Are we ready for the impending GST regime yet?

In a quasi-federal structure such as in India, transactions related to manufacture and sale of goods attract multiple indirect taxes, levied by the Centre and the State governments. This has resulted in manifold administrative and compliance requirements causing not only
hassles for the dealers whose operations are based across different states, but also discouraging exports and competition.

Goods and services tax (GST), a multi-stage consumption-based value added tax (VAT) on goods and services, heralded as one of the most significant indirect tax reforms in India, continues to remain an enigma for the stakeholders.

Lack of official communication from the government and the empowered committee on the proposed dual GST model has been a cause for concern and anxiety and has contributed to the prevalent confusion on the broad contours of the GST framework. However, by accepting the Rs 14,000 crore demand from states as VAT compensation towards their possible loss of revenue on account of GST, the finance minister has strongly demonstrated the government’s firm intention on rolling out GST in the coming fiscal.

A simple yet efficient and transparent tax system based on the fundamentals of broadened tax base, reduced rate of tax and neutral indirect tax structure are the building blocks of the thought process behind the introduction of GST in India. GST is expected to boost
economic growth and add to the government’s tax revenues by broadening the assessee base while lowering overall indirect tax incidence on the consumers. The first concrete step in this direction would be to unveil the draft discussion paper by the empowered committee for all the stakeholders for public debate and discussion. The document would spell out the proposed GST model and can be perceived as an important milestone in this slow but sure road to GST.

What should one expect from this discussion paper?

The dual nature of GST could be confirmed — the Centre levying the Central GST (CGST) and the State levying the State GST (SGST). There could be broad pointers on the Central , State and local levies that could be subsumed within the CGST and SGST.
Another area of interest would be the fungibility of input tax credit between CGST and SGST. The need of uniform threshold for both CGST and SGST, and the issues thereof have been keenly debated and the discussion paper should throw light on the consensus that has emerged on this. More importantly, the discussion paper may, for the first time, discuss the treatment of interstate transactions and iGST model for taxing such inter-state transactions of goods and services. Hopefully, there would be reason for the Industry and trade to cheer. The discussion paper would be incomplete without referring to the broad understanding on the tax rates under the proposed GST model, i.e. whether there would be a standard rate for goods in general, lower rate of identified necessary goods, a list of exempted goods and reduced rate for precious metals or otherwise. Industry would also be keen to understand the status of the area-based exemption schemes such as SEZ and other special schemes for Industries in the proposed GST model as this could impact the business operations of the corporates located in these areas.

Given that inputs from the trade and industry on the proposed GST model would be called for, the government should seriously consider these suggestions and ensure that any incongruence is effectively addressed before taking a final decision on the most appropriate GST model.

Industry and trade would also appreciate an announcement on the final date for implementing GST rather than keeping the stakeholders guessing till the last minute.
Let us hope the draft discussion paper addresses key issues such as GST tax rates, the threshold limit and other important aspects such as reduction of compliance burden, double taxation, valuation etc. This is important, as drafting the model legislation cannot be triggered unless there is consensus on the proposed GST model.

The entire nation is waiting with high expectations. The discussion paper cannot disappoint.

(The writer is tax partner, Ernst & Young, India)