1. GST Bill has many critical flaws that must be fixed ASAP

GST Bill has many critical flaws that must be fixed ASAP

Despite all the acrimony between political parties, prime minister Narendra Modi has done well to try and break the ice – recall his invitation to Sonia Gandhi and Manmohan Singh on GST...

By: | Updated: July 18, 2016 7:03 PM
Parliament has got a lot more productive – of the eight Bills passed in the Winter Session, 7 were in the Rajya Sabha where the NDA lacks a majority and a total of 17 Bills were passed in the Budget Session including important ones like the real estate, bankruptcy and Aadhaar Bills. (PTI) Parliament has got a lot more productive – of the eight Bills passed in the Winter Session, 7 were in the Rajya Sabha where the NDA lacks a majority and a total of 17 Bills were passed in the Budget Session including important ones like the real estate, bankruptcy and Aadhaar Bills. (PTI)

Despite all the acrimony between political parties, prime minister Narendra Modi has done well to try and break the ice – recall his invitation to Sonia Gandhi and Manmohan Singh on GST – as well as to lobby non-Congress parties. As a result, Parliament has got a lot more productive – of the eight Bills passed in the Winter Session, 7 were in the Rajya Sabha where the NDA lacks a majority and a total of 17 Bills were passed in the Budget Session including important ones like the real estate, bankruptcy and Aadhaar Bills. Indeed, by getting more non-Congress Opposition parties to back the GST Bill, even the Congress party is talking in a more conciliatory tone for fear of being isolated. In all probability, therefore, around this time next week, India will have a GST Constitutional Amendment Bill passed by Parliament – it will then have to be passed by requisite number of state assemblies. Given finance minister Arun Jaitley had already indicated the 1% additional tax on inter-state supplies provision could be dropped, that will go. While this was one of the Congress’ three inviolable rules, the other two – which made little sense – will be given the go by. These include putting an 18% cap on the revenue-neutral-rate (RNR) in the Constitutional Amendment Bill and an independent dispute resolution mechanism outside the GST Council while also diluting the Centre’s veto powers in the Council. While the RNR naturally gets higher as more items are kept outside the GST, the rates also depend upon what proportion of goods are charged the merit rate – if the RNR is 20% and half the goods and services are taxed at the merit rate of 12.5%, the non-merit goods will have to be taxed at 27.5%.

With the Bill almost a certainty now, the government must work on fixing the serious flaws in the Bill which can make it one of the more draconian laws, apart from the most onerous – ironic, since one of GST’s USPs was that it would make life simpler for taxpayers. One such provision, not there in any other law, is to not give input tax credits to firms in case their suppliers have not paid their GST taxes – while that takes the burden of not capturing all suppliers away from the GST network, proving everyone before them in the chain has paid their full taxes promises to be a logistical nightmare for firms. The taxman has also been given a lot of powers to value inter-branch transactions which can be a big bone of contention in the future and need to be circumscribed quite tightly if the experience of large transfer pricing orders in the past is anything to go by – the circumstances in which the powers of inspection, audit and special audit can be used, and the checks on abuse, need to be spelled out carefully in the model GST law. While service sector firms typically pay a single national service tax, under the GST, they will have to register in 29 different states – apart from this being onerous, valuing inter-branch transfers of goods and services will then become a nightmare. There are several such examples that can be given, indeed have been given to the government by various chambers of commerce and tax experts – if GST is to be a success, the model law needs to address them at the earliest, including the composition scheme that prevents harassment to SMEs since the GST threshold kicks in at an annual turnover of just Rs 10 lakh today versus the Rs 1.5 crore floor for excise duties.

  1. No Comments.

Go to Top