Existing inefficiencies to continue: Pritam Mahure
The broad contours of the new goods and services tax (GST) regime are falling in place. The draftGST Bill shows the key differences and similarities between the current indirect tax regime and the proposed one. At present, ‘goods’ primarily suffer two levies (excise duty and state value added tax or VAT), whereas ‘services’ attract only one levy – service tax. In the new regime, all supply will attract GST (Central GST plus state GST or integrated GST). Currently, indirect taxes are payable on events such as ‘manufacture’, ‘sale’, ‘provision of services’, etc. In the GST regime, these events will lose their relevance, as GST will be applicable on ‘supply’ made for a consideration. The state VAT is payable only on sale made against a consideration. However, in the GST regime, even if supply is made without consideration, GST will be applicable in specified scenarios, such as, self-supply of goods or services. Even, ‘barter’ of goods, which were hitherto un-taxed in state VAT regime, is expected to attract GST. As regards stock transfer from one state to another state, currently, state VAT is not payable (subject to conditions). However, according to the draft, inter-state branch transfers will attract IGST. At present, a service provider in a domestic transaction does not identify place of provision of the service (as service tax is payable to the Central government). However, in GST regime, it would be crucial to determine place of supply of services even in case of domestic transactions as state will also be entitled to their GST share.
Currently, Cenvat credit regime disallows Cenvat credit on various services such as motor vehicle-related services, catering services, employee insurance, etc. Similarly, state VAT laws restrict input tax credit in respect of motor vehicles, construction, etc. This denial of credits leads to unnecessary cost burden. It was expected that in the GST regime, seamless credit will be allowed to business without any denial, except, say, in case of goods or services that are availed of for personal use. However, according to the draft, the aforesaid credit would continue to be not available. Further, most of the current provisions such as reverse charge, tax deduction, pre-deposit, prosecution, arrest, self-assessment, etc., will continue. So, prima-facie it appears, while everything will get taxed in the near future, most of the current inefficiencies of the system may continue.
Analyse impact, take evasive action: L Badri Narayanan
The past 72 hours have been quite exciting for the goods and services tax (GST) Bill. The draft model CGST/IGST Bill and the suggested rates of tax by the Arvind Subramanian Panelhave had a feel-good effect on industry. The draft Bill takes forward the idea of the dual GST system. It has been drafted well with correct intentions.
The dual GST system proposes to levy both Central and state taxes simultaneously on every supply for consideration. This is a departure from the current system, where Centre taxes certain activities and the state taxes other activities resulting in Central or state taxes becoming a cost to business. The proposed system brings uniformity in levying taxes ensuring taxes are not costs to business. It addresses transactions which were disputed as being goods and services to a large extent. However, clarity on software continues to be lacking.
While the draft Bill seeks to simplify the tax, being a dual system, the proposed system has certain in-built complexities. Return filing process is going to be month-long task with three proposed returns for the month, apart from an annual return. Input tax credit or set-off is only going to be available if the supplier has complied with the GST laws by paying taxes and uploading the information.
The draft law does have some significant departures. Inter-state supply of services is based on location of service provider and service recipient in different states. This might pose additional challenges for service providers where contract is with one establishment and services are rendered at other locations. Significant also is the absence of any provisions for transfer of taxes if taxes are paid in the wrong state in such cases.
For the banking sector, the place of provision of service rule for the banking sector undergoes a change from the current regime with local investment banking and non-account services attracting GST. Finally, the input distribution mechanism was promised for transfer of input taxes between establishments of the same business, provisions to this effect are missing. However, these are expected to be included.
GST is upon the industry now. Businesses will now have to arrange their affairs under the current regime and prepare for a new system. Some of the key issues to address are getting the current input credit right, supply chain review to see taxes and costs, as there are going to be higher tax incidence on every value addition and invoicing and return processes.
Each industry should analyse the impact of the new regime and make representation to the government to ensure the expected transition is as smooth and efficient as possible.