Goods and Service Tax: Myths and Facts

The demonetisation has sidetracked the hitherto much awaited and talked about GST.  Though government is doing its part in introducing model law, rules , formats etc but still GST rollout on 1^st April is a far cry. The proposed GST law is not an ideal / perfect / pure law. The GST we all wished has been modified to accommodate interest of different political parties ,centre ,  states , bureaucracy etc. However we should understand that we cannot have perfect things in imperfect world.

As the proposed revised model GST law unfolds before us , it is going to shatter various myths associated with it. This article will throw light on some of such myths and apprises you with the facts .

Myth: GST will be effective from 1^st April ,2017

Fact: The complete washed out parliament session has dampened the chances of GST rollout on 1^st April,2017.  Before roll out of GST following things will have to be done:

1) GST law including transition provisions to be passed by Parliament and state  legislatures . Will it be passed by convening a special session or preponing the budget session ?

2) Framing of rules , notifications and regulations as per GST law including transition provisions : this exercise would take at least a month.

3) Feedback from public, industry and professional bodies about draft rules ,notifications regulations etc. : General public including trade and industry have to be educated about this new law by creating awareness, seminars, workshops etc. This would take a further period of one month.

4) Many other issues such as Transitional issues , Past disputes , Tax Administration , compensation to states will have to be sorted out.

5) And finally notifying the date of implementation of GST.

So looking to above it is very difficult to foresee GST rollout on 1^st April,2017

Myth: GST is “ One Nation One Tax “

Fact:

1) Infact It will be triple GST. State GST (SGST) , Central GST (CGST) and Integrated GST (IGST) . Within state transactions will be subjected to SGST & CGST , and Inter state transactions will be subjected to IGST.

2)  Not only this different states will have different SGSTs. If you have branches in different states then different registrations will have to be taken.

3) There may be dual administration i.e. state and centre ( deadlock is still continuing)

4) Not all Indirect Taxes are going to be subsumed in GST. Following taxes will still continue: Basic Custom Duty,Taxes on transaction on stock exchanges, stamp duty , property tax , royalty on mining, commodity cess , electricity duty , tax on vehicles , toll tax , profession tax etc.

5) Not all commodities are included in GST i.e. they will be taxed separately or may be subjected to earlier taxes and GST as well like : Alcohol for human consumption , Petroleum products viz. Petroleum crude , motor sprit (petrol),high speed diesel , natural gas and aviation turbine fuel & electricity , tobacco and tobacco  products, Real estate sector.

Myth: Cost will decrease

Fact: Cost may decrease , but  various products , services may become costlier also. Services which are being taxed at 15% will be taxed at 18%. In initial period costs are going to increase for sure. Later on with proper understanding of law and strategy cost may decrease.

Myth: Seamless credit flow

Fact: The most important feature of GST is to remove cascading effect of taxes. So taxes paid on inputs can be utilised for payment of GST on output . But as per model law SGST credit  of one state cannot be utilised to pay SGST liability of another state. Credit of SGST can not be utilised to pay off CGST and vice versa.

Myth: Under GST number of returns to reduce drastically

Fact: An average tax payer ( other than composition scheme option) will have to file at least 38 returns in a year . ( First return, 3 monthly returns and Annual return ) . And if Business entity is operating from more then one state than this number will be multiplied by so many states. So it can go upto 1922 returns per year. ( this includes monthly TDS returns , reverse charge returns ).

Myth: Person with turnover below 20 lacs need not register under GST

Fact: Following persons even though turnover below 20 lacs will have to register under GST:

1) Person making any taxable supply to other state ( no threshold limit even 100 rupees transaction will invite registration )

2) Casual taxable persons like exhibitors , temporary business

3) Non resident persons

4) Persons who are require to deduct or collect tax at source ( TDS/TCS under GST )

5) Person who are required to pay under reverse charge

Myth: Composition scheme for small businessmen having turnover below 50 lacs for easy compliance . ( tax rate between 1% to 3%  )

Fact:  Although  turnover below 50 lacs , if a person makes even a single  supply to different state he will be out of composition scheme . Also this scheme is only for Goods not for services. So small service providers can not take its benefit.

Myth: Easy to comply

Fact: Its certainly easy to comply for bigger concerns, corporate etc. . But as GST envisages total electronic compliance , small suppliers , persons in rural , remote areas will find it difficult to comply.

Though there is no doubt that GST is going to be the biggest indirect tax reform it  still suffers from  many complications . If government wants to implement the law successfully then it must involve all the stakeholders in decision making. Educate the masses properly . Train the administration thoroughly.

Otherwise as we are facing  daily new notifications in post demonetisation era same will be witnessed  in post GST era also. So alI I  can say is G S T –  ‘ Goodnight , Sweet dreams , Take care’..!!

(Author is a Practicing Chartered Accountant and can be reached at satishsardanagpur@gamail.com)

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