Ever since the new Government has taken charge, the country is hopeful of a massive overhaul of the economy, to put it back on the high-growth path. One of the most critical reforms that the industry is looking forward to earnestly is the implementation of Goods and Services Tax (GST) regime. After having missed several deadlines in the past, taxpayers now expect a concrete roadmap from the Central Government and Empowered Committee (EC) to ensure a speedy rollout of GST.
The inherent simplicity of GST vis-à-vis the existing taxation framework will help businesses focus more on what they are actually meant to do – business. The complexities and challenges posed by the prevailing tax regime tend to take up significant time, effort and resources of the industry. In fact, it is not uncommon to find business decisions being driven more by tax considerations rather than commercial efficiencies (such as where to source the raw materials from, whether to manufacture in-house or outsource, etc.). GST will make most of these decisions tax-neutral, thus, letting commercial imperatives drive business instead of tax.
GST being both a Central as well as State subject, the Union Finance Minister cannot unilaterally make any commitment in the Budget around its precise implementation date. Nonetheless, industry expects him to make a positive and concrete commitment towards its timely implementation, and speak about the measures he intends to take in order to bring the States on board. This would primarily involve addressing their concerns around CST compensation, ensuring there is no loss of revenue under GST, and building some flexibility in the system to give some room to States to deviate from the model code. The last aspect, though not desirable from industry standpoint, may actually turn out to be a reality, if GST is to see the light of the day.
Also, pending GST transition, steps can be taken to align the existing excise and service tax regime towards GST. This could entail rationalization of Cenvat credit, deeper integration of excise and service tax, etc.
Even if we don’t have an ‘ideal’ GST to begin with, any acceptable version of GST will not only give a major boost to the industry; it would also go a long way in reviving global investor confidence in the India story. This should directly or indirectly translate into higher investments in India, and contribute to the economic growth.
To make the most out of the new system, it is important to seek inputs from all stakeholders, including the industry. Past experience suggests that lot of tax amendments are carried out without completely understanding the business nuances, leading to undue complications and litigation. This can be avoided by consulting industry on all important aspects of GST. The industry, on its part, should act like a responsible stakeholder, and should not confine its suggestions to tax exemption/ reduction measures. The focus should be more on ensuring tax certainty, ease of compliance, and widening of tax base to reduce the tax rates.
It might be worthwhile to have some eminent industrialists and tax experts as part of the core GST group, who should actively participate in all important discussions on GST framework.Also, international experience around what works and what doesn’t should be evaluated, specifically for aspects such as place of supply rules, taxation of cross-border transactions, etc.
With reforms becoming the top priority for all stakeholders in the country and a definitive mandate at the Centre, one cannot expect a better platform for timely rollout of an effective GST. One hopes that the Central Government and the States will show the urgency that this tax reform of the century deserves and ensure that it doesn’t lose steam again because of any political roadblock.
Siddharth Mehta is Partner – Indirect tax, KPMG in India
