THE GST is finally coming, so it seems! However, I am not quite sure as to why the model GST bill should have waited till the eleventh hour. This could have been done a year back, as repeatedly pressed by the Industry. Albeit late; kudos to the government for bringing in this bill and for asking for suggestions.
I went through the bill carefully and found some loose ends in the bill.
I have seen we start with excellent ideas but as we wade into the nuts and bolts we get lost into two mires – a) our indomitable urge to “control” and b) to make our laws and regulations very complicated that we end up spending more time on compliance and litigation than we do on our business. I thought I would examine the position from two angles: a) from the point of view of “ease of doing business”, a primary consideration for this reform; and b) business in “one India” i.e. a unified tariff regime.
First and foremost is the registration. The bill wants each company to have separate registrations for each vertical. So a pan-India medium-sized company with three verticals will now have 3×20 states x2 viz central GST and state GST which is 120 registrations. I think in the spirit of ease of business there should be only one registration with appropriate header information for suitable capture and use of data.
I see with disdain: a few things unfortunately are just ingrained in us. One of these is the lip service to agriculture! Agriculturists will not pay GST. Will this include purchases by an agriculturist also or the exemption is valid only for his sales? Secondly, an agriculturist has been defined as one who “cultivates” land for agriculture which includes garden produce as well! Not known whether if you cultivate your kitchen garden you are exempt. There are already examples of mega stars applying for cheap lands claiming they are “farmers”.
There is a provision that each state can partly or fully exempt items from SGST they feel fit in the interest of people. But will it lead invariably to populism and lobbying, the contrary of which is by the way the basics in the concept of “one-India trade”!
I think greater clarity is necessary on the adjudication process particularly on appeal for the SGST and at the CGST. Will it be separate or together?
The next is on purchase or mortgage of property. If the revenue neutral rates are going to be say 18 per cent will the GST on transfer of property also be that? Again if it is so, how can the SGST portion be ever used by the sellers in the second hand market who sells the flat after two years? There are no refunds excepting for exports.
A greater clarity also is required on transfer of business either by shares on through slump sale; this point is not clarified in the bill.
The other issue is the valuation. In the GST parlance taxation is not on sale price, it is on transaction value. Fertiliser and oil company get hit since they now pay taxes on the sale price only which in some cases are controlled. The subsidy now would be included in the GST as taxable value. This would tremendously impair the working capital structures of these companies, I think. There is another complication in valuations, and the bill states that discounts passed on after sales would also be added in the transaction value. I think this is quite inappropriate particularly in cases of turnover discounts which cannot be said to be a part of the value at the time of sale. The other sore point with the industry is the inclusion of samples and free supplies as taxable. The ecom supplies would become costlier now having to collect the full 18 per cent at source – a point which has understandably incurred the wrath of this sector although I see justification in taxing it.
The other point going against ease of doing business is: upto what time period you can claim GST credit on purchases; and it says you can claim credit within a period of two years. But the government can issue demands on you within a period of three years. This is inequitable, I think.
GST in Goa
Goa collects nearly 25 per cent of its own tax revenues through entertainment tax, luxury tax and the entry tax. These rates are far in excess of the 9 per cent, if that is the revenue neutral rates for the SGST. Goa then must ensure that these taxes are subsumed suitably in the RNR so that it balances appropriately with gains on being a consuming state.
The opposition’s points on capping the tax rates were good in my view to reduce populism. I hope that the 1 per cent surcharge proposed has gone. Rates should be in keeping with international rates like China 11 per cent, Brazil 18 per cent, Pakistan 17 per cent and Vietnam 10 per cent.
I heard some over enthusiast voices cry “GST will add 1.5% to our GDP!”… This is roughly a whole year’s defence budget! Haven’t seen the calculations but can say GST statedly is revenue neutral, and if at all, the taxes should come down if the RNRs are accurate by elimination of the cascading effects of taxes. However due to ease of doing business and logistics in a one-India market I do expect the GVA moving up.
But my worry is on the crucial issue of the IT support and training of the central government’s and 30 states governments’ lakhs of taxation staff and making them GST-ready on the morning of April 1!
I can say the test of the pudding is in the eating and the test of a massive reform like this has to be the degree of preparedness and training. But I have faith on our systems; we may take time but ultimately we do it!