Early GST road map will help industry     

The Indian industry has been keenly awaiting the introduction of the comprehensive goods and services tax (GST) to get relief from the burden of multiplicity of taxes. The discussion paper released by the Empowered Committee in November, 2009 stirred the debate on various open issues.

The recommendations made by the Task Force appointed by Thirteenth Finance Commission differed widely in their report issued in December, 2009 with the discussion paper on several critical issues particularly tax rates and taxation of inter-state supplies of goods and services. The outcome is continued uncertainty, not only over certain crucial issues but also about the timing of roll-out of GST.

Conceptually, GST is regarded as an important instrument of indirect taxation that would eliminate the cascading impact of multiple taxes, thereby enhancing the competitiveness of the domestic economy. The dual GST system, as proposed in the discussion paper, has successful examples in Brazil and Canada. Hence, the concerns expressed by the Indian industry is not over the idea of GST but over the way it is designed.

In order to ensure smooth and expeditious migration to comprehensive GST framework, number of steps need to be taken. All central and state taxes should be subsumed in the GST. If any of the levies like stamp duty, octroi, property tax, electricity duty, purchase tax etc is allowed to continue after the introduction of GST, the purpose of removing the cascading effect of multiple taxes would be defeated. There should be two uniform rates of GST across the country. The number of exempted goods and services should be as small as possible.

Also, more clarity should be brought in on the taxation of inter-state supplies of goods and services including consignment sales and branch transfers.

If the taxes are payable in the exporting state as mentioned in the discussion paper, the industry would be burdened with the locking up of working capital on branch transfers and consignment sales from the date of transfer until the sale is made in the importing state. As GST is termed as consumption based tax, it may be relevant to levy the GST on sale.

As GST is a progressive reform, it should be introduced and implemented expeditiously. The supply chains, pricing policies, ERP systems and business models are required to be modified. The government should at least announce the framework and road map for introduction of GST immediately and give adequate time to the industries to make appropriate modifications in their business models.

The discussion paper proposes not to extend the benefit of zero rating on exports to the non-processing zones of SEZ. There appears to be no apparent justifiable argument in not extending such benefit except loss of revenue to the government. This amounts to denying the benefit due under the SEZ Act. Large investments are made or proposed to be made in SEZs by India Inc., thanks to the benefit of nil rate of tax on the supplies to SEZ covering both processing and non processing areas. The proposal for not extending the benefit of zero-rating on exports to non-processing areas of SEZs ought to be dropped.

It is also proposed in the discussion paper to have separate thresholds for registration for SGST and CGST. A uniform threshold for both taxes across the country may be a better alternative.

Source: Financial Express, India, dated 06/02/2010