GST is unlikely to come in a hurry

Mark Twain once said: “It is always the way; words will answer as long as it is only a person’s neighbour who is in trouble, but when that person gets into trouble himself, it is time that the King rise up and do something”.

Probably taking a cue from this, the Prime Minister overnight turned the policy paralysis debate on its head by permitting Foreign Direct Investment (FDI) in multi-brand retail and aviation (despite the popular notion that this was introduced to assist only one airline). Word is quickly getting to the Government to do an encore for the Direct Taxes Code (DTC) and GST.

While the Government seems keen to introduce DTC in instalments (as the GAAR episode proves), it should put on its thinking hat to debate on GST. Though a draft GST law for the country would be ready at some point in time, whether the country is ready for GST is the question that the debate has to focus on.

GST rigmarole

There are many things going against GST in India. First, were the missed deadlines (one forgets the number of deadlines missed), which was akin to a country placating creditors by making promises.

An entourage has been touring the world to study how GST has been implemented in various countries and what are the takeaways they could bring to India.

The entourage does not seem to have any concrete takeaways, which is not surprising — which country in the world would have more than two dozen State governments who would not want to lose a penny from the taxes they collect on VAT unless equivalently compensated, about eight laws to be subsumed into GST, a Constitutional amendment and an Opposition that is up in arms against any move of the Government.

One of the missions of the entourage was to check the information technology systems in Japan to see how frauds in inter-State transactions were being detected.

There can be no difference of opinion on the fact that it does not need information technology to detect possible frauds in inter-State transactions in India — the possibilities are well-known and bring us back to the ubiquitous debate on corruption.

Present information technology data in indirect taxes are par for the course and hence the entourage seems to be doing this task well ahead of its time. The Constitutional amendment, and asking States to pass individual GST laws (some will still refuse) could take years, suggesting that the entry of GST could well extend beyond 2015. Is it worth the wait?

Though a single GST was contemplated initially, the final rollout appears to be a multiple GST-CGST (for Central Excise and Service Tax), SGST (for VAT) and IGST (for inter-State). Though the fine-print is yet to emerge, it appears that it could well be an old tax with a new name.

Service tax confusion

A Committee is apparently in the process of submitting a report on integrating Central Excise and Service Tax, which could be implemented as early as the next Budget. Due to lack of choices when Service tax was introduced in 1994, the administration of the tax was given to the Central Excise Department.

In hindsight, this could have forced the Government to introduce service tax valuation rules and morph the Cenvat Credit rules and Service Tax credit Rules.

Though a negative list for services has been introduced, the list appears open-ended and will be influenced for additions at regular intervals which could leave tax-payers with a quixotic question — was the erstwhile positive list better or the new negative list? The answer to this would depend on how well the negative list is managed.

New definitions of ‘service’ and the negative list would take time to implement which would make GST a non-starter at least during that time.

Interim Measure

It is a fact that State Governments have found their footing as far as managing revenues from VAT is concerned, and asking them to reinvent the wheel would justifiably meet with instant opposition.

Though the definition of ‘manufacture’ has been diluted over time, central excise laws appear stable at this point in time, rendering it unnecessary to rock the boat.

There can be no two thoughts about the benefits of GST — a single tax code, better administration and taxes only on the value-addition across the supply chain. However, the present baggage of laws and their complexities could well turn out to be the biggest stumbling block for GST.

There seem to be too many things going against GST than for it. Plugging the gaps in the current indirect tax laws and reducing litigation could be the smarter thing to do.

It could not only increase tax collections but also do way with the preliminary costs in implementing GST.

(The author is a Bangalore-based chartered accountant.)

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