GST hurdles

Mohan R Lavi | Updated on January 13, 2018


There are some more, in spite of the optimism

At the end of every meeting of the GST Council, hopes that GST would become a law soon increase gradually. After the latest meeting of the Council, there were positive vibes all round that implementation of GST on July 1 —which was probable till now — looks eminently possible.

Yet, the date of implementation would remain only a landmark date since the law has to be implemented in any case by mid-September. Implementing a common indirect tax law in a country as diverse as India isn’t an easy task. While the GST Council deserves kudos for doing what it has on the administrative aspects of the law, the minimal focus given to its economic and commercial angles is a matter of concern.

Rate of tax

A convenient rate of tax is one the primary pillars on which a Model GST law should stand on. In the first version of the law, the charging Section read, “There shall be levied a tax called the Central/State Goods and Services Tax... on all intra-State supplies of goods and/or services at the rate specified in the Schedule to this Act and collected in such manner as may be prescribed.

In Version 2, released on November 25, 2016, the clause read, “There shall be levied a tax called the Central/State Goods and Services Tax... on all intra-State supplies of goods and/or services on the value determined under section 15 and at such rates as may be notified by the Central/State Government in this behalf, but not exceeding fourteen percent, on the recommendation of the Council and collected in such manner as may be prescribed.”

Even before Version 3 could be unleashed, the section has been amended, replacing 14 per cent with 20 per cent. Now the maximum rate of CGST and SGST would be 20 per cent which would arithmetically peg the IGST rate at 40 per cent. Parliamentary approval is not needed for slapping a levy on 40 per cent on certain goods and services.

While this could be one of the reasons, a more plausible explanation could be that the Government is strategising to keep their promise of compensating the State Governments for their losses due to the transitioning to GST from tax collections from GST itself. While we are hearing that luxury cars, tobacco and such non-essential products would only be taxed at 40 per cent, an insertion in the main charging section itself even before the fitment of rates with all goods and services would mean that virtually anything can be taxed at 40 per cent.

In addition, the penchant of the Government to levy a cess whenever they get bored with levying normal taxes would make the rate well over 40per cent, which would be a very steep rate of tax even for luxury and sin products. It is imperative that the GST Council should immediately notify which goods and services would fall in the 40 per cent bracket and also provide an assurance that there would no messy cesses levied over and above the 40 per cent rate.

Negative list

Despite some initial hiccups in transitioning registrations to the GST regime, the administrative aspects of the law should not pose much of a challenge to both the taxpayer and the tax collector.

During the remaining meetings of the GST Council prior to the introduction of the law, the GST Council should focus on the economic and commercial aspects of the law. They could make a start by notifying a negative list that is not too long but contains essential goods and services that the Government does not want to tax.

The writer is a chartered accountant

Published on March 06, 2017

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