The goods & services tax (GST) was conspicuous by its absence in the finance minister’s speech when he announced the Union Budget recently. The minister neither adverted to the proposed date for GST implementation nor announced any steps for the transition to the proposed regime. Although expected, the minister did not make any commitments, including the timeline for key milestones, issuance of draft model legislation, etc.
His speech this year was in contrast to the Union Budget FY16, when he emphasised about the transformative role GST would play in the economy and GDP, and affirmed that the government was committed and was moving forward on various fronts to implement GST from April 1, 2016. On the other hand, the proposals this year focus on (tax) administrative reforms.
Below the surface, however, there is some reaffirmation about ushering in the GST regime, and some subtle steps in that direction. It must be recalled that a committee led by the Chief Economic Adviser (CEA) in a report submitted to the government had recommended that GST rates should be moderate, and with a cap on the revenue neutral rate (RNR) at 17-18% and a reduced rate of 12%. It has been mentioned that the more the exemptions that are retained, the higher will be the standard rate of GST. Further, there is no getting away from a simple and powerful reality—the broader the scope of exemptions, the less effective the GST will be. It went on to state that if precious metals continue to enjoy highly concessional rates, the rest of the economy will have to pay in the form of higher rates on other goods, including essential ones. The committee saw the rate for these products, and the sector, as ranging from 4-6%.
Aligned to these recommendations by the CEA, the Finance Bill 2016 proposed that products falling under tariff heading 7113—which includes articles of jewellery (whether or not studded with diamonds, ruby, emerald or sapphire), but excluding articles of silver jewellery—have been brought under the tax net by levying central excise duty at the rate of 1% (with CENVAT credit only on inputs services) and 12.5% (with CENVAT credit). It is well documented that central excise duty will be subsumed by GST. Separately, ready-made garments which enjoyed certain exemption have also been brought to tax, with concessional notification withdrawn and central excise duty proposed on apparel and clothing accessories with retail sale price of R1,000 or above and bearing a brand-name. So, while GST has not been introduced, it appears these amendments are at least partly directed to gear up for the imminent GST.
The levy of Krishi Kalyan Cess, with effect from June 1, 2016, on all taxable services at the rate of 0.5% on the value of taxable services—which increases the effective service tax rate to 15%—also seems to be directed at moving towards the RNR in the GST regime. These measures are preparatory for GST while being revenue generating in the immediate future.
In late 2015, for the effective implementation of GST, a joint committee—a body under co-convenership of the Additional Secretary (Revenue), Government of India, and the Member Secretary, Empowered Committee—had been constituted to look into business processes of GST. This committee circulated, for comments, reports on some key business processes, i.e. registration, payment, refunds and returns under the imminent GST regime. The reports have analysed and detailed various aspects, both conceptual and procedural, and at least from this perspective it can be said that the nation is moving towards GST. From an industry perspective, since the policy formulation is in process, it is crucial that areas of concerns and suggestions are highlighted to the key interlocutors, and for this representations are made in order to ensure that the interests of the industry are met and preserved.
Stakeholders are closely watching the steps towards the watershed reform of the Indian indirect taxation system—amendment of the Constitution, assent by states and Presidential assent. The government attempted to pass the Constitution (122nd Amendment) Bill, 2014, without success, resulting in the April 2016 introduction of GST as a non-event. But as the Budget Session has not concluded yet (currently it is in recess, to reconvene on April 25, 2016), it is hoped that the Bill is taken up for passage in order to meet India’s date with GST. On the sidelines, there are whispers that the draft of model GST laws (CGST, SGST and IGST) will soon be put up in public domain; however, one does not know for certain by when.
Industry and trade would do well to put their house in order by ironing out open and contentious issues of the current taxation regime and winding down litigation, where feasible. However, more importantly, they must keep an eye on the measures to usher in GST as also commence preparatory and planning activities where necessary.
The author is an associate partner at Economic Laws Practice, Advocates & Solicitors. Views are personal