Q: Let me break this down into a simple good, bad
and ugly takeaway from this white paper. List what you consider are the good
features of this white paper. What are the features that surprised you
pleasantly?
Jain: According to me, the white paper is a very positive development
because it is the first official document which has come in the public domain on
GST. It outlines the broad structure of GST, talks about a dual GST model and
about all the taxes which are going to get subsumed into GST. It also talks
about tax administration and IGST model which is integrated GST model for
inter-state transactions. It is a simple and unique model for India. It also
talks about a threshold of Rs 1.5 crore at a central level and Rs 10 lakh at the
state level. It is a positive move because many of these small tax payers or
small traders will get excluded at least at the central level.
Q: What would you like to add to the list that Mr Jain has drawn up on the
good?
Madhavan: The good thing is that finally there is an official document
which lays out the philosophy and contours of the dual GST, how it would
typically apply for inter-state and intra-state transactions, also welcome
indications in terms of the fact that there will be singular rates for services
and in terms of the differential thresholds for the two taxes to apply. It gives
a clarification as to the fact that both taxes would be charged on each
transaction to be paid over to the respective center, states and for a fairly
easy and uncomplicated mechanism of tax collection and tax compliance procedures
to have been set out in this first initial document. This is just the first
document as the title suggests. So there is probably more to come but those
probably are essentially the things that industry would welcome in terms of the
clear articulation of the philosophy behind this fundamental tax reform.
Q: What would you qualify as the bad or the unpleasant surprises that you
were not expecting that have come to light in this draft paper?
Madhavan: It is very hard to say what the bad part is. We did expect that
this document would go much further than what it has on certain dimensions. For
example, we thought that it would address the issue of how the inter-state
transactions would be taxed under the IGST model with a further indication of
the fact that it would preserve the zero rating in the origin state with the tax
in the destination said that detailing is not there.
The pleasant surprise is the extension of the GST to tobacco. If you say it is
unpleasant, we expected some good news that it could be extended to other
products as well but the fact that alcohol and petroleum products currently have
been kept out was expected but it is probably not pleasant news at this point of
time. Hence, it is unfair to say that there is anything bad here, there was
probably a higher expectation of the document going much further than what it
did but this is probably what was possible. So we have to wait for the
unaddressed areas to be resolved perhaps in a document in due course that the
key thing which in terms of the listing or the categorization of products into
the dual rate structure for goods is the real expectation. This is yet to be
addressed. Then that is the one about the timeline, I did not expect this
document, nor do I expect the future documents to address the timeline, but I
would have expected at least a clear best efforts basis to reach April 1
deadline if not a few months later. That articulation of the go-live date would
have been welcomed but we will wait and watch on that.
Q: Would you like to add to the list of bad. Go one step ahead and maybe
create a list of ugly and wane on the fact that nor do we have a timeline, nor
do we have any indicative rates. Was that too much to expect at this point in
time?
Jain: Yes I think it’s too much to expect because as far as rate is
concerned, that is still being worked out between Central government and the
State government. You have to bear in mind that you have a federal structure and
a state structure. So Centre can at best persuade the State to come on board.
The rate would depend on two factors- one is a tax based, so if you want to have
a larger base and there are many sectors today which is not subject to GST per
se for example aviation; there is no tax on air travel and on real estate except
for stamp duty. Therefore, I believe that if the tax base is expanded, the rate
should be moderate. The other aspect is that you want to restrict the
concessional rate list to a bear minimum and I don’t think all the States are
agreeing to that. So the rate will take some time. As far as timeline is
concerned, I think that April 1, 2010 is a bit stretched; it might get deferred
by few months or so. October 1 looks better realistic deadline to me.
One aspect which I want to highlight is on the tax administration. The paper
talks about the fact that all the tax payers will have to be governed or will
fall within the purview of Central government as well as State government except
for those who are exempt, who have less than Rs 1.5 crore of threshold on the
Central level. I believe that is something which I was not expecting. It is
better for the businesses to go to one tax authority and get all the compliance
at one place.
Q: Does this paper tell us anything of the number of rates that we might be
faced with because there was one Central, one State within the State there were
some items that were exempt or across both there were items that were exempt
then there were concessional list. So we were talking about plethora of rates
under this dual structure, weren’t we?
Jain: Yes we are talking of multiple rates.
Q: Does this paper guide us on how many rates it’s going to be or is there
anyway to minimise these rates or whether State have reached any consensus?
Jain: No, this paper only says that there will be a standard rate, there
will be a concessional rate, it does not talk about the items and the services
which will fall under the concessional rate, it does not talk about any
agreement or disagreement in that sense. As things stands out today, you will
have a merit rate, you will have a concessional rate. Hopefully, concessional
rates would be only on few items. There will be a schedule of exempt commodities
and services and there might be 1% or a small, a very low rate for precious
metals such as gold and silver and thing like that.
Q: How close we are in being able to implement GST? I am not even considering
April 1, 2010 being a realistic deadline. So are we looking now at the next
financial year after that?
Madhavan: Not at all, I think that much is certain that the government
will not envisage full year’s postponement. I do not believe that is the case at
all. The expectation on a best case basis is three months delay.
Q: Do you have enough details to believe that we are only going to see a
three months delay or is it likely that based on the lack of details you can say
that by the time we fill in all these gaps and come to consensus and are able to
implement this at least in the first few States it will take more than three
months?
Madhavan: The honest answer to that is if you really look at in terms of
how much work there is to be accomplish between now and the go-live date, you
can easily envisage a full year’s postponement. However, I believe that there is
intent to purpose to introducing the GST by no later then September 30 or
October 1 deadline, that’s a six month delay. I think the final comment on this
question that you have is essentially what we really looking at a perfect dual
GST at the time that we go-live. If we look at 80% product then we refine it as
we go along. The answer is that we will have an imperfect GST at the time of its
introduction even if it is 1st October then we will refine it as we go along.
This is the situation in India.
