Towards a utopian indirect tax regime – How GST is bringing a fresh breeze in the festive season

The action-packed first year of India’s biggest tax reform, GST, seems to continue its eventful journey with a plethora of rationalisations being approved by the GST Council in its 28th meeting.

Towards a utopian indirect tax regime (iLLUSTRATION: SHYAM KUMAR PRASAD)

The action-packed first year of India’s biggest tax reform, GST, seems to continue its eventful journey with a plethora of rationalisations being approved by the GST Council in its 28th meeting. With ease of doing business and addressing of genuine difficulties by industries or consumers holding priority in the current government’s leitmotif, the GST Council has approved various conducive amendments to the GST law. Highlights being rate rationalisation, clarifications on various ambiguous issues, and ease in compliance.

The cardinal decision for the fanfare celebration of the GST Council meeting was the approval of rate reduction for various items, especially consumer durables. With the festive season being on the anvil, a 10% rate reduction for goods like refrigerators, freezers, washing machines, vacuum cleaners and small-sized televisions should soften prices for these products—especially at a time when their demand is typically expected to witness a boom. While the rate reduction is an affair of rejoice for the end-consumer, the consumer durables industry would need to take extra efforts to ensure that benefits of reduced rates are passed on to consumers, especially in light of the anti-profiteering provisions contemplated under the GST law. A similar reduction in rates has also been approved for paints, varnishes and putty.

This entails not only reduced prices for end-consumers but also for businesses, where the same becomes a cost because of restrictions on availing of construction-related credits. Aligned to the government’s negative outlook on deleterious goods, no rate reductions were proposed on ‘sin goods’, which essentially include cigarettes and tobacco products. Also, high-end luxury products like large-sized televisions, air conditioners and some car models still remain in the higher tax bracket.

Approval of an exemption for sanitary napkins, stone/marble/wood deities and rakhis, and a 13% rate reduction for footwear priced between Rs 500 and Rs 1,000, was equally welcomed by end-consumers and the economy in general. Especially so in light of the macro benefits and the religious/emotional sentiments involved with the exemption/rate rationalisation. While consumers may expect a cutback in prices on account of such exemptions, the actual reduction would depend on the real benefits, as taxes on related inputs for such goods would now become a cost for these businesses vis-a-vis the earlier eligibility of claiming credit. Separately, to promote the green initiative, rates of GST have been reduced from the earlier 18% to 5% for e-books for which print versions exist and from 28% to 12% for fuel-cell vehicles.

Approval of a quarterly return filing for small traders with a turnover less than `5 crore elicited a mixed bag of reactions, with small players welcoming the move and others apprehending the real benefits of the measure, as payment-related calculation of the liability would still need to be undertaken monthly by these players. On a separate note, with the concept of matching in the backdrop, industry players procuring from these players are equally apprehensive on whether there would be a deferral in availing credits on such procurements.

For medium and large players, the proposal of allowing an amended return bagged the trumpet blast. Also, payment of any additional taxes with the amendment return was a cherry on the cake—as businesses could now truncate their interest liability. To recap, currently, any additional payment of taxes (those missed at the time of filing the relevant GSTR-3B) can only be made with filing of subsequent month’s GSTR-3B, even if the errors were discovered earlier, with the entailing interest being payable up till the date of filing of the subsequent GSTR-3B. With payments being allowed with the amended return, interest liabilities could be reduced with the said being payable only until the date of filing an amendment return.

The rationalisation of the order envisaging the rate of GST applicable on outdoor catering with an intent to clarify that outdoor catering would be restricted to outdoor/indoor functions that are event-based and occasional in nature, was a much sought after clarification by most businesses. To recap, the industry was in a conundrum regarding the rate of GST on food supply and distribution services received from caterers (like canteen service providers). This was more so especially in light of the series of advance rulings that upheld an 18% rate on such supplies. With the said rationalisation, it is expected that such contracts would attract a 5% GST, thereby reducing tax costs for businesses as credit on food and beverages is typically restricted. Additionally, exemption for most services by Indian head offices/branch offices to their respective branch/head offices outside India, outward transportation of goods by air or sea, various agriculture-related exemptions, and an explicit clarification on exemption of water supply (except sealed containers) are all applauded by the industry as a whole.

Separately, the approval of various amendments in the legislation, like the restricted scope of reverse charge provisions, increased credit eligibility on benefits by employers mandated by law, and the non-requirement of credit reversals on high seas, merchant trading transactions, amongst others, make the GST story even more successful. With these, while various issues of the industry would have been addressed, some others like a national advance ruling authority or an appellate tribunal, the inclusion of excluded sectors like petroleum and diesel, and the addressing of refund-related ambiguities, would make the benefits of this transformation be felt even more. With the current government’s concerted efforts for reducing hardships for most businesses by addressing genuine concerns, India may soon see itself embracing a utopian indirect tax regime.

(Sonam Bhandari, senior tax professional at EY, contributed to the article.)

Abhishek Jain, Tax Partner, EY India. Views are personal

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