GST : Immediate relief to India Inc?

By Payoshni Kulkarni

Resiliently curbing the recent cash crunch, Indians, heaved sighs of relief as the Finance Ministry announced its ambitious plan to cut down Indirect taxes.

The Finance Minister Arun Jaitley, in his speech talked about his agenda to conceptualize the theory of “Transform, Energize and Clean India, that is TEC India” which is evident from two major domestic policy actions in recent past: namely demonetization and Swachh Bharat Abhiyan.

This year’s awaited budget came out with changes that seem to be pleasant surprises. There has been no increase in the basic duty rates under customs, central excise and service tax laws, which is a welcome move.

The FM has reaffirmed its intentions to roll-out the Goods and Services Tax (GST) soon. Though no definitive timeline was indicated in the speech, the FM indicated that there has been substantial progress towards transitioning to GST, as reported by the Asian Age.

Even though the path seems unclear, the GST roll-out due in April, reportedly has a four rate tax structure as opposed to the one rate tax structure followed by other countries.

According to Abhishek Chand, Msc student from Madras school of Economics, “Gst usually is one rate tax structure but in India it will be a 4 rate tax structure. This is done to differentiate between goods, so that luxury goods are taxed more and the necessary goods lesser.
“Indirect taxes are regressive in nature i.e. the poor and the rich pay the same amount of tax for a good consumed.”

But the distinction between luxury goods and necessary items has not been spelt out and that leaves open the question about taxable items in the same bracket.

According to Pradeep Apte, professor from Gokhale Institute of Political Economy, Pune and a former World Bank employee, “Most food items attract 0% rate. So, that shouldn’t be a problem. The problem here is to classify goods as necessary goods. For example, poultry products are a luxury in Bihar but for a state like Tamil Nadu it is a necessary good.”

The planned rollout of the bill was scheduled to be in April. However, the date has been postponed to first of July.

Did #budget2017 live up to the promise? #ArunJaitley #narendramodi #taxes #corporatetaxes #india #startupindia #digitalindia #entrepreneurs
— Budget2017 (@Budget2017India) February 1, 2017

“Right now, we have not put them under the head of GST because till the law is passed (by Parliament and state legislatures), we cannot account under GST. Therefore, we have taken the normal estimate of excise and service tax collection. We have taken a very modest growth rate of about 9 per cent for indirect tax. Because of GST, we may have to wait and watch. So, we are being conservative in estimate,” Revenue Secretary Hasmukh Adhia told PTI.

According to PTI reports, in December 2016, the finance ministry had not decided the list of items which would fall under the tax slabs of 5, 12, 18 and 28 percent. Jaitley had said that essential commodities, which include 50 percent of the goods in the current consumer price index basket, will be taxed at zero percent under the GST.

A very optimistic Arun Jaitley had said, “We stand by the April 1, 2017 target of implementing the GST. We do not have the luxury of time as we have just five months and sixteen days before the curtains draw on the old taxation rules.”

Net Direct Tax collections upto Jan,2017 are Rs 5.82 lakh cr which is 10.79% more than the net collections for corresponding period last yr. pic.twitter.com/Lr2Y772frw
— Ministry of Finance (@FinMinIndia) February 10, 2017

As the air of indefinite optimism captures the country, the real question is, if India Inc ready for transformation?

As Satya Poddar, Tax Partner-Policy Advisory Group, EY, mentioned of the troubles the businessmen might face, “Even if the laws are amended before April 1, some delay is unavoidable. The government has to give industry at least 3–6 months for the actual implementation.”

“Every business will have to go through price revision of products because of the revised tax structure, adding that the Centre will also have to provide a rebate or refund for the excise duty already collected for the stock in hand. The mechanism through which the rebate or refund will be allowed is yet to be fully laid down by the government,” he added.

As the move sounds monumental, the common man still wonders how the move will affect his taxation.

According to Palkesh Asawa, a chartered accountant, “We are confronted with indirect taxes (service tax, VAT, excise) almost on daily basis because these taxes are applicable on all your expenses. In this area also, the introduction of GST will affect you in many ways:
• There will be a single tax for all transactions. Going to movies, eating out at restaurants, buying from the grocery store — GST everywhere!
• Whether the prices rise or fall will depend largely on the rate of GST, which is not announced as of now.
• Petroleum is not covered in GST at first. So do not expect the fuel prices to change much.

“GST will also have some indirect effects. Due to seamless allowance of credits, people are going to insist on asking for bills, because of which unaccounted (black) money will reduce. Further to this, scope for manipulation and corruption is may also down,” he added.

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