By Priyajit Ghosh
The 23rd GST Council meeting that concluded in Guwahati was much- awaited post the Prime Minister announcing a major relief. The speculation surrounding the meeting could be compared to that of the annual union budget announcement. For many it provided a reason to cheer and for some there were more than one.
First up, the GST rates. As expected, the Government pruned down the 28 % slab comprising 227 products list to just 50. A large variety of consumer goods ranging from detergents, to chocolates to beauty products faced rate cuts while the rate for durables such as refrigerators, washing machine and notably cement was kept unchanged. It has also reduced rates from 18% to 12 % on a few items such as condensed milk, pasta, refined sugar etc. This would have a positive impact on the monthly household budget and also reduce the debate on classification issues.
However, the rate cut would require the retailers to pass on the benefits to the consumers by reducing their selling price below the MRP on the existing stock since the current MRP on those are inclusive of GST at the rate of 28%. It would indeed be interesting to see whether the end consumer gets the benefit of the rate reduction on the existing stock as well. At the industry’s end, it would require a repricing exercise at the factory level with the new lower MRP.
Continuing on the rates, an important exemption has been introduced removing the double levy in case of import and lease transactions.
Clarifications would be issued on the inapplicability of GST on certain inter-state movement of tools, spares, cranes in course of provision of services, self-use and repairs.
All restaurants, whether air-conditioned or otherwise except those in hotels with tariff more than Rs 7,500 per day (anytime) would be taxed at 5 %. However, they would not be entitled to take input tax credit of GST paid on their expenses.
Denial of input tax credit goes against the basic tenets of GST and perhaps, restaurants are the only sector which has now been kept completely away from the input tax credit mechanism. This has evoked a mixed reaction. While the unorganized segment has cheered this move, the organized one with sizeable GST expenses, such as rent, franchisee fee, processed food products, branded raw materials may look at increasing the menu prices.
While the rate reduction would bring relief to the consumers, its impact on the coffers and retail price index is yet to be studied in detail. The rate related changes would take effect from November 15, 2017.
Next area for the attention was the simplified scheme for the smaller tax payers referred as ‘composition scheme’ which apparently found few takers much against the expectations. The Council for the second time, increased the threshold to Rs 1.5 crore from Rs 1crore and introduce a single rate structure of 1 %, both for the traders as well as manufacturers. The proposed threshold compares well with the erstwhile excise threshold.
The issue of allowing inter-state sale still remains unresolved. However, an exemption for services (in addition to the supply of goods) upto Rs 5 lakh has been allowed to ensure those with marginal service income, in addition to goods, that are not deprived of the scheme. The move should convince many tax payers to opt for the scheme who were hitherto apprehensive of the scheme owing to rate, threshold, etc.
Lastly, on the compliance front, it has been a series of extensions and suspensions aimed to help the taxpayers, the Government and the GSTN (Goods and Service Tax Network) portal. The last dates of various filings have been extended. The summary monthly filing (Form 3B) instead of detailed filing, has been extended for the entire fiscal year (slated to expire on 31 December).
For small taxpayers (with a turnover of Rs 1.5 crore or less), the monthly Form 3B and a quarterly return of sales (GSTR 1), while for large taxpayers, a monthly return of sales would need to be filed (with GSTR 2 and 3 being suspended). A number of tax payers complained about the complex invoicing matching procedure. And it is for this reason, the Government has decided to suspend the same during the current fiscal year and reexamine it more closely. The penalty for late filing of monthly summary return has been reduced substantially.
To sum up, the decisions sounded a bold move and all ears to the industry. Instead of frequent monthly extensions, suspension for the entire fiscal year would provide much needed time for a softer landing. The rate cut should also provide a little succor to the tax payers as well, who have faced increasing tax rates at all times.
While it sounds all good news, what are the open questions? Revenue implication of the rate reductions and the mitigation plans are a little known. Further, certain changes although may bring relief in the short run, appears to be a compromise over the fundamental structure of GST.
Would those be transitionary? Going by the experience from the past few months on extensions, would it result in recurrence again? In absence of invoice matching, how would the refund to the exporters be administered? Would the Government implement the long-suspended E-Way Bill and Tax Deduction/ Collection at Source (TDS/ TCS) from next fiscal year, in view of GSTN’s current preoccupation on other matters? And finally, would it further help in improving the Ease of Doing Business ranking for India, next year. As per many, the last one is relatively simpler to answer and in affirmative.
(Priyajit Ghosh is Partner, Indirect Tax, KPMG in India)