CGST and IGST Bills cleared but Mystery on Rates Continues

Against the back drop of the crucial UP elections, the Government doesn’t seem to be losing sight of the biggest tax reform – the GST. The tempo is maintained by successive meetings of the GST Council where crucial concepts are being finalised and the demands of the states significantly addressed. Based on the news reports, it appears that in the recently concluded 11^thmeeting of the GST Council, all 26 demands of the states were fulfilled. As we come closer to the next budget session of the Parliament, the CGST and the SGST bills are ready to be tabled after obtaining the green signal from the Cabinet.

There were 15 main features of the bills that were finalised by the GST Council as per the press release. One of the significant features included retention of State-wise single registrations for all tax payers. Given the intricacies and scale of operations, many sectors including banking and telecom were hoping for one registration at the central level. This seems to be a lost cause now and the sectors must gear up to work on getting their systems ready for all-states compliance structures.

Another significate feature relating to the threshold limits for payment of GST has been agreed upon. Businesses with an annual turnover of less than 20 lakhs (10 lakhs for North-East states) need not take registration - although they may voluntarily opt to become the tax payers just to remain part of the input tax credit chain. This brings in much needed clarity to the small dealers and they need to evaluate their positions and make quick decisions to avoid losing out to the organised sectors.

Admissibility of input tax credit on all goods and services ‘used in the course of business’ is also a key feature which has been agreed upon. Much of the litigation on service tax and VAT laws today is centred around admissibility of credit on goods and services. Even plethora of precedents doesn’t seem to put the question at rest as every case is fact driven. Consequently, this gives rise to overextended litigation and blockage of working capital for businesses. The Bills cleared by the GST Council, though aimed at doing away with the cascading effect, still require the assesse to prove that goods and services are ‘used for business’.

Some relief in the Bills has favourable impact on the exporters as the GST Council has approved the mechanism whereby 90% of refund will be granted within 7 days of filing the claims. Similarly, agriculturists can heave a sigh of relief as no GST will be levied on their produce.

The drafts cleared by the latest meeting of the GST Council has retained the anti-profiteering provisions. Strong representations were made against such Inspector-Raj provisions when they were introduced in the second GST Draft bill during November last year. Absence of clarity while operating these clauses was one of the major reasons that led to an overwhelming opposition to this move. It appeared that the authorities were provided with unprecedented power to examine every aspect of the pricing mechanisms of products to ensure the positive effects of GST were passed on to the ultimate consumers. Now it needs to be seen if the fine prints provide for a workable mechanism that on one hand does not alienate the industries and on the other hand also takes care of the consumers’ interest\ inflation.

The government is keeping the momentum going for the crucial reform by taking significant strides towards a timely implementation. However, the concerns on the most important issue i.e. rates for goods \ services is far from being resolved. Though the four slab rates were already announced, the businesses are awaiting the specific rate structures relevant for them. The service sector so far hopes only for one rate which might be more than the current 15% though there are tell-a-tale signs of more than one rate being announced (luxury, standard and basic). For the goods sector, especially FMCGs and multi-product businesses, the rates are crucial to arrive at critical structuring decisions not only of the transactions but also of the internal regulatory and compliance decisions.

No amount of preparation for GST will be complete until the rates are announced. In addition, the announcement of 20% peak rate has added to the confusion and speculations are rife on the immediate inflation. Despite the mystery on rates, the recent progress by the GST council and the government’s vigour makes July 2017 an achievable target.