Goods and Services Tax (GST) regime, realising the vision of a unified market in a federal system is a major structural reform came accompanied with pain for trade and industry caught off-guard by the rigours of new compliance procedures.
Queried by corporate leaders at industry chamber Ficci’s 90th AGM here earlier this month on how GST was impacting through lower tax collections, Finance Minister Arun Jaitley put the onus on them.
“It is you from industry, who have been calling for so long to bring GST and no sooner do these initial problems in implementing a reform of such scale appear, then you want to go back to the system we’ve had for 70 years,” he said.
The earlier system was a myriad of central and state taxes where the movement of goods was slowed down by products being taxed multiple times and at different rates.
State level taxes replaced by the pan-India GST include state cesses and surcharges, luxury tax, state VAT, purchase tax, central sales tax, taxes on advertisements, entertainment tax, various forms of entry tax, and taxes on lotteries and betting.
Central taxes replaced by GST are service tax, special additional customs duties (SAD), additional excise duties on goods of special importance, central excise, additional customs duties, excise on medicinal and toilet preparations, additional excise duties on textiles and textile products, and cesses and surcharges.
The new indirect tax regime unifying the Indian market has four tax slabs of 5, 12, 18 and 28 per cent.
It has a novel feature whereby goods and services providers get the benefit of input tax credit for the goods used, effectively making the real incidence of taxation lower than the headline taxation rate.
The second half of the year saw a radical reworking of the items within the four-slab tax structure by the supremely federal institution of the GST Council, whereby all but 50 of over 1,200 items remained in the highest 28 per cent bracket. Those retained included luxury and sin items, the cess on which goes to fund the compensation to states for the loss of revenue arising from implementing GST.
With the Council’s decisions last month, GST has been cut on a host of consumer items such as chocolates, chewing gum, shampoos, deodorants, shoe polish, detergents, nutrition drinks, marble and cosmetics. Luxury goods such as washing machines and air conditioners have been retained at 28 per cent.
Eating out has become cheaper as all restaurants outside high-end hotels charging over Rs 7,500 per room will uniformly levy GST of five per cent. The facility of input tax credit for restaurants has, however, been withdrawn as they had not passed on this benefit to consumers.
Petroleum, including oil and gas, is a strategic sector that is still not under GST, while the industry has been pushing for its inclusion so as not to be deprived of the benefits of input credit.
Including real estate is another matter pending before the GST Council.
On the functioning of the Council, Jaitley who is its head, had this remarkable insight about the way in which it had effected such large-scale rationalisation of the item rates in a short span of “3-4 months”.
“Everything has been achieved by consensus in the best spirit of cooperative federalism. There has been no politics, even from states which are controlled by opposition parties,” he told a gathering of industry leaders here.