Re­move flaws to make GST a gamechanger

For the suc­cess­ful im­ple­men­ta­tion of GST and to at­tain its ob­jec­tive of pre­vent­ing en­ti­ties from mak­ing ex­ces­sive prof­its, the rules and method­ol­ogy of anti-prof­i­teer­ing pro­vi­sions need to be clearly stated.

Gfiles - - GOVERNANCE - By SU­NIL KU­MAR GUPTA

THE Goods and Ser­vice Tax (GST) was suc­cess­fully im­ple­mented across the na­tion on July 1, 2017 with a lot of fan­fare. It is a buzz word in In­dia these days span­ning across trade cir­cles, fi­nan­cial pun­dits, and in­vest­ment gu­rus. GST is the big­gest tax re­form in In­dia’s 70-year his­tory as an in­de­pen­dent na­tion. It has re­placed a com­plex net of ex­ist­ing taxes, bring­ing uni­form tax rates and rules and sim­pli­fy­ing com­pli­ance for busi­nesses. It is a sin­gle, uni­fied tax which jus­ti­fies the adage ‘One Na­tionOne Tax’ and will have a very pos­i­tive im­pact on In­dian econ­omy. Im­pact of GST on In­dian Econ­omy GST will bring about a uni­for­mity in process and cen­tralised reg­is­tra­tion that will make start­ing a busi­ness and ex­pand­ing in dif­fer­ent states across the In­dia much sim­pler. GST will en­sure that in­ter­state move­ment be­comes cheaper and is less time con­sum­ing, by elim­i­nat­ing small bor­der taxes and re­solv­ing check post is­sues. GST also in­tro­duces an op­tional scheme called the com­po­si­tion scheme, which em­pow­ers small busi­nesses with turnover be­tween ` 20 lakh to ` 75 lakh to pay lower taxes. In the near fu­ture, GST will en­able fi­nan­cial in­clu­sion in the econ­omy. Broader Tax Base and de­crease in “Black” trans­ac­tions. Im­proved com­pli­ance and rev­enue col­lec­tions Au­to­ma­tion of com­pli­ance pro­ce­dures to re­duce er­rors and in­crease ef­fi­ciency. GST will re­duce tax eva­sion. Cas­cad­ing ef­fect of tax on tax will be elim­i­nated. It will har­monise Cen­tral and State tax ad­min­is­tra­tions Make in In­dia will get a huge boost as both tax and lo­gis­tics cost will fall and lead to higher in­vest­ments for the man­u­fac­tur­ing in­dus­try. Salient Fea­tures of GST Des­ti­na­tion-Based Con­sump­tion Tax: GST is a des­ti­na­tion-based tax. This im­plies that all SGST col­lected will or­di­nar­ily ac­crue to the State where the con­sumer of the goods or ser­vices sold re­sides. Dual GST: A dual GST with the Cen­tre and States si­mul­ta­ne­ously levy­ing it on a com­mon tax base. The GST to be levied by the Cen­tre on in­tra-State sup­ply of goods and / or ser­vices would be called the Cen­tral GST (CGST) and that to be levied by the States would be called the State GST (SGST). Com­pu­ta­tion of GST on the ba­sis of in­voice credit method: The li­a­bil­ity un­der the GST will be in­voice credit method, i.e. cen­vat credit will be al­lowed on the ba­sis of in­voice is­sued by the sup­pli­ers. Pay­ment of GST: The CGST and SGST are to be paid to the ac­counts of the cen­tral and states, re­spec­tively. In­put Tax Credit: In­put Tax Credit avail­able on taxes paid on all pro­cure­ments (ex­cept few spec­i­fied items). Tech­nol­ogy based As­sis­tance: GSTN and GST Su­vidha Providers (GSPs) to pro­vide tech­nol­ogy based as­sis­tance. The gov­ern­ment is try­ing very hard to im­ple­ment GST suc­cess­fully for the ben­e­fit of the com­mon man but there are cer­tain over­sights, loop­holes, or short­com­ings in en­tire gamut of GST im­ple­men­ta­tion that be­come a hur­dle in sec­toral growth, syn­er­gised pol­icy mak­ing and fi­nan­cial trans­parency, which the Modi gov­ern­ment has been en­cour­ag­ing ever since it has come to power.

