GST Diaries - Part 4

Some of the issues to be considered before implementing the new GST regime are:

(i)                   Fate of the existing concessions, exemptions and compounding benefits offered to the industry

            Concessions, Exemptions and Compounding benefits are offered to uphold equity in taxation. The existing indirect taxes regime offers idiosyncratic concessions to different assessees depending upon their turnover, geographical region, range of activity etc. These concessions, benefits and exemptions are obviously different for different levies. These benefits, in many cases, are proving to be distortionary and even regressive. Hence, there is strong case to do away with these multifarious concessions and instead establish a uniform product based exemption (both in SGST and CGST) at all levels of the supply chain. Now an immediate practical problem the committee will face in the implementation of the GST regime, is what will happen to the existing concessions, exemptions and compounding benefits offered by both the central government and the various state governments. The task force recommends allowing the existing assessee specific concessions to stay and henceforth not permit any additional such offers by the state or the centre.  Yet, it is unclear as to what kind of distortions the continuation of these concessions will impose on the new regime. 

(ii)                Should GST on stock transfers be abolished or be levied with credit given?

Stock Transfers are not a sale. Hence, the transferor (or consignor) will not be able to immediately pass the burden of tax on the customer. He needs to pay tax from his working capital. This will put an undue stress on the working capital of businesses. This will be very similar to payment of excise duty (under rules 7, 8 and 10A of the Central Excise (Determination of Value) Rules, 2000) for a transfer from the factory to a depot which is completely unnecessary and not business friendly. Since the additional cost borne for this additional burden on working capital will again be transmitted on to the consumer, this provision might prove to be regressive in its effect. Moreover, assuming the refund of tax is not automated, or in worst case if there is no provision for refund of tax but only a provision for set-off in perpetuity, the businesses will have to incur additional costs which will in turn hike up the price of their products. However, there is a case of tax evasion which may crop up if the transfer of goods, without payment of tax, is allowed. In order to prevent this tight inter-state border screening will be required which can again imply unwanted transaction delays. Hence, it is important to rightly assess and compare the probable economic cost of collecting GST on consignment or stock transfers with the costs implied from transaction delays caused by strict border policing.

(iii)               Degree of administrative standardization.

Administrative standardization means to offer a uniform/standard procedure for all interface related aspects of the Indirect Tax Regime.  Currently, the interface between the assessees and the motley of indirect tax administrations is variegated and in several instances duplicatory of one another.  For example, a common assessee is required to furnish turnover audit reports (where ever necessary) for Cenvat, VAT and Service Tax Assessment independently. This makes compliance burdensome and increases the transaction costs. Also, the number of forms to be filled for each levy (ranges from 7 Forms for Excise and 10 forms for Service Tax to more than 55 Different Forms for VAT) frustrates the businesses and incentivizes tax evasion. The all-in-one form suggested by the Task Force will help to simplify compliance to a reasonable degree.   

(iv)              Abolish all kinds of Declaration forms and Road Permits.

Road permits have been introduced in order to make good for revenue losses made by abolishing octroi. Road permits, also called as way bills, are issued by purchasing dealers to selling dealers to bring the material from one state to another. Example: VAT 65 in Jammu & Kashmir, ST-38 Haryana, ST -31 in Uttar Pradesh, VAT-47 in Rajasthan, FORM -50 in West Bengal, D IX in Bihar etc. One of India’s most troublesome issues which act as sand in wheels to businesses ranging across states is the permit raj. Any reform in this subject has got implications for administration standardization dealt above. This kind of a camouflaged octroi not only distorts prices for the same between states but also breeds in tax/compliance evasive tendencies in assessees.

(v)                The Case of Services

Services are by far the least understood and discusses subject under the GST. Given the fact that Services are India’s largest and most revenue potent industry, it becomes all the more important to understand their probable role and consequent response to the new regime.There are several questions being posed on their treatment in the tax model. Will they charged be at par with Goods? Will their identification be guided by a positive list or a negative list? What infrastructure will be put in place to track or monitor inter-state businesses? If the goods are to be taxed at different rates and services are to be taxed at one of the rates, won’t there be litigations cropping in? (This can potentially be solved by issuing a positive list of services which will be taxed at a stipulated rates and no litigation or bargaining shall be allowed)