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 the 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.
The declared date 1 April 2016 is very near and only a few months are left in it hence this is not a realistic date. We should take 1 Oct 2016 /1 April 2017 as the practically probable date for introduction of GST in India.
CA. Dinesh Mehta & CA NikiL Mehta