Dr. Sanjiv Agarwal, FCA, FCS
In its 12th meeting of GST Council (GSTC) on 4th March, 2017, GSTC approved the two Bills, i.e. for Central Goods & Services Tax (CGST) and Integrated Goods and Services Tax (IGST) which now have to be passed and legislated by the Parliament. Two other GST Bills, i.e., State Goods and Service Tax (SGST) and Union Territory Goods and Services Tax (UTGST) are slated to be approved by the GSTC in its next meeting to be held on 16th March, 2017. While SGST will be required to be passed by each of the State legislature Assemblies, UTGST which will administer levy of GST in the Union Territories (except Pondicherry and Delhi) will have to be legislated by the Parliament. All these enactments shall be enforced from a common appointed date which has to be before 16 September, 2017.
While approving the draft statutory provisions, GSTC has, inter alia, agreed to the following major issues:
- Payment of Tax in Installments– In case of financial hardship, for an initial period of two years, tax payers can pay tax in monthly installments without any penalty but of course, with interest applicable as per rates prescribed. This will result in three benefits – ensure recovery of taxes, address financial hardship faced by taxpayer and avoid possible litigation. Assessing officers will have powers to examine and approve installments based payments on a case to case basis. This will be allowed in all formats of GST, i.e. CGST, SGST, IGST and UTGST.
- Transactions in Territorial Water– States will have jurisdiction to levy GST on supplies of goods and services within 12 nautical miles in the territorial waters. Such transactions shall be treated as inter-state supplies for the purpose of GST to enable states to levy GST on such supplies. SGST law will also incorporate an enabling provision so that states are empowered to levy GST on transaction of supply in territorial waters. This will protect the states’ revenues as more and more transactions are likely to take place in states’ territorial waters, especially in the context of increased exploration, drilling for petroleum products and development of new sea-ports in territorial waters.
- Enhanced peak GST Rate– Against the earlier agreed upon CGST peak rate of 14 percent (14% CGST and 14% SGST aggregating to 28%), GSTC has agreed to a higher ceiling of 20% CGST leading to an aggregate GST rate of 40% (20% CGST and 20% SGST). It is understood that for the present, peak GST rate will be 28% only but this enhanced limit is an enabling provision so that in future, Government does not look at Constitutional amendment whenever GST rates are thought of being increased. This may not be desirable from tax payers view point but at the same time, Governments would have to exercise due restraint from increasing the rates just to get more tax revenue. However, it has to be seen how GSTC will ensure that the decision to enhance GST rates are taken by Centre and States in future. Will there be an autonomy granted to States or it has to be done only after GSTC agreeing to it ? Will GSTC also be open to lower the GST rates in future, if it is so desirable ?
- TCS on e-commerce Business– GSTC has decided to keep rate of tax collection at sources (TCS) @ 1 percent in the law ensuring that TCS rate will not go above 1 percent, being capped in law itself. Since it is a cap, it is also likely that TCS rate may even be below 1 percent. The TCS provision will allow authorities to track transactions carried out through e-commerce platform and ensure compliance. The supplier of goods can set off TCS against its final GST liability. Theoretically, the levy could be even lower than 1%. The purpose of TCS is to track the sales by the vendors on ecommerce platforms which can be achieved with a much lower rate (than 1%) as well. Industry has been demanding that TCS be scrapped as it could lead to a steep rise in transaction costs and also discourage ecommerce, but states had wanted the levy.
- Registration– A State-wise single registration for a taxpayer for filing returns, paying taxes, and to fulfil other compliance requirements. Most of the compliance requirements would be fulfilled online, thus leaving very little room for physical interface between the taxpayer and the tax official. A business entity with an annual turnover of upto Rs. 20 lakhs would not be required to take registration in the GST regime, unless he voluntarily chooses to do so to be a part of the input tax credit (ITC) chain. The annual turnover threshold in the Special Category States (as enumerated in Article 279A of the Constitution such as Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh, Assam and the other States of the North-East) for not taking registration is Rs. 10 lakhs.
- Return Filing– A taxpayer has to file one single return state-wise to report all his supplies, whether made within or outside the State or exported out of the country and pay the applicable taxes on them. Such taxes can be Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Union Territory Goods and Services Tax (UTGST) and Integrated Goods and Services Tax (IGST).
- Composition Scheme– A business entity with turnover upto Rs. 50 lakhs can avail the benefit of a composition scheme under which it has to pay a much lower rate of tax and has to fulfil very minimal compliance requirements. The Composition Scheme is available for all traders, select manufacturing sectors and for restaurants in the services sector. Whether other service sectors will be considered for this is not clear.
- Input Tax Credit– In order to ensure that ITC can be used seamlessly for payment of taxes under the Central and the State Law, it has been provided that the ITC entitlement arising out of taxes paid under the Central Law can be cross-utilised for payment of taxes under the laws of the States or Union Territories. For example, a taxpayer can use the ITC accruing to him due to payment of IGST to discharge his tax liability of CGST / SGST / UTGST. Conversely, a taxpayer can use the ITC accruing to him on account of payment of CGST / SGST / UTGST, for payment of IGST. Such payments are to be made in a pre-defined order. In the Services sector, the existing mechanism of Input Service Distributor (ISD) under the Service Tax law has been retained to allow the flow of ITC in respect of input serviceswithin a legal entity. In order to prevent cascading of taxes, ITC would be admissible on all goods and services used in the course or furtherance of business, except on a few items listed in the Law.
Agenda for Future
- Approval of SGST and UTGST draft laws by GSTC
- Cabinet approval
- Legislative business by Parliament / State Assemblies to enact laws
- Simultaneous exercise for fitment of goods / services into appropriate tax slabs by GSTC
- Decision on cess on demerit / luxury goods
- Approval of draft rules
- Decision of appointed date (date from which GST will be enforced)
The next (13th) GSTC meeting on 16th March is crucial so far as legislative approvals are concerned. It also appears that the next hurdle (and perhaps last one) in roll out of GST is going to be fitment of goods and services in GST rates slabs in which states – centre conflicts may surface.