This weekend is critical, with the GST Council expected to approve three GST Bills, namely, the CGST, SGST and IGST Bills. This would be an important milestone in the GST journey, and once approved, the CGST and IGST Bills are expected to be tabled in the second phase of the Budget Session starting March 9 for early passage. States will equally need to plan passage of SGST Bills in their Assemblies within a short period.
This milestone is important for GST that is to come into force from July 1, 2017. There are other critical milestones, namely, finalising of GST rules, slotting of goods and services in the multiple GST rate structure and readying the GST Network infrastructure for compliance going forward. There is good amount of work that has been done in all these areas by the government but will require focused push before implementation.
It appears that industry will only get to know the lay of the final GST law only when it is presented in Parliament/ state Assemblies. There were several issues that industry sectors had raised; many of these were addressed in the second version of Model GST law. But there are still many issues that need attention.
Some key ones amongst them that merit attention is the intent to incorporate anti-profiteering measures and the provisions around inspection of goods during movement. Both are concerns for the industry at large. While the objective behind anti-profiteering maybe laudable and there are examples of countries that have resorted to this mechanism, what is critical is the transparency and objectivity in the manner in which the law and rules around this are framed to avoid intrusive audits and litigations. Is there a need for anti-profiteering measures at a policy level or we allow competitive market dynamics to determine pricing in the GST regime is a question that is worth pondering over.
Under section 163 of Model GST law, the government may constitute an authority or entrust an existing authority to examine whether due to input credit availed or any reduction in tax rate has resulted in commensurate price reduction in the price of goods and services under GST. Any violation of the above can lead to penalties. GST will create efficiency at various levels, namely, removal of tax cascading, variation in effective tax rates and changes in operational efficiency due to the enabling environment. Tax efficiency at an entity level will have common inputs and services, how does one co-relate to pricing of individual goods and services? What will be the reference price and the relevant period for such evaluation? All these will require careful consideration, including exploring alternative mechanisms that need to be clearly spelt out if we decide to go down this route.
Section 169 of the Model GST law, which deals with eligible credit of duties and taxes with respect to inputs held in stock, also has conditions for such transitional credits, namely, subject to benefits being passed through reduced price as a result of such credits. The issue around such provisions is the difficulty in implementing them painlessly on the ground.
While one can appreciate the concerns of law makers, it is equally important that the provisions, if brought in, are simple to understand and execute and avoid intrusive and protracted litigation. One of the prime objectives of GST was to create common market of One India where goods can move seamlessly across borders, reducing transit times, logistics costs and relevant inventory levels. The hope was that the sight of trucks and other vehicles lined up for hours at state check-posts will be a thing of the past with the removal of way-bills, entry forms, etc.
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The first draft of the Model GST Law, under Section 61, provides that the central/state government may require a person transporting goods to carry with him such documents as may be prescribed in this behalf; and a tax-officer can intercept the vehicle and require him to produce such documents for verification. There was vociferous representation from all industry chambers for removal of this provision. Everybody hoped there would be a redressal of this issue, but the revised version of Model GST Law—under section 80 that deals with inspection of goods—continued with these steps of document verification.
The fear is whether this verification will once again lead to lining of trucks and vehicles at check-posts at state-borders—this defeats the very objective of the GST—or such verification will be an exception-basis intelligence which would be more pragmatic and also fulfils the objective of GST. With compliance in GST becoming electronic with the entire value-chain being tracked for both intra and inter-state transactions, such verifications should be limited to intelligence inputs.
While we are at the cusp of GST legislations being approved, we hope some of these issues will be addressed prudently to usher in a law that enables compliance with the objective of ease of doing business.
– Harishanker Subramaniam, National Leader (indirect tax), EY India.
Views are personal