Though the Centre is “fully geared” to usher in the goods and services tax (GST) from April 1, 2017, a section of industry seemed to have doubts about its own preparedness for the same and suggested it might need at least six months after the GST Council had frozen its decisions, the revenue secretary said on Tuesday. Hasmukh Adhia’s comments at an event organised by a TV channel followed similar apprehensions expressed by the chairman of the empowered committee (EC) of state finance ministers, Amit Mitra, earlier in the day, after the committee’s meeting with top industry bodies.
While doubts have been cast on the practicality of meeting the April 1 deadline, Telangana on Tuesday ratified the GST Constitutional Amendment Bill passed by Parliament earlier in the month, joining 12 other states including Madhya Pradesh, Assam, Bihar, Jharkhand, Himachal Pradesh, Chhattisgarh and Gujarat that have already approved the Bill.
Adhia, however, added he was expecting businesses to “make up their mind” and tell him what they thought was a “realistic time-frame”, although as far as the government is concerned the process was “on track”. The revenue secretary also said that area-based indirect tax exemptions given by the Centre would be grandfathered, although in the GST regime they would be in the form of direct benefit transfer as the exemptions, being inconsistent with the GST, would need to go. “We cannot break the GST chain (with the exemptions),” he said. Speaking at the same event, economic affairs secretary Shaktikanta Das urged states also follow a similar refund mechanism in order to grandfather the VAT relief being given to industry.
During their deliberations with the EC, the Confederation of Indian Industry pitched for the main GST rate to be 18%, while Ficci said the rate should be reasonable and such that it checks inflation and ensures compliance.
Chief economic adviser Arvind Subramanian also reiterated his preference for a lower GST rate as he believed “the higher the tax rate, the greater the distortion” in the system. Arguing against keeping the standard GST rate high to find resources for the compensation, he said the money for compensating states would have to found from elsewhere in the Budget. The rate, he said, would depend on the taxable base and other policy options which will have to be finalised by the GST Council.
“We believe that (18% as standard rate) will be revenue-neutral and ensure adequate tax buoyancy. Also, the Centre has agreed for full five-year compensation for revenue loss to states, so 18% rate will be more than adequate,” said Naushad Forbes, CII president. “Goods fully exempted from the levy of excise duty and VAT by all the states should be categorised as exempted goods in the GST regime as well,” Ficci said.
Some of the trade bodies, particularly the ones representing small and medium-sized enterprises, expressed concerns over their readiness for meeting the April 1, 2017, deadline. However, CII president Forbes said that if they work towards that deadline and if have clarity on some of the provisions as early as possible, it could be ensured that IT systems (by industry) could be put in place quickly.