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  • MODERATOR:

    Hello and welcome to a webchat with A K Bhattacharya, the editor of Business Standard, on the GST debate.


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    NILESH PANDEY

    Dear Sir, Greetings! I am listing some of my questions below. Please explain me in detail. 1) State governments are saying they will lose their revenue if GST is implemented. Would you please explain how states will lose revenue? 2) In its recommendation, the standing committee on GST recommended that there should be 1% additional tax over the GST rate for interstate transfer of goods for consideration. But some experts are saying it will have a cascading effect. Would you explain how it will have a cascading effect? 3) I read in Business Standard that once GST is implemented, it will increase tax base, it will remove cascading effect of the present tax system, and also it will provide a single window for tax payment. Would you explain how these things are going to take place? 4) Many state governments are demanding that tobacco, liquor, and petrol be kept out of GST and they (state govt) will enact law for these. If we are considering the Indian economy as a whole, in which direction is it going to affect Indian economy and how much?

    A K BHATTACHARYA

    Good questions. Let me answer one by one. The states are fearing loss of revenue. But that fear is baseless and irrational, as it arises out of poor understanding of the GST framework. At present, states have a small share of revenue from the services tax collection. In the proposed GST, the states will be able to get their entire share of services tax collection. This itself would mean a higher revenue collection under GST. The states' problem is not loss of revenue but the loss of the freedom to fix tax rates, since under the GST regime they would have to levy taxes at rates prescribed within a narrow band mandated by the GST Council. The second question is on the one per cent additional tax on inter-state movement of goods. Since this tax would be outside the GST framework and, therefore, its levy cannot be set off in the GST chain, there would be a cascading effect of taxes. Thirdly, a perfect GST will certainly widen the tax base for both the Centre and the states since the cut-off for all economic entities coming under the tax net would be Rs 10 lakh of transactions in a year. This alone would widen the tax base. However, in the proposed GST regime, many items like alcohol, tobacco, petroleum products or stamp duty on real estate could be left out. If these items were also included, the tax base would have widened even further and the overall revenue neutral rate could have been closer to 18 per cent, compared to 27 per cent as is being projected by some committees. Finally, as you rightly pointed out, excluding these items would result in an imperfect GST, with sub-optimal effects. But the goal should be to have the GST even with its current imperfections, but allow the GST Council to bring about further changes to take the tax regime closer to what it ought to be.


  • V

    VIVEK

    What is the likely timeframe within which GST could become a reality?

    A K BHATTACHARYA

    In theory, it is possible to roll it out by April 1, 2016. But given the tough and inflexible stance taken by some political parties, it is unlikely that the bills would be passed and give adequate time half the states to pass the Constitution amendment bill to be passed before the target date. Thus, it is possible that we may see the roll-out sometime later next year.


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    R KUMAR

    Can the long-pending GST rollout happen from April 1, 2016, or could it take longer?

    A K BHATTACHARYA

    Given the current logjam in Parliament, where almost a week has passed by without any business being transacted, it is unlikely that the promised target of April 1, 2016 for rolling out GST would be met. But in politics anything can happen in the coming days. If the stalemate in Parliament gets over, the GST bill and the Constitution Amendment bill could be passed, giving half of the states enough time to clear the amendment bill to usher in the GST regime from April 1, 2016.


  • A

    ANITA RASTOGI

    How will the works contracts be treated in the GST regime?

    A K BHATTACHARYA

    If the work specified in a contract pertains to a service being delivered, the GST would be applicable to the value of the contract, subject to changes or deductions depending on the abatement rate fixed for such activity. The abatement rate would reduce the value of the total taxable contract value and the tax would be paid on that reduced rate.


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    AKASH

    Is GST good for a country like India in the current scenario?

