GST Act and Rules are ready, but, dealers, service providers and manufacturers are not ready!
July 1, 2017 date worries Industry and Chartered Accountants about multi-tier slab taxation: Setting aside politics, though, and just looking at the logistics, many observers, especially chartered accountants, believe there are too many loose ends to be tied up for the GST to go live July 1, 2017[1]. Many smaller vendors and distributors say they need more time. In Malaysia, for instance, when GST was introduced in 2015, there was an 18-month lead time and even then the birth pangs were considerable. Our seven-tier GST is far more complex than Malaysia’s two-tier one and Malaysia’s economy is smaller and less disparate. “We can’t wait for everything to be perfect. But I don’t think the smaller corporates will be ready for it,” says Crisil chief economist Dharmakirti Joshi[2]. In fact, it’s India’s seven-slab system that may cause the real headaches. (For reference, the slabs are zero, 0.25 per cent, three per cent, five per cent, 12 per cent, 18 per cent and 28 per cent.) Also, the multi-tier GST is giving many industries a strong incentive to fudge prices. Take the hotel industry which has been hit with 28 per cent GST for rooms costing over ₹5,000. There’s talk of introducing room rates of ₹4,999 and then charging for other add-ons such as breakfast that’s currently included in room rates.
When GST has been there in 160 countries, why not in India?: Over 160 countries have GST regimes; that includes countries from Canada and Australia to Gambia and the Sierra Leone. The lesson from everywhere is it’s impossible to overhaul the tax code on such a large scale without major disruption. In India, under the guise democratic rights, many come to voice caried opinions, to confuse others and divert the main issue. Instead of coming to consensus or providing solution to problem, they try to create more problems. That attitude has to be changed. Countries found the switch caused inflation of up to 2 per cent, even in well-ordered economies such as Singapore, Japan and Australia. The BJP insists it’s minimised GST’s potential inflationary impact by keeping 50 per cent of products in the Consumer Price Index basket in the zero tax bracket. But the Government’s view is far from universally accepted. Some experts suggest GST could have a far greater negative impact on the economy short-term than demonetisation.
The Government is firm about July 1, 2017 for implementation: Central government officials are signalling a sweeping tax reform will go ahead as scheduled on 1 July, 2017 pushing back against speculation the government will delay amid predictions of chaos from some business groups[3]. “The rumors about GST implementation being delayed are false,” revenue secretary Hasmukh Adhia said in a Twitter post on 13-06-2017, Tuesday[4]. “Please do not be misled.” A senior government official and a state tax department official, who both asked not to be identified discussing private matters, also said there were no plans to delay the roll-out and the ministry of finance tweeted preparations were in “full swing.” Adhia’s comments come as India prepares for its biggest tax overhaul since Independence, following a decade-long effort to simplify a web of taxes, regulations and border levies into a unified GST. The tax would be the most significant economic reform since Prime Minister Narendra Modi’s government took power in 2014. And although many analysts expect some degree of upheaval in the short-term, officials have said GST may bolster growth as much as 2 percentage points. Still, three state government officials said there were teething problems at the state level getting ready for the tax, and they believed there was some chance of it being delayed. A final decision on whether to proceed was likely after the next GST Council meeting on 18 June, the three officials said, asking not to be identified as the discussions are private. The state of readiness of GST Network has been questioned by some quarters but the government feels it is will be up to the test[5]. CBEC said that, along with the states, the department has increased its outreach programmes on the forthcoming indirect tax regime so as to reach even the “last trader”. CBEC has got the government’s approval to reorganise the existing Central Excise and Service Tax field formations according to the requirements of the pan-India GST regime[6].
GST in India – one Tax, but, many %s / rates of tax: GST is an attempt to turn India into a common market by folding all indirect taxes, from octroi to service tax, into one rate that would be consistent nation-wide. But the promise of “one nation one tax”, which is how the government has advertised it, has given way to various conditions, guidelines and complexities that make the final product much more confusing than originally envisioned[7]. For one, there are six tax rates ranging from no tax to 40% within which the central government is trying to fit all commodities[8]. Although it still means similar products will be taxed at the same rate all over the country, this is much more complex than a single rate of 15%-18%, as suggested by reports last year. Worryingly, GST rates are being changed by the GST council on the basis of industry representations to the fitment committee. This committee is tasked with fitting all goods and services into relevant tax brackets based on the rates and additional duties, such as excise, that they attracted earlier. In principle, this sounds fairly intuitive as one might expect commodities to be taxed at more or less the same rates as before. In reality, however, the GST has turned out to be a complex web of conditions instead of a clean tax regime like that of New Zealand, where a flat rate of 15% is applied to all goods and services. In India, the effective number of rates will rise to 10 (plus zero tax), if one includes the addition cesses that will be levied for certain commodities.
