Working under a self-imposed July 1 deadline for the goods and services tax (GST) roll-out, the Centre on Monday tabled four Bills related to the proposed comprehensive indirect tax in Parliament for passage. While a section of industry said it is not keeping pace with the government to embrace the epochal tax reform that would catalyse economic growth and sought a couple of more months for preparation, analysts picked up a few finer provisions in the Bill to say how much they have addressed some of industry’s pending concerns.
Manufacturing units in Jammu and Kashmir enjoying tax relief won’t have to worry about GST upsetting their plans as the state would be practically outside the GST framework for the rest of the country. J&K has been excluded from the definition of India for the purpose of GST. While the dreaded anti-profiteering clause — which is meant to ensure that the benefit of lower tax liability in the GST regime is passed on to consumers — has been retained, there is lack of clarity on whether and how input tax credit will be made available for businesses’ opening stocks.
The Central GST Bill also retained the provision for e-commerce companies to collect tax at source at a rate not exceeding 1% of net value of taxable supplies, out of payments to suppliers supplying goods or services through their portals. The CGST Bill also provides for a tax of no more than 1% of turnover for businesses with annual turnover of up to Rs 50 lakh, sans input tax credit under a composition scheme.
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Industry hopes that adequate time will be given to the working groups constituted last week on various sectors.
These include banking, finance and insurance, telecom, exports, IT/ITeS, transport and logistics, textiles, MSMEs, oil and gas, and gems and jewellery so that they can examine the critical issues and provide their recommendations.
These groups, as per the current plan, are to submit reports by April 10. The rules under the proposed Acts,which are to be taken up by the GST Council on March 31, also assumes significance, analysts said.
“The final CGST seems to have been streamlined as the number of clauses has been brought down to to 170-odd from 200 before. The clarity on sale of land being neither goods or service is a welcome one. Overall, its a mixed bag,” said Krishan Arora, partner, Grant Thornton. He added that despite the GST entering the last leg of legislative process, the July 1 roll-out would leave very little time for businesses to prepare.
Supplies to special economic zones (SEZs) will be zero-rated — which means that these tax-free zones and the units therein, many of which are not in good shape with average value addition just around 10%, will be eligible for duty-free import of inputs. Imports into SEZs will continue to be exempted from both basic customs duty (which will continue in the GST regime) and integrated GST (IGST), which will replace the present countervailing and special additional duties on imports. The concerns of exporters — who have complained of blockage of working capital in the GST regime that doesn’t allow exemptions — are partly addressed as the duty drawback facility will be retained.
While Parliament will consider the four Bills — CGST, IGST, compensation and UT-GST — state assemblies, on their part, will have to approve the state GST Bills. The fitment of items under the four-tier (5%, 12%, 18% and 28%) rate structure, in keeping with the principles of revenue neutrality (for the government) and ensuring minimal inflationary impact, is a key challenge too.
Also, the GST Network, the IT backbone for running GST, must be up and running and businesses will have to get ready for the proposed destination-based tax on consumption that will replace all major existing indirect taxes except the basic customs duty and have a seamless input tax credit facility.
As per the Compensation Bill, the states will be given full compensation for the first five years for any shortfall in revenue from what 14% annual growth from the 2015-16 base would have otherwise yielded. The Bill provides for levy of cess on top of the peak rate — 28% as proposed now — on paan masala, tobacco, aerated waters, luxury cars and coal to create a non-lapsable fund for compensating states. Such cess has been capped at 135% in case of paan masala, R4,170 per thousand cigarettes sticks or 290% ad valorem, R400 per tonne on coal and 15% on aerated water and luxury cars.
States will receive provisional compensation bi-monthly from the Centre for loss of revenue from implementation of GST. The draft law had provided for payment of compensation every quarter. Tweaking the provision of the draft, which was made public in November 2016, the Compensation Bill tabled on Monday said that “any residual amount left in the Compensation Fund after five-year compensation period shall be shared equally between the Centre and the states”.
As per the earlier draft, any excess amount after the end of the five-year tenure in the GST Compensation Fund were to be divided between the Centre and states as per the specified formula under which 50% of the excess amount was to be devolved between Centre and states as per statute. The remaining 50% would have to be given to the states in the ratio of their total revenues from SGST in the last year of the transition period.