    A K BHATTACHARYA

    There is no doubt that GST is good for our country. One, this would avoid taxes to be paid on taxes. In other words, the cascading effect of taxation would be eliminated. Two, because there would be an incentive for producers of goods and providers of services to get a set-off benefit on the taxes they may have paid on their raw materials, the overall costs would come down, improving their competitiveness. Three, this would widen the tax base bringing many more goods and services that now do not come under the tax net and the exchequer loses out on such revenues. This would have an overall positive effect on tax compliance, tax collection and an improved tax to GDP ratio.


  • A

    AKASH

    If GST is beneficial for industry, why is the Congress opposing the Bill?

    A K BHATTACHARYA

    The Congress is opposing the Bill for two reasons: One, it wants to make it a political issue. Remember that the BJP when it was in the Opposition also acted quite irresponsibly and opposed the GST Bill just for political reasons or for the sake of just opposing it. So, the Congress is giving it back to the BJP and the economy as a result continues to suffer. Two, it wants the the GST bill to be rid of all its current imperfections. It does not want the one per cent additional tax on inter-state movement of goods and it is opposed to the likely exclusion of alcohol, tobacco and petroleum products from the GST regime. It also wants the revenue neutral rate lower than the 27 per cent rate proposed by some group. All these objections are valid. But the Parliamentary panel that examined the bill has addressed all these issued. It has proposed to restrict the applicability of the one per cent additional tax only on inter-state goods transfer that are sold, but not on inter-state inter-depot transfers of a company. It has suggested that as many products as possible should come under the purview of the GST and this should be a good enough signal for the GST Council to act on. Thirdly, it has suggested that the revenue neutral rate cannot be more than 20 per cent. All these suggestions should address many of the Congress concerns. Still there would be some imperfections in the GST regime. But my view is that we can move on with this bill now and the GST Council should be able to introduce all the necessary changes over time in the next few months. If we keep waiting for a perfect GST before launching it, we might not see the launch date ever. A better option would be to start it and then amend it over a period of time. In short, the Congress opposition is political and lacks practical sense.


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    AMIT

    Sir, GST will subsume major Central and state taxes, thereby reducing multiplicity of taxes and lowering compliance cost. Apart from uniform pricing, do you also envisage a reduction in prices of manufactured goods after implementation of GST, as the entire manufacturer-wholeseller-retailer supply chain takes benefits of input tax credit?

    A K BHATTACHARYA

    Yes, the GST can help competition become more effective in keeping a check on prices.


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    DAVINDER

    Branches of most banks are located across the country, and banks provide services through various modes like ATMs, online banking, mobile banking, etc. How the location of supply of service will be decided, as it might not be possible to comply with if the same is linked with location of service receiver?

    A K BHATTACHARYA

    An important question. GST as we all know is a destination based tax. Unlike the earlier form of excise or service tax, the location from where the supplies came is where the taxes would be paid. But in GST, the tax is paid at the location where the goods or services are consumed. Thus, if you get a bank draft made through mobile banking, then the tax would be paid and collected in the state where you are located, and NOT where your bank is located.


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    NIKHIL

    What is the likelihood of the inclusion of petroleum in GST? Also, are crude oil, natural gas, motor spirit, high-speed diesel & aviation turbine fuel likely to be included as well?

    A K BHATTACHARYA

    Very strong. The Parliamentary committee that examined the bill suggested that they all should be included. The GST Council should take note of this and hopefully include all of them in GST. This will be crucial for bringing down the revenue neutral rate under GST. Petroleum products account for a huge chunk of the current tax base and excluding them would not be prudent.


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    NIKHIL

    There have been recommendations to include LNG, including regassified LNG and regasification services along with petroleum Products in GST. Is it being discussed? What’s the likelihood of inclusion?

    A K BHATTACHARYA

    There is no reason why LNG or regassified LNG or regasification services should not included in GST along with other petroleum products. It all depends on the GST Council, which would have representation from both the Centre and the states. If these products are kept out, the overall GST rate or the revenue neutral rate would go up needlessly to a level that the ultimate objective of the new taxation regime could be defeated.


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