GST: The 1% conundrum for India Inc

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Rs. panel gave only partial relief; industry wants the levy scrapped

For Corporate India, the Rajya Sabha’s Select Panel report on the GST Bill (Constitutional amendment) has come as a mixed bag. The Panel has provided only partial relief on the 1 per cent additional tax, which India Inc considered as “retrograde” and preferred not to be introduced at all.

Though corporate entities are not worse off after the Select Panel report, there is no big relief on the 1 per cent additional tax, say experts. This is because the non-VATable 1 per cent 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 the Lok Sabha).

Rather than recommending its (1 per cent additional tax) removal from the GST Bill, the Panel has instead pitched for a definition of ‘supply’ that would only bring inter-State sales — and not branch transfers — to the 1 per cent additional tax levy, they said.

Cascading effect

The Select Panel has highlighted that the 1 per cent additional tax is likely to 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 a partial relief as it was totally opposed to the introduction of the 1 per cent additional tax.

India Inc says this tax will 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 per cent additional tax would end up adding to the cost of the product on every inter-State sale, say industry representatives.

Finished goods manufacturers who source raw materials/inputs from other States could face a cost push.

In such a 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 States would only add to the cost of the product,” said a representative from the FMCG sector.

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

Benefits only on paper?

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 per cent additional tax were to be introduced without providing a 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 per cent origin-based tax at all under a consumption-based Goods and Services Tax (GST) regime.

Many tax experts also question the need to have the 1 per cent additional tax when the Centre has agreed to compensate the States for revenue loss from GST for five years.

http://www.thehindubusinessline.com/economy/gst-the-1-conundrum-for-india-inc/article7503979.ece

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