GST Course

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1. Moderate tax rate
2. Minimum exemption;
3. High exemption threshold;
4. Neatly-defined definitions of key phraseology;
5. Minimal and clear-cut classification;
6. Simple valuation rules; 

(i) Valuation to be based upon only on 'Transaction Value',

(ii) Separate provisions for addition of royalty or license fee or incidental expenses like Commission or Packing charges to be deleted as these are not warranted once Transaction Value concept is followed.

(iii) Provision for deduction of Discount, subject to following certain condition, to be deleted as transaction value is always arrived after allowing discounts.

(iv) Power to reject Value is unwarranted once transaction Value is accepted as the basis.

(v) Free supply of goods or Services not to be charged to GST as cost thereof is already part of other goods and services supplied for consideration, except for inter-state branch transfers.

  • Seamless credit chain;
  • Clean procedures for registration, tax payment, return-filing and many more

Reality read problem areas:

1. Several key commodities such as petroleum, alcohol for human consumption, tobacco, electricity and real estate are excluded - This means a large chunk of the economy is out, and would continue to 'distort' the CREDIT CHAIN.

 2. Not subsuming the local body’s taxes. What have been deleted from the State List by the Constitutional Amendment Bill are only the Sales Tax, Entry Tax and Entertainment Tax. It is very clear that although Entry 52 has been omitted but the power of the local bodies such as municipal corporations, district councils and panchayats to levy taxes has not been tinkered with.

3. In other words, all such Entry Taxes which are imposed by the States would go away but not the taxes collected by the municipalities. And one such big irritant is the Octroi which generates as much as Rs 7000 Crore revenue annually for Brihanmumbai Municipal Corporation (BMC).

4. So, the verdict is out - the industry and trade cannot escape from the curse of chungis / nakas at entry points, totally. Similar nakas are going to be omnipresent across the country as most State Governments would be allowing the municipalities to generate revenue for themselves rather than sharing their revenue with them.

5. Another flaw is going to be the list of exempted goods. In case, our list of exempted items is long, and States are not going to spare them from physical verification at nakas.

6. If our exemption list, even after pruning the present lists of the Central Government and the States, is going to be long, it would jack up the Revenue Neutral Rate (RNR).

7. Non-committal on the GST rate of 18% which the Opposition has been demanding. Going by the Centre's commitment for 100% revenue compensation to the States and a number of CESSES imposed by the Center, the tax rate may be higher than 18%. A higher rate may be a compulsion but it would further compromise the curtailed efficiency of the half-cooked GST.

8. The fact that the Ministry of Finance has got flooded with representations from the industry and trade about the flaws in the Model GST Laws (about 40,000 as per the Revenue Secretary), is a clear indication that there is an urgent need to revisit the key concepts such as what constitutes SUPPLY and TIME and PLACE of Supply; valuation, credit, job work and classification.

9. The definition of supply is going to be the most critical piece which would determine other important phraseologies.

10. No doubt, such an exercise is going to delay the roll out of the proposed GST. There is nothing sacrosanct about April 1, 2017. India has taken 10 years to overcome the first major milestone of Constitutional Amendment.

11. But, going by the preparations in the North Block, it appears that the new GST laws are going to retain almost 75% of what is today in the public domain. Only about 25% changes may be effected.

12. The proposed GST is going to be a totally IT-driven tax system where not less than 400-500 crore invoices are going to be uploaded and matched like the Income Tax TDS system before any tax credit is allowed.

13. Capital goods credit again allowed partially - 1/3rd in first year and 2/3rd in next.

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Category GST, Other Articles by - Arbind Aggarwal