Representation on Model GST Law

29th August, 2016

To,
Shri Arun Jaitley
The Finance Minister
Government of India
134/North Block
New Delhi – 110 001

Respected Sir,

This is with reference to draft Model GST Law released by the Empowered Committee and hosted on the website of DOR inviting comments from stake holders and public at large. We would like to take this opportunity to present before you some of the views and suggestions of our members.

May we request your good selves to kindly consider the same appropriately while preparing the final Model GST Law and related business processes on proposed Goods and Services Tax (GST).

Yours sincerely,

For Bombay Chartered Accountants ‘ Society

Chetan Shah
President

Govind G. Goyal
Chairman – Indirect Taxation Committee

Major Areas of Concern, which need to be addressed appropriately

1. The Draft Model GST Law, coupled with Reports on Business Processes under GST, has conveyed a very negative feeling among the trade and industries. The same needs to be addressed immediately (may be through a 2nd revised draft or so).

2. There is wide spread confusion about the uniformity of taxation across the country particularly regarding classification, valuation, exemptions and rates of tax.

3. There is an urgent need to dispel the fear of artificial disallowance of Input Tax Credit (ITC), through monthly matching concepts, etc., and, excessive compliance burden in the proposed GST regime.

4. Sanctity of ‘Tax Invoice’, issued by a registered dealer, and seamless Input Tax Credit are basic tenet of any successful VAT law. The same should be maintained.

5. It is also necessary to clarify how dual control by Central and States will be exercised over the same assessee in respect of same transaction liable to tax for CGST and SGST, or for IGST.

6. Small manufacturers, vendors and job workers, in small scale industries (SSI) and Cottage Industries, etc., are clueless about their future in the proposed GST regime. It may be noted that such units constitute a significantly large number of business population of India. Their genuine concerns need to be addressed satisfactorily before deciding about introduction of GST in the proposed format.

7. The proposed threshold of Rs. 10 lakh for compulsory registration is too low a limit. It may back fire. Considering various aspects of smooth transition it would be necessary to seriously reconsider the same. (An appropriate limit, in present conditions, may be Rs. 50 lakh of taxable supplies)

8. It would be necessary to design simple and convenient Composition Schemes for various categories of dealers and for certain specific types of businesses (may be on the lines of composition schemes designed in some of the State VAT laws and various other countries who have successfully implemented VAT /GST).

9. Being entirely new system of taxation across the country, it may not be possible for anyone to determine correct RNR at present. There are several factors, particularly in the present scenario of diverse system of indirect taxation by the Centre and States, and, organized as well as unorganized sectors of manufacture, trade and services, etc. It would be necessary, therefore, that the rates of tax are decided in accordance with the acceptability of such rate/s by the ultimate consumers (who are the real tax payers).

10. The best policy in deciding rates of tax is that the Government should get adequate revenue, trade & industry should not have any burden and the consumers feel happy. To achieve this, it may be necessary to decide in advance (a) the list of exempted goods and services, (b) list of goods and services which deserve a merit rate, (c) list of goods and services which needs to be taxed at very low rate in the beginning (special merit rate) and (d) list of goods and services which can be taxed at fairly high rate. However, it should be ensured that all States apply the same rate on such commonly agreed lists of goods and services.

11. Taking clue from various sources, the general rate of GST @ 15% may be the most appropriate rate, with merit rate (5% to 8%), special merit rate @ 2% and higher rates (25% to 35%).

12. Various definitions, contained in section 2 of draft Model GST Act, need appropriate review and necessary modifications.

13. The terms like ‘supply’ in section 3 and Schedule-1, ‘nature of supply’ in section 2, ‘time of supply’ in section 12 &13, ‘value of supply’ in section 15 and ‘place of supply’ in various sections, need a thorough review.

14. The provisions like RCM, TDS and TCS have made the draft law much more cumbersome. Only those provisions need to be kept, which are necessary. The Reverse Charge Mechanism (RCM) should apply in respect of international transactions only.

15. One needs to look into whether such elaborate provisions of valuation are required in the proposed GST regime where tax is being levied till final stage of consumption. Ultimately tax cannot be levied at a price (value) more than what the consumer has paid to the supplier.

16. Procedural aspects have to be designed in such a manner that all assessees, all over India, are able to comply with the requirements well within time and without facing undue burden of time and money.

17. Appropriate transition provisions need to be spelled out clearly so there is no undue burden on the existing tax payers. Similarly taxation of continuing contracts may need to be clarified appropriately.

18. Interest of those units, presently enjoying exemption under various promotional schemes, needs to be protected.

19. Applicability of IGST on various types of transactions of supply of goods as well as services needs much more clarity.

20. Although, the Government has shown its intention to implement GST with effect from 1st April 2017, there is no harm if it is implemented from a later date. For smooth implementation of such a major reform, it is necessary that the final law is designed after considering all aspects. And sufficient time is given to trade, industry and the Government Departments to gear up for the new regime.

Our observations and suggestions on some of the important provisions are enclosed herewith for your kind consideration.

Complete Representation on Model GST Law can be viewed and downloaded from BCAS home page www.bcasonline.org