Even though sim­pli­fied, GST still has cer­tain com­plex­i­ties en­twined in it. GST has an anti-prof­i­teer­ing pro­vi­sion em­pow­er­ing the Cen­tral Gov­ern­ment to con­sti­tute, or ap­point, an au­thor­ity to mon­i­tor prices busi­nesses charge for goods and ser­vices in the lead up to, and fol­low­ing the in­tro­duc­tion of, the GST. This pro­vi­sion pre­vents en­ti­ties from mak­ing ex­ces­sive prof­its due to the GST. But, there are no clear meth­ods of as­sess­ing the GST ben­e­fits for pur­poses of pass­ing it to the con­sumers. A GST anti-prof­i­teer­ing au­thor­ity is also yet to be formed. While, the rea­son be­hind such an­tiprof­i­teer­ing mea­sures is to pro­tect the masses, the gov­ern­ment should en­sure that the en­ti­ties will pass the tax sav­ings from the seam­less in­put credit to its con­sumers. For the suc­cess­ful im­ple­men­ta­tion of GST and to at­tain its ob­jec­tive, the rules and method­ol­ogy of anti-prof­i­teer­ing pro­vi­sions need to be clearly stated. In In­dia, var­i­ous de­vel­op­men­tal au­thor­i­ties/gov­ern­men­tal au­thor­i­ties have been en­trusted the func­tion of ur­ban plan­ning. Ur­ban plan­ning is one of the func­tions en­listed in Ar­ti­cle 243W and Sched­ule XII of the Con­sti­tu­tion of In­dia. These au­thor­i­ties while dis­charg­ing the func­tion of ur­ban plan­ning, lease out the land for a pe­riod of 90 years or more for var­i­ous planned uses like in­dus­trial, in­sti­tu­tional, res­i­den­tial, com­mer­cial and mixed use. The leas­ing of land for such a sub­stan­tial pe­riod of time is akin to sale as per the pro­vi­sions of Trans­fer of Im­mov­able Prop­erty Act. As such the pay­ment made for ac­qui­si­tion of land pop­u­larly termed as Land Pre­mium, Salami, Cost of Land, is treated as cap­i­tal pay­ment which is sub­ject to levies such as stamp duty, etc., on trans­fer.

IN the ser­vice tax era, there was no tax on such trans­ac­tions as it was taken as sim­i­lar to sale of land. But, while fram­ing the GST pro­vi­sions, it has not been con­sid­ered that these trans­ac­tions have been brought un­der the GST net. How­ever, exemption has been pro­vided for the Lease Pre­mium/ Salami/cost of land re­ceived by the de­vel­op­men­tal au­thor­i­ties/gov­ern­men­tal au­thor­i­ties for al­lot­ment of land for in­dus­trial pur­poses. There is no logic why land be­ing al­lot­ted for pur­poses other than in­dus­trial pur­poses has been kept out of exemption list, while in cur­rent sce­nario, al­most all lands be­ing al­lot­ted by devel­op­ment/gov­ern­men­tal Au­thor­i­ties are on a lease of 90 years or more. Land has al­ways been kept out of the mean­ing of goods and ser­vice, but by tax­ing the Lease Pre­mium/ Salami/cost of land, the ba­sic con­cept of levy of GST has been missed. Un­der the GST, where Cen­tral and State-level taxes have been merged and a pro­vi­sion has been put that any man­u­fac­turer with a turnover of 20 lakh (Oth­ers)/10 lakh (Spe­cial Cat­e­gory States) or more has to com­ply with GST norms re­lated to ex­cise duty, which ear­lier were ex­empt up to turnover less than 1.5 crore will serve as a damp­ener for many MSMEs. For an MSME, a lot of self-ef­fort is utilised is stay­ing in busi­ness by run­ning busi­ness in a most cost ef­fec­tive way. Now, they will have to spend re­sources – time, money, and man­power – on ful­fill­ing the GST obli­ga­tions. This can have neg­a­tive im­pact on com­pli­ance for GST. GST im­ple­men­ta­tion has a high com­pli­ance cost to MSMEs. The sin­gle win­dow tax regime in­tended to sim­plify pro­cesses un­der GST is fac­ing many chal­lenges in its in­ter­pre­ta­tion and im­ple­men­ta­tion. To re­duce the GST com­pli­ance bur­den on MSMEs, the Gov­ern­ment has to pro­vide all GST com­pli­ance util­i­ties on the GST por­tal. So that MSMEs can ac­com­plish all the com­pli­ances with­out any has­sle and any pro­fes­sional sup­port. In con­clu­sion, I would like to state that GST is a wel­come change for the In­dian econ­omy. It is bound to reap fruits of profit for In­dia in the long term. How­ever, while draft­ing the GST bill and cat­e­goris­ing the items, there have been mul­ti­ple over­sights which will have ad­verse to neg­a­tive im­pact on the com­mon man of In­dia, cer­tain sec­tors and the econ­omy at large. The gov­ern­ment and the GST Coun­cil have not closed their doors for sugges­tions or ob­ser­va­tions. They have promised the coun­try to re­visit the rules and rates pe­ri­od­i­cally till all the dust set­tles down. We need to be pa­tient and let the fi­nan­cial ex­perts do their work, how­ever, if we need to share any­thing then we should be duty bound to bring it to their no­tice. I am very sure that with time GST will be­come the strong­est back­bone of the econ­omy and will help In­dian econ­omy to walk miles into bliss. The writer is an au­thor, econ­o­mist and phi­lan­thropist. He can be con­tacted at www.sunilkum­mar­gupta.com

There is no logic why land be­ing al­lot­ted for pur­poses other than in­dus­trial pur­poses has been kept out of exemption list, while in cur­rent sce­nario, al­most all lands be­ing al­lot­ted by devel­op­ment / gov­ern­men­tal Au­thor­i­ties are on a lease of 90 years or more

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