Axing all taxes in a stroke

The GST comes into effect from today. It is the result of almost a decade of discussions and negotiations between the Central Government and the State Governments. It involved a Constitution Amendment and the formation of a GST Council comprising representatives of Central and State Governments to take the final call and in the process rendering both Parliament and the State Assemblies to become rubber stamps of the decisions taken by the GST Council. 

After Independence, it is the most radical change in fiscal relations between the Centre and the States and its repercussions will be felt throughout the economy in the next ten years. As the current GST dispensation is the result of compromises and fear of the unknown, it has many shortcomings. I am certain that as we learn from experience, the GST in another five years will be radically different from what it is today and far more business and trade friendly. There are many shortcomings in the current GST dispensation and these have been widely written about in the media in the last week or so. 

These include issues like inadequacy of IT infrastructure, clarifications on existing inventories, inter branch transfers across State boundaries, e-way bills, refund mechanisms which are retrograde from current dispensations for exports, customs education cess, deemed exports and advanced licensing norms. Notifications and clarifications coming in till the last hour and their impact on software modifications, foreign trade policy incentives being modified and notifications expected on June 30 etc. 

The positive side is that we have taken the first step to making the Indian market a common market, (a long way to go), the first step to ending the inspector raj harassment of trade and business, the first step to ending large scale tax evasion and bringing the informal cash economy into the formal economy. If these are brought into completion in the next five years, there will be a major transformation in the entire economy and honest taxpayers will breathe easy in the coming years. 

The next few months will adversely affect sectors like textiles, leather, handloom and other sectors where a predominantly cash economy flourished. It will be necessary for the GST Council to meet on a daily basis after about 15 days to speedily resolve issues that arise and issue the necessary clarifications especially in the export sector which will face the brunt of the transition problems. 

I had hoped that by June 30, 2017, all the necessary notifications and clarifications had been given and frozen and Industry and Trade given 180 days to comply and the GST could be brought into effect from January 1, 2018. 

But that is not the Indian way of doing things and we will muddle through the next six months with chaos in some sectors and a smooth implementation in other sectors like Automobiles, FMCG’s, Steel, Paint Industry etc and a hyperactive Government trying very hard to be responsive. It is Indian Jugaad at its best and worst.

After 17 years, a nationwide GST rolled out at midnight on Friday, overhauling India’s convoluted indirect taxation system and unifying the $2 trillion economy with 1.3 bn into a single market. GST, which will replace over a dozen central and state levies like factory-gate, excise duty, service tax and local sales tax or VAT, is India’s biggest tax reform in the 70 years of independence and will help modernise Asia’s third largest economy.

GST is applicable if your annual turnover is Rs 20 lakh or above. In case of North Eastern states (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura) and hilly regions i.e. Himachal Pradesh, Uttarakhand, Jammu & Kashmir and Sikkim, the threshold limit is Rs. 10 lakh.  

Under the GST law, a normal taxpayer will be required to furnish three returns monthly and one annual return. Similarly, there are separate returns for a taxpayer registered under the composition scheme, taxpayer registered as an Input Service Distributor, a person liable to deduct or collect the tax (TDS/TCS). Refer Returns schedule at www.cbec.gov.in/ for details of all returns which are required to be filed under the GST Law.

The Empowered Committee has recommended that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax –   Central Excise Duty - Additional Excise Duties - The Excise Duty levied under the Medicinal and Toiletries Preparation Act - Service Tax - Additional Customs Duty, commonly known as Countervailing Duty (CVD) - Special Additional Duty of Customs - 4% (SAD) - Surcharges, and – Cesses

The following State taxes and levies would be, to begin with, subsumed under GST: - VAT / Sales tax - Entertainment tax (unless it is levied by the local bodies). - Luxury tax - Taxes on lottery, betting and gambling. - State Cesses and Surcharges in so far as they relate to supply of goods and services. - Entry tax not in lieu of Octroi.