The GST Constitutional Amendment Bill was passed on Thursday in the Lok Sabha and now it will be sent to the Rajya Sabha for approval. Nevertheless, the passing of the bill in the Lok Sabha signals the first ever real time action taken for the implementation of GST. Keeping in mind that GST is the only tax reform that can alter for better the fiscal landscape of India, well contemplated actions have to follow in quick succession.
The formation of the GST council, the announcement of dual GST rate, the publication of a white paper to make the trade and industry aware of the underlying nuances of the tax including the place of supply rules, inviting suggestions for consideration etc. are some of the key areas which require immediate attention. This will provide industry the necessary time to prepare for transition from the existing indirect tax regime.
GST is expected to be a bigger challenge for the service sector, which presently is accustomed to paying service tax. With GST, the service sector will be looped into the network of the state because of the model of dual GST— Central and State GST. The rate of GST will have an important bearing on the cost of goods and services, particularly on services, keeping in view that the present rate of service tax which is 12.36 per cent will be increased to 14 per cent.
Although the Finance Minister has assured that the combined rate will not be as high as 27 per cent, the difference between the dual GST rate and the service tax rate of 14 per cent is expected to be significant, thereby posing challenges for the service sector; not to speak of the challenges in the form of additional statutory compliance. In comparison, the manufacturing sector is better placed in, as it is presently exposed to both central duties and state VAT.
However, there will be significant challenges for both the manufacturing and service sectors since the triggering point of GST will be ‘supply’ instead of ‘manufacture’, ‘sale’ and ‘provision of service’.
GST is in fact a supply chain tax that will require business entities to plan anew for logistics and there would need to revisit the existing pattern of doing business and to realign the computer and software applications for dual GST.
Till now the focus has been on the steps being initiated by the Central Government to make GST operational but now the time has come for the state governments to start acting on GST. The preparation on the part of the state governments entails several steps in the form of drafting of the respective state GST legislation, attainment of alignment with the corresponding provisions of the central legislation, like the place of supply rules and reverse charge so far not associated with state sales tax and VAT.
Therefore there are lots of issues not only limited to tax but to business as well that need to be attended. Considering the operational date of GST as 1st April, 2016, there seems to be limited time for planning and execution. Also the experience of state VAT implementation should not hover over industry, as the GST is a much dynamic national tax model that is expected to have profound impact on business and economy.
(Debasis Ghosh is director at Deloitte India)
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