Additional tax levy: Select panel report only a partial relief, says India Inc


For Corporate India, the Rajya Sabha’s Select Panel report on the GST Bill (Constitutional amendment) has come as a mixed bag.

By pitching for a definition of ‘supply’ that would only bring inter-state sales –and not branch transfers—to the 1% additional tax levy, this Panel has provided a partial relief

India Inc is not worse off after the Select Panel report although there is no big relief, say tax experts.

This is because the non-vatable 1% tax is proposed to be applied only on inter-state sales and not on all inter-state supplies including branch transfers (as proposed in the Bill passed by Lok Sabha).

The Select Panel has highlighted that the 1% additional tax could have a cascading effect.

It has “strongly recommended” that ‘supply’ be defined in such a manner that only inter-state sales are subjected to this additional tax.

For Corporate India, this is only partial relief as it was totally opposed to the introduction of 1% additional tax, which it described as ‘retrograde’.

India Inc has been opposed to this tax as it would have a cascading effect given that the current GST framework does not provide for setting it off with CGST, SGST or even IGST.

In the absence of vatability (set off), the 1% additional tax would end up adding to the cost of the product on every inter-state sales, say industry representatives.

Cost push could happen for finished goods manufacturers who source raw materials/inputs from other States.

In such situation, the much talked about GST regime benefits of providing seamless credit and reduced transaction costs will not materialise, they pointed out.

“This (not being able to set-off) is only going to add to the cost of the product during inter-state sales. Any subsequent sale into other State would only add up to the cost of the product”, said a representative from FMCG sector.

It is quite common in FMCG industry that both inputs and finished products move through multiple States (as branch transfers as well as sale transactions) before reaching the end customer.

What has irked India Inc is that the GST benefits of seamless credit and reduced transaction costs are not being realised. These benefits will not be achieved if the 1 % additional tax were to be introduced without providing set-off, it was pointed out.

R Muralidharan, Senior Director, Deloitte in India, said that the larger issue to be considered was whether India should have the 1% origin based tax at all under a consumption-based Goods and Services Tax (GST) regime.

Many tax experts also question the need to have this 1 percent additional tax when the Centre has agreed to compensate the States for revenue loss from GST for a period of five years.

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(This article was published on August 4, 2015)


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