India is all set to roll out a massive economic reform initiative. The Goods and Services Tax (GST), is the most transformative and far-reaching reform to India’s indirect tax system since Independence. It will make India a single market, with a single tax rate applicable across the country for the same product or service.
With uniformity of rates and elimination of multiple other indirect taxes, GST will cut out tax-cascading, streamline the movement of goods, make manufacturing aligned to natural advantages, and infuse huge efficiencies across the system. A remarkable GST Network, or a robust online system, will capture 3.5 billion transactions in a month, and bring more of the economy into the organized sector, widening the tax net.
Our cover story explores the nuances of this momentuous reform.
Making GST a reality
This epochal reform is possible due to the commitment of the Government to ensure that GST will be a reality by 1 July 2017. The backbone of GST is technology orientation, the induction of all participating players, and smooth implementation. Its success would involve mutual trust, cohesion, commitment and the seamless engagement of industry and Government.
Industry is ready for this transition w.e.f. 1 July 2017, and wholeheartedly supports this path-breaking indirect tax reform, which is expected to be positive for economic growth.
GST momentum has been sustained with the release of the tax rate schedule covering over 1,200 items and services. The underlying theme of rates for goods and services is the balance between necessities and luxury, with taxes rising progressively from nil to 28%+ cess.
The GST rate structures announced in May and in June are overall very positive, keeping the applicable rates non-inflationary, while still ensuring revenue neutrality. The rates have been aligned prudently in a manner that the incidence of tax for most items is not too different from the current incidence. This adds certainty and stability to the implementation of the GST at a time when its introduction will need unstinting adoption from all sections of industry and trade.
The GST Council, in fixing the rates for goods and services, has taken care to meet the primary objectives of removing the ill-effects of tax-cascading, and creating a seamless credit chain. The attempt of rates fitment of goods for each category seems revenue neutral, and is encouraging in terms of macro impact. The lower rate of tax incidence on account of the alleviation of tax-cascading would promote better compliance and buoyancy in revenue collection.
Several food items and other necessities have been kept between 5% – 12%, with a few at 18%, bringing relief to the common man.
In services, the expectation was to have a single-rate regime; but the four rates structure is a welcome move and would do justification in taxing various services at different slabs, keeping in consideration the recipients of the services, and the abatements enjoyed under the present tax regime.
With most of the rules addressed by the GST Council, India is ready to enter a new phase in its reform journey.
The initial few quarters would be a period of tests and trials and learning and relearning for both trade and industry, in the period of transition and implementation. Hence it is desirable that the Government considers allowing a period of trial run, with condonation of defaults and delays in filing of returns. This is more important for the SME and MSME sectors who may take more time to understand the transition and adapt to the new provisions. It is also expected that the Government may bring out a guidance manual for better understanding and clarifications required by trade and industry for the smooth and unambiguous implementation of the new regime, as some of the concepts may be new, or not covered earlier.
In a continuous process, CII has been playing a lead role in hand-holding industry towards training and smooth transition to GST. To encourage industry to be proactive in managing GST compliance, CII has launched a series of two-day training programs across India to provide useful insights to the GST Law and its impact across sectors and industries. CII has organized numerous awareness sessions on GST across the country and is holding GST clinics in the regions and the States to educate its members on the GST Law, Rules and Regulations, and their implications. CII is also conducting about 80+ GST workshops pan– India, training around 5000 members, including SMEs and MSMEs, on transition and implementation issues. So far, 25 such workshops have already been conducted in the on-going process to take forward GST advocacy in the forthcoming months.
CII is working in close association with the Government and is likely to be designated an ‘Approved Training Partner’ by the National Academy of Customs, Excise and Narcotics (NACEN) for imparting GST training to trade and industry, thereby playing the role of a facilitator in advocacy and smooth transition to GST.