Dr. Sanjiv Agarwal,FCA, FCS
The model GST law as released by the Government / Empowered Committee on GST is in public domain since mid June 2016. The proposed provisions only conveys the Government’s intention to levy GST in India and the manner in which it will be administered, levied , collected and implemented.
However, the said proposed provisions require refinement, improvement and changes in order to be business friendly and lead to ease of doing business, boost economic growth, tax collection and balancing between inflation, revenue neutrality and participation of citizens by way of contribution to the exchequer in the form of goods and service tax.
It is desirable and expected that the draftsmen should consider the following suggestions and inputs while finalizing the model law in its present form .
- Multiple state wise registrations will be a major hurdle for service providers who operate in multiple states or all India basis.
- Procedures proposed for registration and returns are complex, cumbersome and regressive. Provision of classification, valuation supply etc also go against the principle of ease of doing business.
- Department should not have power to refuse registration ab initio which will adversely affect the business men. Grant of registration must be made obligatory as is at present.
- Multiple registrations of same person in different states should be done away with. The concept of centralized registration should be provided for. Further, the assessee should be mandated to provide in his return, the details of all locations from which supply of goods / services is made by him.
- Threshold limit for registration should be common for entire country. Presently it is proposed Rs. 4 lakh for North East and Rs. 9 lakh for others. Alternatively, there should be a sunset clause for this, (say 2 years).
- Definition of aggregate turnover be suitably amended so as to exclude the value of exempt and non-taxable supplies from aggregate turnover to make it meaningful and objective. Otherwise the purpose of exemption / threshold will be defeated.
- Definition of supply should be ‘comprehensive’ and not inclusive. It is defined as ‘supply includes’ rather than supply means….’. This will add to litigation. The supply of capital goods (whether to own depot or to the customer) be kept outside the purview of GST , and only the leasing / renting / transfer of right to use the asset be subject to tax.
- Inter-state activities should exclude activities of same person. These activities are unnecessary under the GST law, unworkable and will be tantamount to creating inter-state fiscal frontiers, impeding free flow of goods and / services within the common market of India.
- The definition of manufacturer should be delinked from Central Excise Act and an elaborate definition of the term ‘manufacture’ be provided to avoid litigation and interpretational issues.
- Threshold exemption limit should be kept at least at Rs. 25 lakh for services and Rs. 2 crore for goods as anybody with lower limit can always voluntarily get registered. Also, small and medium entities may find it difficult to maintain electronic records and wish to avoid unnecessary inspections / litigations from the tax Department.
- Composition Scheme is meant for small taxable persons like neighborhood stores who does not keep record of their turnover and does not issue invoices. No facility is given to them in case they are expected to keep their turnover record. Also, the rate of tax should be percentage of their taxable supplies (inputs), the record of which exist in electronic ledger. Linking of rates with total turnover will distort the total scheme.
- Composition threshold should be not below Rs. one crore. Disallowing composition benefit to the persons who effect any interstate supply of goods and / or services shall work against the interest of small assessees as there might be a possibility that in aggregate turnover of Rs. 50 lakhs only a small amount constitute inter-state supply of goods or services which will deny him of the benefit of composition scheme.
- Valuation rules are too cumbersome so as to even prescribe valuation of services without consideration.
- Transaction value of goods and services should factor the ‘discounts’. There should be no tax on free supplies.
- In GST system, it is expected that the figures submitted for GST returns will be validated with figures submitted to Income tax. Given the fact that the sale and provision of services is one of the factors for charging of tax, the taxable figures in GST will be far different than figures in accounts or in income tax. A system needs to be built so that the figures in other data base could be used for validation of figures in GST.
- The concept of granting input tax credits based on the matching concept of uploading data and filing of valid returns by the supplier of such taxable person will most certainly lead to innumerable amount of litigations on account of a few unscrupulous dealers.
- Input tax credit (Cenvat) should not be denied to real estate sector and allowed to works contracts only. Guidelines for valuation of land should be made clear and transparent. Also, non-subsuming of stamp duty in GST should be reconsidered.
- Reversal of input tax credit used for goods and / or services used for personal or private consumption should be allowed.
- Concept of TCS to be done away with as it proves to be detrimental to small suppliers and leads to blockage of funds in TCS.
- Rate of interest on delay in payment of refunds by the Government should be kept at par with the provisions relating to interest payable on delay in payment of taxes by the tax payer.
- Requirement of double payment of taxes be eliminated. Further, the refund / adjustment procedure for such cases be made fast-tracked, simple and quick.
- Government should not hurry implementation of GST from April, 2017. There is lot of ground work to be done. The most important is awareness, education, training and trial runs. 1st April 2017 is not that sacrosanct but introduction of a perfect law at the right time is more important. Country can wait for a strong and robust GST law for some more time.
- It should be ensured that all states have verbatim same provisions for rates, levy, administration and procedures. Only negative list or exemptions may vary based on regional issues.
- A large number of compliances / returns / reconciliations are proposed. This will only burden all stakeholders; will make GST inefficient and a regressive tax. Cost of compliance will be major issue which may take away the benefits of GST.
- Smooth, transparent and simple transition provisions are needed rather than revenue centric provisions. These ought to be practical too. Transitional provisions should bear this objective. Supplies effected under the current tax regime, but which are delivered or received after the date of implementation of GST, normally referred to as goods – in – transit. The transitional provisions should suitably provide for credit of taxes / duties paid under the current law.
- Refund of any credit balance other than for exports is not allowed. This should be allowed subject to safeguards / limitations.
- Special focus on awareness and training of all-officers, professionals and assessees is required including making available literature on GST available in different languages.
- Current / past disputes on GST introduction should be proactively addressed by way of speedy redressal of cases and / or practical, proactive and objective Dispute Resolution Scheme so that baggage of disputes in not carried forward.
- Non compliances attract very harsh and heavy penalties / punishment and need to be diluted in view of GST being a new levy and new law. Prosecution threshold should be kept at Rs. 2 crores as minimum. There should be a provision that except in fraudulent cases, no arrest / prosecution be made in first year of implementation.
- No new taxes should be allowed to be levied by states in GST regime when compensation for revenue loss, if any is guaranteed.
- GST is the future tax. GST law should, therefore be forward looking and open for futuristic businesses such as e-commerce, technology based, IT etc and recognize internet, digital economy, start ups etc.
GST law should be a very simple tax law as the proposed law / provisions are too complex to understand by a common man.