UNCERTAINTY OVER ROLLOUT OF GST

UNCERTAINTY OVER ROLLOUT OF GST

Amit P. Yawalkar, Trainee, MRM ASSOCIATES Practicing Company Secretaries

Student Company Secretary

INTRODUCTION:

Goods and service tax (GST) is a new tax regime which is going to restructure the laws of Indirect Taxation. The effort to introduce the new tax reform was come into picture for the first time, in 2007-2008 Central Budget Speech. The then Finance Minister Mr. P. Chidambaram stated that it is of utmost important that the country must move towards a national level GST that must be shared between the center and the states. He proposed 1 April 2010 as the date for introducing GST.This long planned date i.e., 1st. April 2010 for rollout of proposed GST is approaching very close now. Moreover the Union budget 2010 is likely to be presented on 26th Feb 2010. Hence it is expected that the Finance Minister Mr. Pranab Mukharjee will make a concrete statement about the date of introduction of Goods and service tax in India which will waive the air of uncertainty and confusions regarding rate of tax and date for rollout of proposed GST. The GST is expected to speed up the efficiencies in the economic system. Many countries in the world have a single unified GST system i.e. a single tax applicable throughout the country

MEANING AND DEFINITION:

GST is a broad based and a single comprehensive tax levied on goods and services consumed in an economy. It is basically a tax on final consumption. To put at a single place, GST may be defined as a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or procuring the service. The “Taxable event” will be the supply of goods and the supply of services. Hence, the current taxable events such as ‘manufacture of goods’, ’sale of goods’ will not be pertinent under the GST regime.

FEATURES:

·         A uniform rate of tax

·         Reduction in the number of taxes at the Central and State level

·         To foster efficiency in tax administration

·         Removal of the current cascading effect of taxes

·         Augmented tax collections due to wide coverage of goods and services;

·         Improvement in cost competitiveness of goods and services in the international market.

·         Reduction of transaction costs of the taxpayers through simplified tax compliance.

SNAPSHOTS OF DISCUSSION PAPERS:

• The discussion paper on GST was released by the empowered committee of state Finance Ministers on 10th November 2009. It was the first official communication on the proposed GST System.
• In the GST, both the cascading effects of CENVAT and service tax are removed with set-off facility. It is the system of set-off from the original producer’s point and Service provider’s point upto the retailer’s level which reduces the burden of all cascading effects.
• Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT can be continued to be levied on alcoholic beverages as per the existing practice.
• It put forward dual GST structure i.e., SGST (State Goods and Service Tax) and the other one is CGST (Central Goods and Service Tax). In India, a dual GST is proposed whereby a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of every transaction of supply of goods and services.
• SGST will replace Sales tax , Entertainment tax (unless it is levied by the local bodies), Luxury tax, taxes on lottery, betting and gambling,  State Cesses and Surcharges in so far as they relate to supply of goods and services,
• CGST will replace Central Excise Duty, Additional Excise Duties, The Excise Duty levied under the Medicinal and Toiletries Preparation Act, Service Tax, Additional Customs Duty, commonly known as Countervailing Duty (CVD), Special Additional Duty of Customs (SAD), Surcharges and Cesses.
• Discussion paper also proposes IGST (The interstate Goods and service tax) model.
• Imports under the Goods and service tax will be taxable both under SGST and CGST and in both the cases the tax paid on imports can be set off against the final sale or provision of the service.
• Exports under the Goods and service tax would be zero-rated. Similar benefits may be given to Special Economic Zones (SEZs). But benefits are not allowed to the sales from SEZ to Domestic Tariff Area (DTA).
• The threshold limit:

The threshold limit mean where no payment of tax or registration is required:-

1. CGST for Goods – Rs. 1.50 Crore (Same as given in central Excise).
2. CGST for Services- not mentioned
3. SGST-Rs.10 Lakhs

·         Applicability of both CGST and the SGST on all transactions:

A transaction of ‘supply of goods’ will attract both the CGST & SGST as applicable on goods. Similarly a ‘supply of service’ will attract both the CGST & SGST as applicable on services.

CURRENT ISSUES/ CONTROVERSIES/CONFUSIONS:

• Different Views:

At the initial stage after issue of this discussion paper, there was an impression that states and centre are generally agreed on the basis of framework of Goods and Service Tax (GST); but then came the report of task force of 13th Finance Commission which shows that still there are major differences.

• No unanimity between state and centre

The Goods and service tax as planned to be a Single National Level tax. But states are not agree to surrender their right to tax and share the revenue of National GST with the centre hence now what is going to be introduced in India in the name of GST is a dual GST in which both state and the centre will impose tax on the same transaction.

• Rate

GST is also not free from confusions related to rate of tax (whether single or dual rate) states have suggested dual rates i.e. lower for essentials and General for others but centre is favoring the single rate, the exemption list, the threshold limit for CGST (Central Goods and service Tax).

• Date

As far as the date of introduction of GST is concerned there are contradictory statements from government and Empowered committee. Some states are not agree on the date of 1st. April 2010 and even not willing to introduce it in the middle of the year.

• Partial Rollout

The meaning of Partial rollout of GST means GST will be applicable only in those states which will agree to accept it. But it will not serve the basic objective of introducing GST. Partial rollout of GST will distort the benefits of GST. It will create confusion for business and industry.

Partial implementation of state goods and service tax (SGST) will not allow tax credit on inter state transactions. This will make trading between GST and non GST states a lurid, defeating the aim of moving towards a destination based system.

Another adverse impact of partial rollout is it will result into trade diversions and hindrance to the movement of goods and services across state borders.

So partial rollout in any case will miss the following two benefits of full-rollout GST:

1.      It will remove the cascading effect of multiple taxes at the central and statse levels.

2.      It will enable unaffected flow of goods and services across the country.

CONCLUSION:

So both the centre and states have to agree on basis of the Goods and service tax framework and if this is not done on urgent basis the GST in 2010 will not come into picture. GST design is very simple. It becomes successful in New Zealand and Singapore. Even in India if all states develop the level of preparedness and political will, the country will definitely surge ahead towards destination based GST reform. The Goods and service tax, is considered to be the biggest reform in the history of Indirect taxation. However currently it get stuck in between due to the confusion and non –agreement on various issues between the centre and the state Governments. Hopes the government will take a right decision on urgent basis to welcome the rollout of GST in April 2010!

-Amit Yawalkar

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