Even as the rollout date of July 1 for the goods and services tax (GST) is approaching fast, the government is yet to give final touches to some important aspects of the upcoming tax regime without which we are staring at confusion, litigation and losses for businesses. These include providing clarity on certain aspects and fixing of some open-ended laws. We discuss the areas where resolution/greater clarity is needed for smooth roll-out of the new system.
Anti-profiteering law: One of the most contentious provisions of the law says that any reduction in cost of production due to changes in tax rates must be passed on to customers. Industries, businesses and analysts have raised a red flag on possible misuse of this provision.
"If the manufacturer does not pass on the benefit, he may be doing so because the cost of raw materials or labour has gone up. How can the government determine these things, because prices and costs are dynamic and not static?" says M.S. Mani, Senior Director, Indirect Taxes, Deloitte India.
Many of the fears about this come from lack of clarity on the final shape of the law. Unless the final rules are in place, questions will continue to crop up regarding the implementation of the law. "How will the profit be passed on? Will it will be calculated on entity-wise or product-wise basis? Who will monitor? What will be the period for this?" asks Pratik Jain, Leader, Indirect Tax, PwC.
Transitional provisions: This is another missing piece of the jigsaw puzzle. Transitional provisions will determine the fate of input credits available on transactions under the previous regime. This is an important law as it lays down rules for claiming input credit on taxes paid under the old law on purchase of goods or goods held in stock in the new regime.
"On June 30, every manufacturer, wholesaler or retailer will have goods on which they have already paid taxes. From July 1, when GST comes into force, they will have to pay tax on the same goods under the new regime. So, what happens to taxes that have already been paid? That answer will come from transition credit rules, and that's why it is an important law," says Rajeev Dimri, Leader, Indirect Taxes, BMR.
While the draft rules are already in place, the final shape of the law is yet to be known. According to some tax experts, the government might be having a relook at some provisions of the law. One particular provision says that if an entity is not able to produce all procurement invoices of goods in stock, it will be eligible for 40 per cent credit. Businesses are seeking a higher figure - 60-70 per cent.
Law on e-permits: Though GST was supposed to give a break from long queues of trucks on state borders, making the flow of goods hassle-free, on insistence of states, the central government has put in a provision for e-permits or e-way bills. These e-permits have to be furnished, if asked for by state road transport officers, if the transporter is carrying goods worth more than `50,000.
This goes against the grain of GST and industry has expressed displeasure over it. "E-permit rules are sketchy. Industry believes these are unrealistic. It expects them to be deferred by six months,' says Pratik Jain of PwC.
Rates on some goods yet to be fixed: While rates on 90 per cent goods have been announced, there are still some products for which the GST Council has not come up with the tax rates. The most important of these is gold. The tax rate on the yellow metal is expected to be in the 2-4 per cent range, but no decision has been taken in this regard yet. Gold is an important commodity and many industries and jobs depend on its price movements. The uncertainty is unnerving for many.
Rates for biscuits, bidi, footwear and textiles are also yet to be finalised. Most of these are labour-intensive industries and any adverse rate structure could lead to job losses.
Apart from these, there are some other issues that need attention. One is keeping of hybrid vehicles in the highest tax slab plus a cess of 15 per cent, at a time the government is trying to promote environment-friendly fuels. Cinema owners have also raised objection to the move to keep them in the highest slabs.