The passage of the much-anticipated Goods and Services Act (GST) and its possible rollout from April 2017 constitute changes that most businesses are eagerly looking forward to. However, while the reform has the potential to transform ease of doing business, it is also fraught with challenges.
Both the government and tax-payers will have to brace themselves for a bumpy roll out. While the GST is a reality, many nitty-gritties are yet to be ironed out. The GST Council, comprising centre and state, which is in charge of working out the finer details, has several deadlocks to resolve. A key one is states’ insistence on exclusive jurisdiction over entities with a turnover of under Rs 1.5 crore. Then, there is the discussion around imposing an additional cess, or ‘sin’ tax on tobacco and luxury goods to compensate states for loss in revenue. The jostling over jurisdiction is likely to be a hot potato for the central government to handle. Besides, the parliament has to give its final nod after states send in their suggestions. The bottom line is that while the GST base is ready, the toppings are yet to be prepared, making it difficult for businesses and consumers to hazard a guess on its taste and texture.
The GST framework provides for central GST and state GST. Thus, central and state agencies will share the jurisdiction over assessees. The division of powers to collect tax substantially waters down the promise of one-nation-one-tax. The compliance process will continue to be complicated, albeit simpler than the current system. Then, there is inter-state GST, which will be collected for inter-state transactions of goods and services.
The fundamental promise of the GST framework was to put in place a uniform tax regime across states. While it will indeed be implemented uniformly across the states, the tax structure does not lend itself to a single rate. The GST Council recently arrived at a four-tier tax structure – 5%, 12%, 18% and 28% – for different commodities. Certain essential commodities like foodgrains will not be levied any tax. Moreover, since states will retain control over certain products like tobacco, liquor and fuel, ease of business, though much improved, will continue to be elusive.
One of the major reforms in the GST regime is change in the tax levy mechanism. In the present system of Indirect taxes the tax levied is origin based, that is revenue accrues to the origin state from where the movement originates whereas GST is going to be destination-based or consumption-based tax. Hence, the place of consumption will decide the State that will collect tax. This will be a boon for less developed States who consume more than what they produce.
Once GST is rolled out, a huge chunk of your compliance will go online, necessitating upgrading your systems as well as staff’s skills. The government has launched the portal www.gst.gov.in to facilitate enrollment, registration and filing returns. Small business will have to make investments to ensure that their compliance structure conforms to the GST system. They will have to train their staff not only to understand the tax implications of GST, but also on the procedural aspects like enrolling and uploading returns online.