Welcome GST

The GST Bill is expected to bring in structural changes to the tax regime in India. The issue and by enlarge the most annoying issue for any entrepreneur of dealing with multiple levies, writes Faiz Askari

NEW DELHI 4 AUGUST 2016: Now, the most awaited bill - GST is now cleared by the uppar house of the Indian Parliament. This bill had become a supreme priority because of the fact that it is likely to subsume some major Central and State levies such as duties of excise, additional duties of customs (applied in lieu of excise and local taxes), service tax, value added tax, central sales tax, entry tax, octroi and luxury tax.  These taxes in aggregate constitute typically 25 percent to 40 percent of the price of products with certain categories being taxed at lower rates.

The GST Bill is expected to bring in structural changes to the tax regime in India. The issue and by enlarge the most annoying issue for any entrepreneur of dealing with multiple levies and its cascading effect, ushering in destination-based taxation and compliances are expected to get eased. GST will also provide effective dispute resolution mechanisms in a time-bound manner.

There could be a reduction of tax incidence for several product categories if the standard GST rate is notified in the range of 18 percent to 20 percent.  Headline tax rate on services is likely to increase as these are currently taxed at 15 percent even though expansion of the input credit base should partially offset the increase.  

Rajeev Dimri, Leader, Indirect Tax, BMR & Associates   who regularly explained this bill since commented, “Finally the largest tax reform in Indian history has sailed through the toughest hurricane.  The much awaited Goods and Services Tax (‘GST’) is finally ready to get constitutionalized as the Upper House of the Parliament has passed the Constitution (122nd Amendment) Bill, 2014 (‘the Bill’).  The unanimous consent over the amendments to the Bill reflected during voting by the Rajya Sabha members reaffirms the agreement amongst all political parties of the country over GST being the single biggest economic reform that the nation awaits”.

Key Highlights:

The key amendments moved to the Bill include dropping of 1 per cent additional tax which was earlier proposed to be applied on the inter-state supplies.  The additional tax would have distorted the GST design and led to cascading of taxes, thereby negating the potential benefits of the GST structure.  Elimination of this tax would enable businesses to structure their operations based on commercial imperatives rather than being guided by the tax environment.  The proposed amendments suggest that the Parliament would now be necessarily required to legislate on providing compensation to the States for any loss of revenues, thereby, giving the compensation mechanism a statutory backing.  It has also been made obligatory for the GST council to develop a mechanism for addressing disputes between various Governments arising out of the recommendations of the GST council.  The proposed amendments are likely to make the GST design and policy mechanism robust and efficient.

Industry Welcomes GST

National Association of Software and Services Companies (NASSCOM) welcomes the GST regime, and expected that the GST constitutional amendment bill passage would now pave way for the enactment of the GST law in the centre and the states. As details are worked out in the next few months, it will have a positive impact for the country in the long term.

Citing his opinion on the GST constitutional amendment bill, Mr. R Chandrashekhar, President, NASSCOM stated that, “The passage of the amendment bill will unarguably usher in the most impactful tax reform this country has seen. The services industry at large was administered under a single authority in the centre under the Service Tax regime. The simplicity and certainty that it offered needs to be emulated in the GST law that States and Centre adopt subsequently. The new tax regime should also be future ready and cater to the needs of the emerging digital economy in the country.”

The draft GST model law, currently in public domain, requires close collaboration between Industry and Government to ensure that the GST regime lives upto the expectations, including not only maintaining but enhancing the competitiveness of technology products, services and the internet sector. While several provisions like time bound processes, clarity on electronic download classifications etc. are in line with the larger objective of ensuring ease of business, there are several concerns that need to be addressed.

Mr. CP Gurnani, Chairman NASSCOM and CEO & MD, Tech Mahindra, stated that “We congratulate the government and all parties for collaborating together and ensuring passage of the GST Amendment Bill. The industry has been discussing challenges related to multiple registrations in each state and associated complexities that may arise in the GST regime. We are confident that given the Government’s commitment to ease of doing business, we will be able to address the industry concerns in totality.”

New age businesses like ecommerce and online aggregators are changing the way business is done and bringing in previously unheard of efficiencies.

Mr. Sanjeev Bikhchandani, Chairman, NASSCOM Internet Council and Executive Vice Chairman, Infoedge, said “The GST regime should adapt to these changes with an eye on the future.   However, apprehensions prevail on the administrative requirements that could potentially render internet enabled businesses uncompetitive. We believe this is not the intent of the Government and will work closely with Revenue officials towards enabling a simple and enabling GST regime for all.”

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