After years of successive governments wanting to implement this transformative tax reform, the goods and services tax (GST) will be a reality on 1 July.
The government and the GST Council deserve to be complimented for forging consensus on such complex issues such as laws, rules and rates within a short period of time for this reform to be implemented.
While there are and there will be several issues which need redressal and clarification as expected in a reform of this magnitude, it’s important the government works with the industry to minimize and manage disruptions during the transition period with responsive guidance as and when issues arise.
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The reform has already affected behaviours in the value chain with inventories coming down significantly, though some redressal of transition credits with industry assuring distributors/ dealers of margin protection, including offering discounts in selective sectors, will hopefully improve the throughput of goods and services in June and July and not impact sales significantly. The stabilization of supply chain by July/August will be critical as the festival season starts from and maximum sales happen during this period, also one of the reasons why deferment of GST to September would have been a problem.
The GST Council’s decision to defer transaction-level details filing of outward and inward supplies for July and August till September with an interim arrangement for aggregated return will provide some relief for the industry and compliance facilitators. This was a serious concern for industry and service providers with return formats undergoing change on 3 June.
It is critical that Goods and Services Tax Network and industry have sufficient time to test their enterprise resource planning, data for GST Returns filings before the process as envisaged in law gets under way.
The council also approved several rules, most important among being the anti-profiteering rules.
Two committees are expected to be set up to examine such representations and filter them, and this may be for a period of two years.
These rules and mechanisms need proper understanding. The statement that anti-profiteering provisions are more a deterrent is welcome, but this view needs to be implemented in that spirit on the ground.
The period of two years, if it’s correct, is long and needs revisiting considering global practices.
The industry’s expectation that some of their representations around rates will be heard will now have to wait for some time. The hospitality industry’s concerns were, however, addressed with 18% rate now being applicable for room charges up to Rs7,500, and restaurants in hotels attracting 18% on par with other air-conditioned restaurants.
Another issue that was addressed was that of input credit on Integrated GST paid for import of ships against output tax. The vehicle leasing industry’s issue of getting excise credit against GST on leases at underlying vehicle GST rate remains unaddressed and will be a huge problem for both the industry and its users.
Clarity around how refund for area-based excise incentives work, besides state incentives, is still unclear and requires immediate attention, as a large of number of sectors will be affected.
E-way bill has been an area of concern for industry, especially in the manner in which it was being proposed, though an agenda item for GST Council consensus is still awaited.
Several states have expressed reservations; so, we will have to wait longer and beyond 1 July for resolution.
The statement that till then the current system may exist makes one wonder whether check posts will continue and the industry’s aspiration of free movement of goods in One India remains a dream.
This is a reform we as a country have waited patiently for long and it’s at our doorstep.
Every stakeholder in the central and state governments, the GST Council, the GST Working Committee, the industry and their advisers have all worked tirelessly for months to get ready for this milestone, and it’s time for all to collectively embrace this reform and manage this massive change with hopefully limited disruption.
Harishanker Subramaniam is national leader (indirect tax services) at EY India. The views expressed are personal.