The much awaited GST took a big leap towards its scheduled implementation on July 1 with the tax rates for most commodities and services getting fixed over the last two days, bringing cheer across the country with attractive propositions which would more or less lower people’s tax bills.
The GST council, tasked with framing rules for the implementation of most sweeping tax reform India has ever seen since independence, has finalised tax rates under the proposed new regime for most of the consumer goods, including items of daily use, eatables, durables, automobiles and more, and on services such as health, telecommunication, insurance, travel, leisure, etc.
While most experts have hailed the reform as one of the most progressive, some have also raised concerns over the difficulties that still lay ahead, and the areas where it will increase cost of consumption for the people.
We bring to you voices from experts across the board:
Costlier services: Telecom, Insurance, Leisure
Sachin Menon, National Head, Indirect Tax, KPMG in India: While exemption to healthcare and education is a welcome move, the increase in the GST rate for telecom and financial services will be negative for the sector. As against the expectation of the industry, the increase in the GST rate for telecom and financial services sector from 15% to 18% will increase the cost to the consumer.
Telecom services at 18% may touch the raw nerve of the common man, as that is the only significant service that is used by majority of the population in India. Banking and financial services at 18% can hurt the common man in the wake of the banks started charging fee for multiple withdrawals, and 3% hike in GST will increase the cost of banking charges.
Levying GST at the demerit rate of 28% for 5 star hotels could be a damper for the tourism sector especially in cases of business travel in a state where the recipient does not have registration.
Uday Pimprikar, Tax Partner, EY India: Imposing 18% tax on telecom is likely to increase the overall tax burden and therefore may have a negative impact on the consumers’ expenses. It needs to be appreciated that telecom is a necessity and an extremely important infrastructure service & resource and thus deserves more sensitive treatment.
Divyesh Lapsiwala, Indirect Tax Partner, EY India: Life Insurance could have been considered as one of the sectors with a benign GST rate given the demographic situation in India and below average penetration of life insurance services.
Bipin Sapra, Tax Partner, EY India: While the efficiencies because of GST design will lower the effective tax rate, the overall rates of services are still higher than expected in some categories like luxury hotels, cinema halls and even essential sectors like telecom which has been taxed at 18%.
Priyajit Ghosh, Partner – Indirect Tax, KPMG in India: 28% rate of tax for luxury hotels, cinema may come as surprise, however, it appears that this will ease the tax burden on certain services such as air travel, cab services and some goods as well. 18% tax on most services would lead to 20% hike in services bills on most services including telecommunication.
Krishan Arora, Partner, Grant Thornton India LLP: While grandfathering of most of the existing service exemptions like education, healthcare etc is a welcome move for these sectors, the same could also result in possible increase in cost of such services due to increase in overall tax structure on procurements. Luxury service category of 28% for services such as five star hotel, cinema etc could also make such services slightly costlier.
Joydeep K Roy, Partner and Leader – Insurance, PwC India: GST implementation has to be done sensitively keeping in mind the inherent nature of insurance business. While products like Motor, Health, Term have all the premium categorised as risk premium, savings products like Endowment and ULIP have a large component of consumer savings other than risk premium. Service Tax (without cess) was 14.5% on pure risk products, 3.5% of first year and subsequent 1.75% on Endowment, 14% on ULIP insurer charges which are composite of risk and fund management fees. Similarly GST had to be implemented sensitively on these different categories of products. Considering the low penetration of insurance in India, Micro Insurance (by regulator definition) or certain instances below a threshold need to be exempt from GST.
Complex tax structure, implementation concerns
Sachin Menon, National Head, Indirect Tax, KPMG in India: Multiplicity of tax rates for services will add complexity to the compliance in GST regime.
Anita Rastogi, Partner, Indirect Tax, PwC India: Multi-tier rate for services has been considered in line with that of goods. Though the thinking behind this may have a rationale, the fact that now one would have to deal with classification issues is an area of concern.
Bipin Sapra, Tax Partner, EY India: The multiple rates of services will bring complexity in interpretation and classification leading to tax disputes. With a lot of issues still open in GST law and regarding the GSTN portal, the industry will face difficulties transitioning effectively on 1 July.
Harishanker Subramaniam, National Leader, Indirect Tax, EY: The Council decision on services rate structure reflects the logic applied for goods, basically to stay close to current effective rates. This has led to a less than ideal multiple rate structure for services which we hopefully will merge as we go along. We would have liked to see a decision on transition credit provisions especially on the presumptive excise duty credit as this will decide the behaviour of stocking/ unstocking which is critical for the industry. Hopefully we will have clarity in the June 3 meeting. July 1 implementation now looks imminent so all need to brace up for the last lap in the coming weeks.
Sachin Menon, National Head, Indirect Tax, KPMG in India: It seems the GST council belied the expectation of the industry of postponement the GST implementation, by announcing the rates for goods and services. Government seems to be gearing up for the 1st July rollout, despite being fully aware of the dangers of rushing without being fully prepared. This shows its commitment and confidence of wading through teething troubles, which is guaranteed.