input used in construction of factories, offices, civil structures and even plant and machinery which may be considered a part of real property, being attached to land.”
Undoubtedly, the GST proposes to provide tremendous benefits and opportunities to business. Nonetheless, the anticipated benefits and opportunities can only be derived from a flawless GST model. Both the Centre and state governments are called upon to show their state of readiness in meeting the above challenges by ensuring efficientimplementation of the GST in an effective manner. Apart from readying IT infrastructure before April 1, 2016, for making the new regime operational, there is a lot of work which needs to be done in terms of preparation for the government such as appointment of a GST council,
draft legislation, tech infrastructure and management etc. It also means a lot of internal preparation for the corporate sector to meet the deadline.
The writer is executive editor with Aaj Tak.
