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Source: Business Standard

Admirable legislative progress has been made in the race towards implementation of Goods & Services Tax (GST). The first week of new fiscal in April witnessed the Parliament passing the final set of GST laws i.e. Central GST, Integrated GST, Union Territory GST and Compensation cess, with minimal floor opposition.  Further, the GST Council released four sets of draft rules on crucial aspects related to input tax credit, valuation, transition provisions. These new rules accompanied revised rules related to registration, invoicing, payment and refunds (which were originally released in September 2016) for stakeholder consultation.

As immediate steps, the aforesaid rules need to be debated with industry representatives and finalized to get moving on implementation since at the present moment business are merely able to absorb statutory provisions given that finer procedural nuances will emerge on journey for finalization of such rules. A case in point is applicability of draft rules on valuation principles for intra-unit transfers, a most common form of transaction. Similarly, transactions such as rent-a-cab services, tour operator etc. which enjoy abatement, under the extant law will undergo changes as specific valuation mechanism or concessional benefits will have to be accorded under the GST regime.

Another important element is mechanism (prescribed in the draft rules) for transition of credits for Excise, VAT and service tax under GST.  While the method of transitioning has been provided under the draft rules, there is no clarity on filing & compliance requirements under present legislations i.e. excise duty, service tax and VAT/ CST and how they would be aligned to closing returns of June 30 (assuming GST implementation start on July 1).  Likewise final rules for registration/ returns/ refunds will pin down understanding of documentation, related reporting and credit eligibility.  Though, the draft rules are in the public domain, businesses are skeptical to rely on them and undertake permanent changes in their systems.

The debate on stratification of products across the prescribed rates of GST is open. At the present moment, only broad rate slabs have been made available by the GST council i.e. to recap, leaving aside basic essential goods, 12, 18 & 28 for goods along with luxury cess not to exceed 15 % of the peak GST rate. Though the Council has clarified that the final GST rate would be (as close) to the upper side of the current amalgam of all indirect tax levies, businesses will have to wait for firming up pricing decisions. Delays in pricing strategy will have a cyclical delay impact on negotiations with vendors, distribution agents and so on. From an internal organization standpoint, any increase in rates will necessitate assessment of incremental working capital, its impact on cash flows and rejigging of supply chain. All of the above will require advance meticulous planning and execution, a luxury not available given the timelines. This coupled with the fear of anti-profiteering law obligating businesses to pass the benefits of lower tax to the customers could further procrastinate pricing decisions. The challenge though would be less pronounced in the context of services.

Come July 1, 2017, a fundamental change is switch from the age-old practice of indirect taxes such as Excise on manufacturing, VAT or CST on sale of goods and Service tax on rendering of services to applicability of GST i.e. on the activity of ‘supply’.  This necessitates that business IT systems are equipped to process invoices issued by vendors on which credit can be availed, coordinated in a manner that the reporting requirements associated with filing the returns on the GSTN portal are fulfilled.  In the present transitional situation, tax payers are unable to freeze their business processes and positions including shift to robust IT system, which could handle this level of transactional data.

Periodic updates on the development and readiness of the GSTN, an online GST portal forming the backbone of Governments implementation plan and dependent upon disclosure of transactional data will be welcome.  The Government has to test the robustness of portal, still under wraps, before it is released for public testing. Coinciding with portal are related aspects for tax payers on final formats for returns, registrations, payments etc. draft of which were released in September 2016. In summary, all of the above have to converge and form an integral part of implementation for a transformational tax regime change.

On a positive note, I am reminded of a quote from a famous American Essayist, Poet, Philosopher (and also a tax resister) Henry David Thoreaux – All endeavor calls for the ability to tramp the last mile, shape the last plan, endure the last hours foil. The fight to finish spirit is the one – characteristic we must possess if we are to face the future as finishers!

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