Published Editorial

Businesses In Smaller Cities, Towns Remain Clueless About GST

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Bloomberg Quint Article

By

Harishanker Subramaniam

The passage of CGST, IGST, UTGST and Compensation bills in Lok Sabha has set the stage for early GST roll out potentially July 2017. With the Rules slated to be approved and made public immediately after the March 31 GST Council meeting, leaves us with two other key steps namely the rate fixation of goods and services and the early passage of SCGST bills by States.

The State of Jammu & Kashmir by virtue of its special constitutional dispensation we understand will go through its State assembly process and integrate into the GST when implemented.

The government has consistently said that rates fixation debate will be minimal (primarily to decide few cases of mass consumption) and will be equal to or closer to what currently goods and services effectively attract across central and state levies. As an example currently if a class of goods attracts an effective indirect tax rate of 20 % comprising of State levies like VAT, CST and Central Levies like Excise Duty, Service tax etc. they by default are likely to fall in the 18% category. So depending on where each basket of goods currently fall they will fit into relevant rate categories of 5%, 12% 18% and 28%. In case of de-merit goods like tobacco products, luxury cars and aerated beverages other than 28% GST they will be subject to levy of Cess which will a combination of ad valorem and specific rates. Here again the principle will be to not exceed the current effective indirect tax rates.

Services too will be under multiple rate categories, the standard rate is expected to be 18%. Services which currently suffer a lower rate due to abatements under service tax are expected to either be in the 5% or 12% basket.

So the industry can more or less estimate their rate basket for impact assessments and await the final announcement before tweaking their IT systems.

Another critical area from the government’s perspective is the readiness of GST Network. While a lot work has happened in this space, now that the laws are public and rules imminent they need to quickly finalise the balance work at their end and start testing their own utility as well as engage with GST Suvidha Providers and test live data interchange. Compliance under GST is entirely dependent on the efficacy of GST Network and service providers.

Another area of serious concern is GST outreach to smaller players in Tier 2 and Tier 3 cities, while industry and associations are doing their bit, government has to launch a concerted effort soon. This community is by and large clueless and their awareness is critical for GST success.

While industry can continue debating whether it’s doable on July 1 or will require a few more months the reality is GST is impending.

At this stage for organised sector the first and foremost is to get their process and IT systems aligned for GST regime. Compliance in GST will be onerous and governance will be the key to address issues of timely credits, working capital and timely reporting. With monthly reporting of transaction or aggregate level in each State you are registered the work is cut out for all stakeholders more so for services who are currently used to just dealing with centre for service tax. The government should be a little lenient in the first few quarters to allow the system to settle down at both ends.

The other critical area of focus will be to closely plan the cut over. This entails proper reporting of existing credits of central and state levies embedded in goods and services to ensure you are able to claim and utilise them under GST as prescribed.

The transition provisions may also alter buying patterns in the value chain so inventory balancing will be critical and business decisions have to be made to avoid stock outs and disrupt production or sales in ensuing months.

The laws have a provision of anti-profiteering to ensure that benefits accruing out of tax cascading and rate changes are passed on in the value chain. Its remains to be seen how this would be implemented, the government at various forums have promised a light touch but industry needs to monitor this aspect from a pricing perspective.

GST’s journey has been long and arduous, expected in a federal democracy, may not be flawless but definitely a good beginning and the government needs to be commended.