Talking Point: One nation, one take rate, three GSTs?

Though the exact details of the GST, like the base rate of tax are expected to be finalized by the GST Council shortly, the Finance Ministry press release has clarified details on the modalities. Here it’s clear that indeed there will be “One Nation One Tax” as far as the Tax “rate” is concerned. 

Unfortunately, when you look further it appears more like, “One Nation, One Tax Rate, Three GSTs.” 

The all-important input credit could be availed only in separate groupings of State, Central and Interstate! So, only input credit from Central taxes like Excise Duty, CST, Service Tax can be adjusted against each other and similarly for State and Interstate taxes. This means CGST like Service Tax input credit cannot be offset against SGST payments.

Retailers operating only in one state for example would typically buy goods from various states paying CGST and IGST, also buy services like rent paying CGST again but will be unable to adjust these CGST and IGST input credit while making monthly payments of SGST for their retail sale? 

If this mode is finalized it would be a big disappointment for retailers who are already burdened with a high service tax in the form of highest commercial rentals, getting further hit with an even higher service tax post GST, compounded with no input credit availing option.

Alternatively, if input credit can be availed across all the three GSTs, truly the objective of preventing cascading of taxes will be achieved and the complaint retailer will be relieved. 

An area of concern is the responsibility of ensuring the supplier pays his tax. So long as the retailer buys from a “registered” taxpayer, the onus of enforcing compliance should be solely with the department concerned. Retailers hope the recognition for being a mass employer at relatively low capital, significant last mile taxpayer and crucial interface with consumer should result in a fair and equitable GST regime in place.