GST launch at midnight today: Promises, pitfalls of the historic tax reform
11 June 2017
VS Krishnan, Executive Director – Tax Policy Group, EY India
The series of GST Council meetings have demonstrated both pragmatism and flexibility of the Government to solve problems as they come along. Continuing in the same spirit, the meeting of the GST Council held on 11 June 2017, addressed a number of rate issues where representations were received from trade and industry. The Government was receptive in sectors with considerable employment potential. For example, Centre reduced the GST rate from 18% to 5% on job work services relating to gem and jewellery, leather and textiles industries. It was felt that lot of the value addition in the sector is carried out by workers in their own homes or in small outsourced premises. Similarly, rates fixed for processed foods like ketchup, jam etc. have been brought down to give a fillip to the food processing industry. This is again an industry with considerable employment potential. Countries like India process only 5% of their horticultural produce in comparison to 70% by countries like Brazil. By reducing the duties, it is expected that the lower price points may help to expand the market and create a favourable ecosystem for foreign investment in food processing sector. In the meeting, the Council also addressed the issue of the inverted duty structure in a number of sectors. For example, the tractor industry which was subject to 28% duty on the components against 12% on the tractors would have faced accumulation of credit creating a cost escalation in the manufacture of tractors. To address this problem, the Council has reduced the GST rate on clearly identifiable tractor components from 28% to 12%. Similarly in the pharmaceutical industry, the duty rates for certain inputs have been brought down.
The Government has also responded to wide clamours of the small and medium industry to reduce their compliance burden going into the GST regime. In response, the Government has expanded the turnover range for imposition of flat composition rate without input duty credit from turnover between INR 20 lacs-50 lacs to turnover range of INR 20 lacs-75 lacs. This will benefit a large number of small and medium industries who will now have to file simple compounding return without having to give details of invoices. The rate has been fixed at a flat rate of 1% for the traders, 2% for the manufacturers and 5% for the restaurants.
The question really is whether the GSTN portal will be ready to receive all the returns. While the big firms have the opportunity to use the services of the GST Suvidha Providers and authorized Suvidha Providers, the small and medium industries would have to handle things on their own. To help them, GSTN has created an offline utility to which small and medium industries can upload their returns and from which the GSTN portal will convert the same into their standardised formats. A large number of software accounting firms like TALLY, Taxman etc. are developing software which will help small and medium firms to send their returns after filtering errors. A large training exercise has been initiated by the GSTN to help the small and medium industry submit tax returns in the digital mode.
While the challenge is daunting, the past experience in implementing large projects like electronic voting and Aadhar, offers hope.
(Views expressed are personal)
(This column first appeared in the Business Standard)