GST – Whether a game changer or a name changer?

December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 67 613

Prelude
1. Goods and Service Tax (GST) is no doubt the biggest tax reform
of independent India and would bring about a paradigm shift in
the way goods and services would be taxed. GST is in vogue
in other countries/territories like Canada, Australia, Malaysia,
European Union and Singapore and study reveals the definitive
benefits derived from GST. The moot question is whether GST in
India would have those qualities of an ideal GST and will it be
a game changer or a mere name changer. This paper also seeks
to find answer to another pertinent question as to whether GST
in India is the ideal tax mooted originally or a mere title. These
questions arise as the concepts of GST as originally thought out of,
debated, discussed and approved by economists and tax experts,
seems to be diluted by the day, as we enter the final phase of its
implementation and when the baton is passed on to the bureaucrats
and politicians, who have other than pure economic considerations
in mind for introducing GST.
Ideal GST and its advantage
2. An ideal GST regime would bring in a scenario where all credits
of taxes are allowed seamlessly on purchase/receipt of goods (inputs
or capital goods) and receipt of services. These credits would be
allowed to be utilised against the tax payable on taxable output
supplies of goods or services. This in turn would result in reduction
of overall cost of goods and services by avoiding the cascading or
pyramiding effect of multiple indirect taxes.
Need for GST in India
3. The First Discussion paper sets out in detail the need for
introducing GST in India, some of which are as follows:
CA Madhukar N Hiregange
K.S.Naveen Kumar
Advocate
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GST – Whether a game changer or a name changer?
December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 68
(a) That there are shortcomings in the structure
of VAT both at the Central and
State levels.
(b) That non-inclusion of several central taxes
like additional customs duty, surcharges
etc. in the overall framework of Cenvat
Scheme has kept the benefits of comprehensive
input tax and service tax set-off
out of reach for manufacturers/dealers.
(c) That no step has been taken to capture
the value added chain in the distribution
trade below the manufacturing level in
the existing scheme of Cenvat.
(d) GST will include comprehensively more
Central Indirect Taxes and integrate
goods and service taxes for the purpose
of set-off and also lead to revenue gain
for the Centre by widening the dealer
base by capturing value addition at
multiple stages in trade and increased
compliance.
(e) That there are shortcomings in the existing
VAT laws like non-inclusion of indirect
taxes like luxury tax, entertainment tax
etc in VAT (not subsumed in VAT law
of the State).
(f) That the Cenvat paid on the goods and
service tax paid on the services used
is included in the value of goods to
be taxed under the VAT laws thereby
results in cascading effect.
(g) That in GST regime, set-off on Cenvat and
Service tax paid would be permissible
and continuous chain of set-off from the
original producer’s point and service
provider’s point upto the retailer’s level
would be established thereby reducing
the burden of all cascading effect.
(h) CST burden would be removed and several
taxes would be subsumed in GST.
4. Aspects diluting GST impact
S. Nos. Aspect How it affects GST
1. Levy of additional tax of 1% in lieu of CST
without credit facility
This would bring back CST in a different Avatar
and would lead to pyramiding effect of taxes1.
2. State Excise not subsumed. Petroleum and Tobacco
products kept outside the ambit of GST.
This would lead to cascading of taxes. Major products
earning good amount of indirect taxes still not
subsumed in GST would mean that conceptually
it is not the ideal tax scenario.
3. Restrictions in credit. Non-adjustment of credits
freely inter-se SGST, CGST and IGST
This would result in cascading of taxes and maintenance
of separate records would be cumbersome.
4. Band rate and different rates The bane of the present system is that the tax
rates are not uniform throughout the country,
which would re-appear in GST also.
5. Differentiation between goods and services for
applying the rate of tax.
There are number of disputes due to such distinction.
The purpose of bringing tax on services and goods
in one law would be defeated.
6. State-wise exemptions This would lead to unhealthy competition apart
from discriminatory treatment. It may also lead
to flight of capital and investments.
7. High rate of tax Whenever taxes are high the evasion is also high.
Lower the rate better would be the tax compliance,
which should be aimed in GST.
8. High compliance cost This would be a big burden for the tax payers
particularly small assessees and individuals.
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GST – Whether a game changer or a name changer?
December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 69
9. Two components (CGST and SGST) for intra-
State transactions and IGST for inter-State
transactions. This gives room for doubt as to
whether GST would be a game changer or a
mere name changer.
It should not be a return of the present system
in a different form.
10. Multiple registrations More the registrations more would be the compliance
requirement. It not only increases the cost of
compliance but also results in cumbersome procedural
compliance involving several manhours.
11. Multiple returns This would lead to increased compliance cost and
wastage of time.
12. Credit in instalments. It is not a sane idea to allow credit on capital
goods in instalments, as no such distinction is
there in the present VAT regime.
13. Treatment of export turnover as exempted
turnover for computing threshold limit.
This would lead to credit restrictions and burden
the exports. Further it would vitiate and sully the
economic policy of not exporting taxes along with
the goods or services.
14. Refund – related provisions Refunds have always been elusive. The present
system appears with renewed vigour as evident from
the Business Processes released by the Government.
This is one-sided and unfair. Change in mindset of
the tax administration is not amply demonstrated.
15. Tax administration – dichotomy. The officers administering the law would be from
different streams at Central or State level like
Revenue Service, Administrative Service. They have
never worked in tandem in the present regime. GST
is expected to remove such hassles. None of these
issues have been addressed or discussed till now.
Conclusion
5. Dr. Parthasarathi Shome2, who has assisted
about 30 countries to implement GST in his
recent 3article has expressed concerns about
the present form of GST and has observed
that in the last mile, many essential components
of a robust GST have been shaved off. A rather
profound statement by an economist, who is
an expert in GST implementation. Coming
back to the questions raised initially, if the
compromise on ideals occur then the GST in
India would be a collage of existing taxes
with some changes in its form and structure.
If it is so, it would be a low water mark
in our tax regime and the real economic
benefits expected from GST would remain
a distant dream.
lll
1. However going by recent media reports, it appears that this levy would not be introduced.
2. He is a renowned economist and Chairman of TARC (Tax Administration Reforms Commission) constituted by the
Government of India.
3. Article titled “GST – Remains of a decade” in www.gstindia.com, published on 16-9-2015.