Needed, a hassle-free migration to the GST regime     

The proposed GST is widely perceived as beneficial to the economy and industry. The dual structure proposed would take care of revenues of state and central exchequers. It would remove the cascading effects of multiple taxes and facilitate a unified tax regime across the country to a large extent.

However, simultaneous and uniform implementation across the country is important for a hassle-free shift from multiple tax regime to a simpler, unified tax regime, especially for multi-location companies. It is necessary to have a moderate revenue-neutral rate for products of general importance like readymade garments. The compliance should be easy, and preferably a single-window approach would help reduce administrative and compliance requirements. If it is difficult to have a single-window approach from the very beginning, at least a phased approach towards this can be pursued.

Before entering into the new GST regime, companies have to review their business models, tax structures, products costing, indirect tax accounting and reporting system changes to facilitate planned implementation and neutralise the negative impacts on the organisations profitability. This necessitates the design and draft of the GST to be released in the public domain for discussion much before the final date of implementation. The deadline of April 2010 looks unrealistic now and planned implementation effective from April 2011 across country looks more appropriate.

Appropriate guidelines for transitional provisions are necessary to ensure full utilisation of available input credit of service tax, excise duty and VAT. In some states, especially in the north and east ie Rajasthan, UP, Haryana and West Bengal, the way bills system is still prevalent despite VAT implementation. The way bills actually create logistical bottlenecks for big companies which have large-scale movement of goods across the states. However, way bills do not answer the basic question of how to ensure 100% tax collections up to the last level in the supply chain. Therefore, the proposed GST regime should not have the way bill compulsion. Moreover, the octroi and entry tax that are applicable in a few states for cross-border movement of goods should be merged with GST.

The government should give more emphasis on an IT-enabled environment to facilitate a smoother administration and monitoring of GST. This will increase tax collections.

Source: Financial Express, India, dated 13/02/2010