Amidst numerous peaks and valleys, the longwinded journey of India’s most crucial tax reform—the goods and services tax (GST) entered its finishing circuit, with the passing of bill in the lower house on March 29; manifesting the reality of July 1 date as the roll out date for new taxation regime.
While the GST bills so passed in Lok Sabha vis-à-vis the draft laws released in November 2016, addresses various concerns lobbied for by the industry, clarity on some issues are still awaited. On a positive side, the Bill seems to have well-addressed the possible interpretation on applicability of both stamp duty and GST on sale of land. The clear articulation of sale of land and actionable claims not being treated as a supply of goods or services under the GST regime, brings to rest various apprehensions of the industry on levy of the tax on sale of land and actionable claims.
Also, the lower rate of composition levy comes as a welcome move for SMEs. The proposed structure of composition levy with rates proposed at 1% for manufacturers and 0.5% for trader vis-à-vis the earlier proposed rates of 2.5% and 1%, respectively, is palpable. The proposition to extend the provisions of composition levy to the restaurant sector is appreciable. However, to obviate the extensive process of approaching Parliament for increasing the tax rates in case of exigencies, the peak rate of IGST has been capped at 40% and CGST at 20%.
The clarity on continuation of upfront exemption for SEZ developers/units would uphold the sheen of such units and prevent unwarranted blockage of working capital. The Bill also introduces the concept of drawback in relation to domestically manufactured and exported goods.
The Bill also seems to have addressed various ambiguities like clarity on ‘works contract’ being restricted to immovable property, provisions for re-availment of credits reversed on non-payment to vendors, transitional provisions on certain supplies and alignment of time of supply provisions for services to those under the current service tax law. Further, the definition of ‘India’ has been defined to exclude Jammu & Kashmir, surfacing apprehensions on the taxation of supplies made to and from Jammu & Kashmir.
On a worrying side, the ambiguities in law in relation to valuation of pan-India contracts, which are currently billed and contracted centrally from one single location still remain. Also, the impact of GST possibly being levied on free supplies including gifts, free samples, etc, even to unrelated parties, valuation of intra-company services requires detailed evaluation. Further, the opacities on the workability of the anti-profiteering measures, transitional provisions for claiming tax credits on stock as on the implementation date, fate of excise free zones also still remain.
The Bills further intensify the worries of the industry on increased compliances under GST by prescribing additional requirements like issuance of payment voucher by the recipient in case of reverse charge supplies and furnishing of an annual statement by an e-commerce operator in relation to the TCS collected by him.
Clearly, the Bills appear to be a mixed bag with concerted efforts required to address some of the issues above. The difficulties with these ambiguities will be exacerbated by the short implementation timeframe.
With the Government flinging all measures to strike the bullseye target of July 1, as the roll out date, the implementation of GST in India seems to be a reality very soon. The quick approval of the bills by the GST Council and Cabinet with tabling the bills as Money Bill ensures smooth passage in Parliament—as Rajya Sabha where the government has a minority cannot reject a Money Bill. Post debate and passage of the Bills by Parliament, the state assemblies would take up SGST Bills, so approved by the GST Council in respective assemblies—paving the way for full-fledged implementation of GST. Yet another major work that still needs to be executed is the fitment of the various goods and services in the different slabs; an exercise calling for the maximum prudence.
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Also, the GSTN which would primarily provide the IT infrastructure, is currently undergoing trials in various states with a dry run being expected soon for the industry. In the backdrop of a need to explain the new tax measure to the industry and common man, the government also proposes to engage in a major public outreach with various town hall meetings, conferences, formation of GST Working Groups to discuss various issues and special peculiarities of certain businesses.
The pace and related measures of the government buttresses the expectations of the world economy to see India embrace the whopping tax reform.
(With inputs from Sonam Bhandari, senior tax professional, EY).
The author is tax partner, EY India. Views are personal