Moving Towards GST

A centralized registration system under GST would make doing business easier, and foster better tax compliance.

The Model Goods and Services Tax (GST) Law suggests multiple registrations in each State for the supply of goods and services. “This has the potential to result in a huge burden of complexity as companies operate in many different States. For businesses in the services sector such as telecom, banking, insurance, airlines, and e-commerce, which undertake pan-India operations, meeting the requirements of each State through different registrations, audits and compliances would be a massive task”, said Dr Naushad Forbes, President, CII, and Co-Chairman, Forbes Marshall. He suggested that a centralized registration system should be instituted under GST. The States could be offered credits through the Integrated GST (IGST) mechanism. Such a system would greatly simplify the ease of doing business and foster better tax compliance, felt Dr Forbes.

On multiple GST rates, CII has said that the GST rates structure can be the absolute limit of four rates as suggested by the Government, and over time, the Government should commit to converge to one or two rates. Further, CII has said that it is important that the bulk of goods and services should fall within the standard rate of 18%, and only exceptions should go to the higher rate of 28%, with a lower rate for essential goods such as unprocessed food items, etc. CII agrees with the proposal that the higher rate of 28% should apply only to ‘demerit goods’ and the term ‘luxury’ goods should not be used to define this category.

CII has suggested that the cess needs to be levied only at the final product, and that the total tax, including cess, on demerit goods, should be kept within the present overall indirect tax incidence.

The GST Law does not clarify whether the administration of GST for assessment and audits is to be undertaken by the Central Government or by the State Governments. “It would be challenging for companies to meet the requirements of dual administration by both the Central and State Governments, while maintaining consistency across different filings. Likewise, it could be an additional burden for the administration in terms of duplication and costs. There should be a single administration process, either by the Center or the State, which would be acceptable to both. This would action the intention of making India a common market with single audit and assessment,” said Dr Forbes. He added that for all purposes of calculating taxes under GST, only the invoice value should be considered.

Dr Forbes also commented on issues relating to the transition to GST. “Transition is expected to entail a period where companies have higher inventories and it is necessary to deal with these stocks of goods in terms of applicable tax. The GST Law does not clearly specify if credit is available on excise duty and central sales tax paid on inventories of domestic goods, and on countervailing duty (CVD) paid for imported goods. Clarity on this aspect needs to be provided,” he said.

Introducing a national tax reform of the magnitude that impacts every consumer and millions of producers is certainly not an easy endeavor. “We commend the Central and State Governments for strong commitment to the GST. In turn, CII pledges to partner with the Government to ensure smooth, hassle-free, and efficient roll-out of the GST so that all stakeholders derive the maximum benefit,” stated Dr Forbes.

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