New Delhi, April 5, 2017

GST related issues may turn out to be tricky for companies as well as other stakeholders

After the passage of four crucial Bills related to the goods and services tax (GST) in the Lok Sabha last week, only a few issues remain to be addressed for introducing the new tax regime from July 1. However, these issues may turn out to be tricky for companies as well as other stakeholders.

Corporates are already fretting over four sets of rules on input tax credit, transition, composition and valuation. Then there is the fitment of items into five slabs of rates — zero per cent, five per cent, 12 per cent, 18 per cent and 28 per cent — which may evoke contrasting emotions. Besides these slabs, another rate may be fixed for jewellery.

Awareness programmes for companies, particularly small and medium enterprises (SMEs), and the process of registration of firms with the GST Network are also yet to be completed. Then comes the issue of training indirect tax officials.

Finance Minister Arun Jaitley has approved the reorganisation of field formations of the Central Board of Excise and Customs (CBEC), which is now being renamed the Central Board of Indirect Taxes and Customs (CBIC). States will also have to train their officials, more so because they will have to administer services tax as well, which is more or less an exclusive domain of the Centre at present.

Though the four Bills — central GST, union territory GST, integrated GST (relating to inter-state movement of goods and services), and compensation — will be taken up by the Rajya Sabha, the upper House of Parliament does not have any powers to change the money Bills. However, it may embarrass the ruling coalition, which does not enjoy a majority there, by recommending some changes, as had happened in the case of the Finance Bill.

Assemblies are yet to approve their respective GST Bills, which are the replicas of the central GST Bill. They have to clear the Bill, as they will not be in a position to impose any indirect tax except GST from September 16 onwards.

The GST Council on Friday cleared rules on five aspects of the new indirect tax regime and tentatively approved four sets of norms. Later, the CBEC came out with four sets of rules on registration, invoice, refund and payment. These are final rules.

It also released another set of rules on transition, valuation, input tax credit and composition. These are tentatively approved by the council and will be taken up for finalisation next month after inputs from stakeholders. The fitment of items in the five slabs will also be decided then.

This will leave just six weeks for businesses to prepare for these changes before the planned roll-out on July 1. That is why industry is demanding a September roll-out.

“Implementing GST from July 1 may be extremely difficult for the government. One could expect that the voice for September 1 implementation would get stronger over the next few days,” says Pratik Jain of PwC.

However, M S Mani of Deloitte says the July 1 roll-out looks likely, though industry is asking for the GST implementation from September.

Even if the fitment of rates and pending four rules are finalised by May-end or the first week of June, GST can be introduced from July, he says.

Mani, however, advises the governments to adopt a soft approach in the first six months of the roll-out. “As it will be an entirely new animal, a harsh approach is not warranted for some inadvertent mistakes here and there on the part of businesses,” he says.

For instance, companies will have to go for a registration in each state wherever they have offices, besides the central registration. Also, against the requirement of services companies to file just two returns every year and for goods companies to file 12 returns each for VAT and excise duties, all of them will have to file 37 returns each, according to draft norms.

Prashant Pillai, head-corporate business, Thomson Reuters, South Asia, says corporations have to be nimble to execute a comprehensive strategy for the new taxation regime.

This, he says, will require corporations to establish robust processes and systems to ensure master data changes, rates and rules maintenance, accurate determination of tax, integration with various upstream and downstream systems, so that compliance is effectively managed with a long-term perspective.

“This change will encourage corporations to adopt better technologies in tax and fundamentally transform the way indirect tax compliance is managed in India,” he says.

Way Forward

  •     GST Council to take up the fitment of rates and rules on composition, valuation, input tax credit and transition on May 18, 19
  •     Awareness programmes for companies, particularly SMEs
  •     Restructuring of tax administration
  •     CBIC, which replaces CBEC, to supervise work of all its field formations and directorates to assist government in policy-making on GST
  •     Registration of companies on GST Network

[The Business Standard]