GST: DISTORTIONS TO BE COUNTER PRODUCTIVE

[Dr. Sanjiv Agarwal]

The three day meeting of GST Council scheduled from 18^th to 20^th October, 2016 ended in two days only with a resolve to meet again on 3-4 November and then on 9-10 November, 2016 to discuss rate stricture and draft GST law respectively. The winter session of Parliament has already been convened from 16^th November, 2016.

As reported in media, there is no major breakthrough in two days meeting except that all agree for the compensation to be made or received but how ? The answer to that 'how' is the pocket of milking cow, i.e., the ultimate tax payer or customer. India is already adopting a GST Model which is distorted because of the federal structure we have. More than that it is because of the stand taken by State Governments to retain taxing powers. Instead of unified single tax, we will have three taxes – CGST, IGST and SGST administered by different Governments nothing majority changing as we now pay VAT, CST, Excise and Service Tax etc.

It was promised that all cesses / surcharges will be subsumed in GST. In yesterday's meeting, it has been proposed that a new levy in the form of CESS will be imposed to meet the likely revenue loss of states. That cess is proposed to be the difference between present rate and GST rate, i.e., the differential. So we are back to same old regime. Why cess is required, better add in tax itself so that tax structure is not distorted and input credit not affected- one more accounting head, one more tax, complicated payments, returns  and distorted Cenvat Credit.

They are proposing four rates - 6, 12, 18 and 26 percent. Then there will be separate rate for jewellery and cess. So overall, minimum six rates will be there. Wherever band was proposed in the RNR report, Government is preferring higher end of the band. Exemptions will be reduced. Tax base will go up. Where are the reasons for any revenue loss.  It is not understood and is not convincing.

All these leaders ought to stop playing this game and come out with a conceptually clear white paper on GST indicating their intentions. Let the GST be deferred for some time till clarity is there and everyone understands what GST will be imposed on Indian public. The GST Council and the Government can not make fool of taxpayers any more in the garb of compensation to states and GST.

It is now increasingly becoming clear that Government as well as GST Council is not concerned about citizens and tax payers when it comes to GST. It seems that they are not taking this seriously and one point agenda of the so called reform is to increase the tax base and tax revenue.

GST Council is deliberating on four rate GST structure:

• lower slab of 6 % on about 50% consumer basket – including food items
• two stand rates of 12 and 18%
• 26% on white goods and luxury items

Apart from this, there will be three more rates :

• for jewellery items
• for demerit goods (alcohol, tobacco)
• cess

They are talking of 14 percent revenue growth whereas the economy is growing at 7-8 percent. Even many of the businesses are not growing at that rate.

Assessees are going to suffer a double whammy, one on account of rates, other on account of dual administrative control.  Besides, one will have to live with too many complex provisions, some of which are draconian as per model law. There is not going to be ease of doing business but only ease would be to collect more taxes.

The role of trade associations, professional bodies, Chambers of Commerce is now crucial as they need to prevail over the Governments to ensure that –

1. Tax law is simple
2. There are minimum slabs of rate
3. Dual administrative control is managed internally to allow ease of paying taxes and complying by tax payer
4. Customer's interest is watched by check on inflation
5. Judicious public spending of taxes collected.

Let the Council them be accountable for public spending for taxes too. What are Chambers of Commerce / trade bodies doing ? Simply holding Seminars would not do. Educate yourself, understand and make Government understand what India wants and expects. GST must facilitate growth and development of businesses and the country.

Discussions to this article

[Ganeshan Kalyani]

There is need of simple taxing mechanism. Already the compliance part has raised a concern amongst the dealer. A dedicated tax executive will need to be recruited by big corporates where the transactions are voluminous. Over that if the ordered to cater to different taxing authority it will add to the proposed increased compliance.

There was no talk on exempted goods in the meeting, in my knowledge, which again raised a query in dealers mind. What will be impact of the goods that are not taxed now. More clarity is expected on these aspects .

[bhart b sharma]

a new tax is already bringing 'fear of unknown' in the minds of all stakeholders - even large corporate houses. in such scenario, mitigating wooes by further simplifying the mechnism is need of the hour.

bharat bhushan sharma