Some industries want the July 1 date to be postponed: Separately, two federal government officials said the finance ministry may not be fully prepared for the roll-out on 1 July while discussions about granting flexibility around tax filings for a few months were also underway. They cited internal discussions and also asked not to be identified. Various industry groups representing India’s millions of small-and-medium sized businesses are still hoping for a delay or lenience on tax compliance. The All India Manufacturers Association (AIMO), which represents almost 100,000 small- and medium-sized businesses, said it has sought three more months from the finance ministry on behalf of its members. “It is impossible for any industry to suddenly change their tax structures and pricing modifications,” K.E. Raghunathan, AIMO’s president, said over phone from Chennai. “It will only subject us to chaotic situations, confusion and losses.” The Confederation of All India Traders said the government shouldn’t penalize traders for procedural lapses for nine months after the new tax is introduced. The organization’s secretary general, Praveen Khandelwal, said it will be difficult for small businesses to comply with GST as about 60% of 57 million small businesses are yet to adopt technology which is a prerequisite for complying with the new tax system. Even “the rules are not ready,” said Khandelwal. “Some issues need to be sorted out.” There is a possibility that the government will delay the rollout, though it “seems quite firm” on its July 1 deadline at the moment, said Pratik Jain, a partner at PwC and the national leader of the firm’s indirect tax group in India.
Politicization has also coupled with GST implementation: The government may push ahead with the July implementation, but relax initial filing requirements, he said. “The question is, are the smaller businesses as ready as they could be?” he asked. “The answer is obviously no.” Indian television channel ET Now tweeted 8 June, 2017 that the government may treat the timeframe between 1 July to March as a “transition period,” citing people aware of the issue, while West Bengal has called for a delay to ensure everyone is prepared. Politically, it makes the most sense for Modi and the Bharatiya Janata Party (BJP) to implement the GST as soon as possible, said Reshmi Khurana, head of South Asia for Kroll, a risk consultancy. The implementation in India of such a large reform will result in short-term pain regardless of any delay or minor tinkering, Khurana said, and it makes sense for the government to deal with complications long before India’s next general election in 2019. “There will be a lot of chaos,” Khurana said, adding that she doubted it would tarnish the BJP’s reputation. “I don’t think India will ever be ready until this is actually pushed out and people are forced to come into the tax net.”
© Vedaprakash
15-06-2017
[1] The Hindu Businessline, Rushing to get last mile delivery right, by Paran Balakrishnan, published on June 13, 2017
[2] http://www.thehindubusinessline.com/opinion/much-remains-to-be-done-before-the-gst-is-rolled-out-on-july-1/article9726265.ece
[3] LiveMint, Govt says GST rollout on track, scotches delay rumours, Last Modified: Wed, Jun 14 2017. 03 19 AM IST
[4] http://www.livemint.com/Politics/zdBSmKmNltpETA3r6n4SLN/GST-rollout-from-1-July-dont-be-misled-by-delay-rumours-G.html
[5] Times of India, Centre nixes speculation of delay in GST rollout, Jun 14, 2017, 04.44 AM IST.
[6] http://timesofindia.indiatimes.com/business/india-business/centre-nixes-speculation-of-delay-in-gst-rollout/articleshow/59136061.cms
[7] Scroll.in, Complex web: Why too many tax slabs could defeat the very idea of the Goods and Services Tax, by Mayank Jain, 14-06-2017, 1.35 PM, IST.
[8] https://scroll.in/article/840458/complex-web-why-too-many-tax-slabs-could-defeat-the-very-idea-of-the-goods-and-services-tax
Tags: accountant, cyber, digital, evasion, exemption, implementation, indirect tax, invoice, modi, percentage, rate, readiness, service tax, slab, tariff, tax, tax evasion, taxation, taxing, valuation
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