India Inc chiefs and analysts have said the government should commit to converge to one or two rates of Goods and Services Tax (GST) over time and lower rate of 5 per cent for mass consumption items along with zero tax for essential commodities would make GST less regressive and pocket friendly for common man.
On a top-down basis, revenue neutral and non-inflationary rate of GST is a positive development, but the devil is in detail of how rates are pushed into 5 slabs on a bottom-up basis, corporate honchos said. “Multiple registrations in each state for supply of goods and services have the potential to result in huge burden of complexity as companies operate in many different states. Businesses in the services sector such as telecom, banking, insurance, airlines, e-commerce, undertake pan-India operations, meeting requirements of each state through different registrations, audits and compliances would be a massive task,” said Naushad Forbes, president, Confederation of Indian Industry.
CII said it is also important that the bulk of goods and services should fall within the standard rate of 18 per cent and only as exception to go to the higher rate of 28 per cent and a lower rate for essential goods such as unprocessed food items. Nilesh Shah, managing director, Kotak Mahindra AMC, said, “The market will get comfort from the fact that it is revenue neutral and non-inflationary. Keeping 50 per cent of CPI (consumer price inflation) basket in zero rate will keep inflation subdued. However, the devil is in details. Markets will keenly look how various rates will be classified in just 5 slabs. If the new tax rates will be lower than current rates certainly it will have positive effect on stock price and vice versa.”
Rajeev Dimri, leader, Indirect Tax, BMR & Associates, said, “Zero rating of necessities is surely a welcome news, though the actual benefit to consumer will depend on the items included in this category. Limiting the zero rating to food grains or agri products may not lead to any significant reduction on tax costs for the consumers. Lower rate of 5 per cent for items of mass consumption along with zero rated tax structure for essential commodities would make GST less regressive and pocket friendly for common man.”
“Market will also look forward to robustness of IT system, detailed guidelines to tackle issues like paper work, accommodation of business practices like free samples, returned goods etc. Markets will also look to reduction in logistics cost of companies. It will watch for movement of business from unorganised sector to organised sector as taxation burden is distributed appropriately,” Shah said.
According to Santosh Dalvi, partner, Indirect Tax, KPMG in India, the ideology to come out with the rate structure is to avoid any negative impact on the consumer inflation from inflation perspective.
Hence the goods of mass consumption will have a lower tax incidence. “While one can have some guesswork around the GST rate for some of the products, the devil is in the detail when the final classification list will be released which is the most challenging task for the policy makers. Still, imposition of Cess is going to be an area of concern from the practical and administrative perspective.”
G P Hinduja, global co-chairman, Hinduja Group of Companies, said, “We hope sufficient time is given to companies to comply with the tax after the rules are finalised and made public and that the levy of cess would not lead to inflationary pressures.”
“The government would need to ensure that multiple rates proposed for goods and services do not inherit the legacy issues around classification anomalies,” said Krishan Arora, partner, Grant Thornton India.