The passage of Goods and Services Tax (GST)-related Bills in the Lok Sabha last week enabled the government to secure legislative backing for the country’s ambitious indirect tax regime but the industry is still seeking an extension to the July 1 implementation deadline, as they grapple with the inherent complexities of the transition. A case in point being the government’s move to possibly announce the fineprint of the GST rate structure closer to the rollout date in order to discourage arbitrage. Tax experts said that the biggest fallout of this would be on the pricing of products, especially in the context of the anti-profiteering provision in the Central GST Bill.
Even though the government has reiterated that the new tax rates will be closer to the existing combined tax incidence on goods and services, early knowledge of the rate structure would help the industry to undertake the pricing of products commensurate with the new taxation structure, as mandated by the law. A timely knowledge of the rate structure would also help in instances, where the present tax incidence is 20 per cent but there is ambiguity about the placement of the item in the 18 per cent category or 28 per cent category after the GST rollout.
“The government may think of withholding the tax rate details till June as an early announcement may prove to be disruptive. For goods where there might be a major change, say, from present 28-30 per cent to 18 per cent, then people will stop buying that good and it may prove to be disruptive for the concerned sector. So, if people have prior knowledge about reduction in tax rates, they will defer their buying decision. The same way if rates go up, people will stock up goods,” Abhishek Jain, partner, indirect tax, EY India, said.
Jain added that in context of anti-profiteering, timely announcement of rates will help in ensuring reduction in prices to the consumers. “For example, for luxury cars, the difference in tax rates before and after GST may be in the range of 2-10 per cent even after levy of cess. Luxury cars at present attract tax at the rate of 45-50 per cent, which may see a reduction to 40 per cent under GST. If the prices remain unchanged, then consumer can question the company about not lowering the price as per the law.”
Clause 171 of the CGST Bill provides that any reduction in rate of tax on any supply of goods or services, or the benefit of input tax credit shall be passed on to the recipient (consumer) by way of a commensurate reduction in prices. On Saturday, Revenue Secretary Hasmukh Adhia had told The Indian Express that announcing the rates in advance could provide an opportunity for arbitrage, especially for those items that might see a major change in their tax rates under the proposed indirect tax regime.
The industry will also be cutting too close to the July 1 deadline with lack of clarity regarding several provisions in the GST-related bills and rules. Tax experts said that many provisions in the GST-related laws have cited “as may be notified by the government on the recommendations of the Council”, thus, leaving space for uncertainty for the industry.
“Many provisions in the GST-related bills have said ‘as may be notified’ or ‘as may be prescribed’, which enable the GST Council to use those powers to decide things at a later stage, but industry would want clarity beforehand. Other countries such as Malaysia had given preparation time of 1 year, while Australia had given time of 6 months. In India, industry asked for at least three months, but haven’t got it. For instance, rules which have been put out for public comments, will be finalised by May. Any suggestion may require corresponding changes in rules and corresponding changes would then need to be made by the industry, leaving them with very less time before the GST rollout,” M S Mani, senior director, Indirect Tax, Deloitte Haskins & Sells said.
A lot of preparation by industry will, therefore, be based on simulations and assumptions Mani said, adding that as indirect taxes are embedded in prices of goods, timely knowledge about rates will help in better supply chain planning and pricing of goods. “The government has provided piecemeal information relating to GST. It’s like the government inviting the industry for dinner. At the time of serving the soup, they tell the industry to wait a bit longer for the starters and when the time of main course comes, they inform the industry of a one hour delay in main course. GST involves an integrated approach for procurement, supply, manufacturing and dispatch of goods and therefore, the preparation has to also ensue in a wholesome manner,” he said.
Also, the ten working groups formed by CBEC to look into concerns of trade and industry related to banking, financial services and insurance sector, telecommunication, exports, among others will submit its report by April 10 and if any changes need to be incorporated in the rules, then industry will need to adapt their preparation accordingly.
Tax experts also said that while majority of sets of rules have come out, the crucial decision regarding area-based exemptions is still pending. Also, the industry will need time for their IT configuration without all sets of rules in place at present as even a minor change in rules requires industry to undertake changes in their technical systems.
“For IT infrastructure under GST, a lot of dependency is also on external ERP vendors. So, industry is facing a tight deadline for preparing for GST rollout,” Gautam Khattar, Partner, Indirect Taxes,” Gautam Khattar, Partner, Indirect Tax, PwC, said.
“Clarity is still needed for credit availment for transition stock at the end of importers of finished goods for purposes of trading. Also, while the valuation rules mentions that declared invoice value shall be accepted for valuation of inter-state supplies within the same entity, it needs to be clarified as to any value declared by the Companies would be acceptable by the authorities,” he added.
More awareness regarding GST will also be needed for those dealers who are not well versed with the legalities of the proposed indirect tax regime, Rajat Mohan, director, Indirect Taxation, Nangia & Co said. “The GST-related laws mandate a reverse charge to be paid by the recipient of a taxable good or service in case the supplier is unregistered. A person who is not aware will not know that he is supposed to pay GST if he is dealing with an unregistered dealer,” Mohan said.
The government intends to roll out the indirect tax regime from July 1. The GST-related Bills have already been passed in the Lok Sabha and are awaiting a final approval by Rajya Sabha, following which the state legislatures will need to clear their State GST (SGST) laws. Meanwhile, the officials will begin their work on fitment of items into the multi-tier rate structure of GST, after which it will be taken up for discussion in the next meeting of the GST Council in May.