Budget 2017 - Budgeting for the Goods & Services tax
The Financial Express
Partner & National Leader, Indirect Tax Services, EY India
GST implementation clarity finally seems to be emerging with a breakthrough reached between Centre and States in the recently concluded GST Council meeting. The implementation is now likely to be from July 2017, though official confirmation is awaited from government.
Dual empowerment which was the most contentious issue was resolved, tax assessees with a turnover up to 1.5 crores will be dealt for scrutiny and audit by State and Centre in a 90:10 ratio and for assessees above 1.5 crores in a 50:50 respectively. Each assessee would be assessed only by one authority something that the industry always wanted, though it remains to be seen how this segregation of assesses actually is carried out on the ground. Though IGST will be levied and collected by Centre, for cross empowerment purposes through a special resolution the same aforesaid ratio will be followed, with disputes amongst States to be resolved by Centre.
The issue of territorial waters taxation up to 12 nautical miles was also resolved with States being empowered to collect tax on economic activity as prevalent today under VAT.
Union Finance Minister and Council members need to be commended for this resolution, with Centre pragmatically agreeing to State requests in the interest of GST roll out.
What’s now critical is to focus on the next steps basis implementation from July 2017. There are still several important steps that need to happen in the next 3-4 months for GST to happen in July 2017.
First and foremost are passage of GST Bills. The next GST Council meeting slated for February 18, 2017, is expected to approve the final draft GST laws to enable tabling of CGST and IGST Bills in parliament in second half of Budget Session most likely around end February or March first week. States will equally need to table SGST Bills in their budget or special sessions during this period.
GST Rules and procedures is another area that requires finalisation and approval by GST Council in February/ March 2017. One is not sure whether industry would get a chance to look at the final GST laws and rules prior to tabling in parliament and State assemblies.
Another critical milestone is segregation of goods and services in the agreed multiple rate structure by GST Working Committee and its final approval by GST Council. Services are expected to fall in three buckets with standard rate at 18%. This would equally require time and debate and final timeline could be April-May 2017.
These critical milestones also have a direct linkage to readiness of GST Network the IT portal fundamental for GST compliance. They need to ready their processes and commence testing in May-June 2017 for implementation in July 2017. We know 34 GST Suvidha Providers (GSP) have been shortlisted and they along with Application Service Providers (ASP) need to be ready for testing and offer compliance solutions by July 2017. Industry will need to configure their ERP systems for GST transition and they equally require final law and rules to be public. All these would be possible only if GST laws, rules, rates are ready by April-May 2017 as an outer limit.
Hence it’s evident from the above milestones even a realistic July 2017 implementation will require each of these actions and outcomes to happen robustly within the required timeframe.
Though majority in the industry are underway with their GST preparations, many were still waiting for clarity on the potential date. It’s now time for them to kick start if not already done or they will be left with no time to be GST ready a regulatory change. GST is much more than a tax reform and has touch points across IT systems, processes, business models, compliance, pricing, margins etc. and requires senior management bandwidth with sustained intensity during preparedness. Compliance under GST regime will undergo a paradigm shift with transaction level details required for compliance in an electronic form.
While industry will need reach out to GSP’s and ASP’s for their compliance requirements they need to configure their existing IT systems to provide required data elements.
With GST implementation expected to be deferred to July 2017, the government will be in a dilemma about how they will look at indirect tax in this Union Budget.
In my personal view they should avoid making too many changes especially in excise and service tax. There would be a temptation to align service tax rates to proposed GST structure, but they would have to balance such increase in tax burden with temporary slowdown due to effects of demonization. Best would be to wait till GST is unveiled.
Excise is best untouched at this stage, customs duty tweaks can be expected as a precursor to GST more so around existing CVD and some end use exemptions with a view to incentivise domestic manufacture.
(Views expressed are personal)