We asked Amrita Mitra, a partner for Tax and Regulatory Services at Grand Thornton, Mumbai, to explain aspects of the GST.
The "taxable event" in the GST
The reason why the GST is so popular today, and followed in more than 140 countries is that it follows a method of value added tax. This is a complete departure from the manner in which indirect tax is levied in India today.
GST is classically defined as a destination-based consumption tax and it is also a transaction tax. Today, indirect taxes for us really means that there is an excise duty on manufacture, a service tax on the rendering on service and a sales tax levied on a transaction of a sale of moveable goods.
GST will replace all this, and there will be a transactional tax which is destination based.
Absence of model legislation
In November last year the Government came up with a white paper that gave the basic modalities of GST. The Central government cannot come up with a legislation given the two lists that exist within the Constitutional federal scheme. The Government fist has to amend the Constitution and only then come up with draft legislation. Industry has relied on the white paper, the GST models in the European Union and has come to consultants for guidance.
A new system of dispute resolution
The tribunals, which exist now, will get replaced. They new tribunals need to be transparent and faster in disposing of matters, both of which are absent today.
Accumulated CENVAT credit
The white paper mentions that all the accumulated credit lying in the books as on thirty first March, whether it is the CENVAT credit at the central level or the state VAT credit will all get carried forward.
Goods exempted from VAT
Currently, the rates that have been announced are very high. 20% on goods as against an average 12% now, 16% on services as opposed the 10.3% now. An ideal GST model works without any breaks in the chain, which means that you keep getting charged to tax and keep getting credit, which you adjust against the next payment.
The first exemptions to go will be area-based, like Kutch, Rudrapur. The second exemption to go will be investment-based, and then the life saving drugs. We are hoping that there will also be a negative list.
Countervailing duty and additional special duty for import transactions
A new feature under the GST is that though state governments do not levy any tax on imports today, under the new regime there will be a state GST on imports, equal to the other GST.
Implementation of the information technology architecture
The GST will be highly IT dependent, and there is a system being put in place.
Consultants and the GST
We are training people for it. We hold seminars on a monthly basis, and also conduct video conferences to train people on it. We are looking at other countries where it is implemented.
Some industries will face the impact of GST more than others
There are two very broad categories -- manufacturing and services. In India, goods are manufactured at a few factories all over the country and then they are stock transferred out to various depots in different states. The reason for this is the indirect taxation system. The entire supply chain, which has been built over the years, will now go away. Logistic service providers will now set up nodal warehouses and then run this system, which will prove to be time efficient.
Services are the greatest hit with the implementation of the GST. Tax on services will increase from the existing 10% to 16%. Today, services allow for a centralised registration, going ahead there will be a state levy and a central levy. This will impact services greatly.
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