Goods and Services Tax soon be a reality – Pulse check

CA Vikash Dwivedi

Background

The Kelkar Task Force had suggested first time a Goods and Services Tax (GST) in 2003. The proposal to introduce a Goods and Services Tax (GST) was first mooted in the Budget Speech for the financial year 2006-07 with the objective of “One Country One Tax” to have a Integrated tax structure in the country.

GST in 2017 and onward

GST bill was tabled in the parliament on 29th March by the honorable Finance Minister, which after 9 hours of debate passed by the lower house of the parliament. Now it will go to Upper house, and after it is passed by Rajya Sabha, and ascent of the President of India GST will be effective from 1st of July 2017, if all the defined conditions are met.

GST will subsume a host of indirect taxes, over 20 types of indirect taxes, levied by the Centre and states governments at various incidents, including excise duty, VAT, service tax, entry, luxury and entertainment levies. GST not a tax in itself but should be looked upon as a tax reform of indirect taxes. A precursory to the changes in indirect tax,  the Central Board of Excise and Customs (CBEC) has been renamed as Central Board of Indirect Taxes and Customs (CBIC)

Why decades to pass act?

One oft he key reasons was fear of states governments, that they will lose revenue. The UPA government did not provide for a compensation package for the states to recoup the loss of revenue whereas NDA government nailed it and announced a compensation package and a result states agreed to the GST.

Expected Benefits

GST is expected to boost GDP by 2% and one of the benefits will be one point of tax incidents instead of multi points tax incidents, that will of course make life easier. One Nation One Tax will definitely bring relief to the consumers along with the transparency, accountability and economic welfare.

Underlining principle

GST to be paid at the time of purchase and all taxes that are levied while purchasing good will include both the central government’s taxes as well as the state government’s taxes.

All sin products or health hazards products, may be taxed at peak rates 40% with a cess on it however the cess will be levied for the first five years while keeping essential items out of sphere.

GST Bill layout

GST bill is a complete package, which has four bills –

1. Central GST (CGST),

2. Integrated GST (IGST),

3. Union Territories GST (UTGST) and

4. GST Compensation bills:

The CGST and IGST bills will enable the Centre to levy and collect taxes across the country.

The Goods and Services Tax (Compensation to States) provides for compensation to the states for the loss of revenue arising on account of implementation of the GST.

The Union Territory Goods and Services Tax Bill, 2017, will enable levy and collection of tax on intra-state supply of goods and services or both by the union territory

GS Tax Rates

The GST council has been formed and empowered to fix GST rates. GST Council will function like a federal institution, first of its kind in India, wherein the sovereignty of states and Centre pooled together to decide on taxes. It will work as an interface between states and Centre.

There would be four rates in GST-  5%, 12%, 18% and 28 %, PLUS a levy on taxes, for first five years.

The purpose of levy on luxury items like cars, aerated drinks and tobacco products will be to compensate state governments, for first five years, for any revenue losses. The GST council is yet to decide which goods fall in which slab. Essential items, including food, will be taxed at zero rate to keep inflation under check and control.

However, the Central GST (CGST) law has pegged the peak rate at 20% and a similar rate has been prescribed in the State GST (SGST) law, which takes the peak rate to 40%, whcich is expected to be only in the case of requirements

Allocation to the state

As stated earlier GST Compensation bill comes with provision of allocation of revenue and will ensure compensation to states for the first five years of GST roll out.  Cess over 28% to go into  compensation, the cess fund that will be used to compensate states.

Impact on Employees and common citizens

Pertinent question every employee is toying with is, what is the expected impact on me as a BNY Mellon employees and as a common citizen of this country.

Many of the propositions are not clear in the GST but if we take conservative interpretation approach it will impact the employees. GST has brought employees within the ambit of the definition of related party. Which means amenities provided to an employee, which is over and above cost to company (CTC) package, or which are provided without consideration, could now possibly attract a GST levy. For instance free lunch/ meal cards, pick and drops and such other which over and above CTC may be subject to GST, and if that happens will definitely haunt employees and more than employees, the employers due to GST complexities, with no clarity of tax credits on inputs. Schedule II relates to activities to be treated as supply of goods and services.

Next question striking in the mind must be, what will happen to annual/ Diwali gifts? Well, there will be no tax as long as it is less than Rs.50, 000. It is remarkable to note that the term ‘Gift’ has not been defined in the GST bills however threshold had been provided.

Impact on common man:

1. Mobile bill may shoot up, which is expected to be pegged into 18% bracket as against 15% at present.

2. Durables and appliances companies said the impact on consumer prices would be marginal.  However high end televisions and gadgets may cost more.

3. Renting of buildings and leasing of land will be taxable.

4. EMIspaid for purchase of under-construction houses will start attracting t

5. Electricity not subject to GST

6. No or minimum impact on essential items, including good items,educational institutions

Some interesting facts

1. Alcohol is not under GST

2. Related Party redefined to include supply of goods to the employee with out consideration.

3. GST on real estate sector but the GST Council decided to keep it out of the new tax regime for the first five years.

4. Agricultural products are going to be “zero-rated”,

5. Entry tax is not clear with respect to merger of taxes with GST

6. Logistics companies stand to gain as it becomes easier to ferry goods across India. Other sectors largely depend on the fine print of the GST, including exemption

7. More clarity on sought on tax incidence or point of tax for ecommerce companies, though the right to tax is with central government.

8. Manufacturer with turnover less than 50 lacks can pay 1% and supplier 2.5% of GST.

9. Credit on input is not clear. List yet to be rolled out.

10. Sale or Land and building is out of GST

Offence and Penalties

GST had teeth too to bite. Those who infringe the provisions will have to face legal action. Supply without invoice, or understated invoice or other misleading information will attract fine of Rs10,000.  Those who want to help should set a side Rs25,000 for fine.

Disclaimer

This is not a summary or precis of the bill, please do not treat it professional advice to act on. Idea is to educate our people. This document is compiled with reference to FM speech delivered in the parliament while debating on the GST Bill and various newspapers.