NEW DELHI: Two years after India’s biggest indirect tax reform rolled out on 1 July 2017, businesses and traders, both big and small, still have a long wish list.
The Goods and Services Tax (GST), which expanded the coverage of indirect tax by about 50% over the tax base earlier to bring in 3.4 million new tax payers, has made taxation more transparent and difficult to evade, but loose ends like leaving out important parts of the economy such as land, electricity and key fossil fuels out of its ambit, inflict a cost to businesses.
In a slowing economy, large businesses want further simplification, while conventional traders already facing the onslaught of e-commerce, want state subsidy for buying computers for efficiency and to comply with the technology-dependent tax system.
Tax rate cuts on commodities still on the 28% slab such as cement, reduction in tax on services which are affecting small and medium enterprises (SMEs), and reducing the number of tax slabs from four to three are among the structural changes that businesses want. While GST Council, the federal indirect tax body, has slashed tax rates on goods sharply several times, it has left services more or less untouched. Considering that services account for 60% of the economy and most of the services are taxed at 18%, SMEs have a high tax burden on services. “Tax on professional services should be reduced from 18%, which is very high. Many SMEs are not able to afford professionals like accountants and auditors," said Chandrakant Salunkhe, founder and president of the SME Chamber of India.
Praveen Khandelwal, national secretary general of the Confederation of All India Traders (CAIT), said only about 35% of traders in the country could computerize their business to be technologically equipped to comply with GST. “Therefore, the government should provide 50% subsidy to traders for purchasing computers and allied equipment. It will encourage tax compliance," said Khandelwal.
Large businesses, on the other hand, want structural changes to GST. Vikram Kirloskar, president of industry group Confederation of Indian Industry (CII), said in a statement that the industry expects the GST slabs will now converge into just 2-3 rates for general and demerit goods. At present, the slabs are 5%, 12%, 18% and 28% in addition to a zero tax category and a cess on the highest slab on certain items. “GST must also cover excluded products such as (fossil) fuels, real estate and electricity to ensure full input tax credit. It is important to simplify GST for multi-state operations, such as single registration and intra-company services," said Kirloskar. Inclusion of say, jet fuel in GST will allow airlines to get rebates for the taxes on fuel while computing their final tax liability on the airline service they render. Similar benefits will accrue to oil producers like Oil and Natural Gas Corp. and fuel retailers Indian Oil Corp. Ltd. if crude oil, petrol and diesel are included in GST.
Government officials say ‘ease of doing business’ will be the guiding principle in shaping GST in future. “Rationalisation, simplification and ease of doing business are the priorities now," an official privy to discussions in the GST Council said on condition of anonymity. An official statement from the finance ministry said on Sunday that in the current financial year, service providers with sales up to ₹50 lakh a year will be offered a flat tax system at a tax rate of 6% without rebate for taxes paid on inputs. This is similar to a scheme available to restaurants and traders of goods with sales up to ₹1.5 crore. Trial of the new simplified tax return system will start from 1 July.