The Goods and Services Tax Bill now looks far from being passed in the winter session of Parliament though the Union Government is still pushing hard for it.
The Centre is trying to roll out GST from April 1, 2016. The new regime involves the bundling of central excise tax and other taxes with the value-added tax and other taxes imposed by the states and the subsequent sharing of revenue from about 20 per cent taxes by the Centre and the states.
There is no consensus yet on the tax rate or the ratio for sharing the tax revenue.
The Centre, which has been getting the excise duties and other taxes based on the price of a product at the time of its manufacturing, will get taxes on the retail price.
This means a huge leap in the central government's revenue from indirect taxes.
State governments also benefit from a share of the service tax, which had exclusively gone to the Centre.
When a consumer buys a product, a share of the tax revenue comes directly to the state where the consumer is based.
This will boost the state's coffers. Consumers, however, will not see any benefit from the new system as they are the ones who ultimately pays the taxes.
This bill envisages a “revenue neutral rate” by adding up all central and state taxes to ensure that tax revenue is not affected. So prices are unlikely to come down.
Old wine in new bottle
Lengthy discussions have succeeded in forming a consensus on some points: Anyone offering products or services should collect two kinds of taxes and submit them to the central and state governments, from manufacturing to retail.
The CGST will replace the central excise tax and the SGST will replace the value-added tax (VAT).
In case of imported goods, there will be an additional tax called the IGST, which is a combination of the CGST and SGST. This tax is collected by the central government and the SGST will reach the state of the consumer.
The existing system will continue for petroleum products and alcohol where the central government imposes an excise duty and the states concerned form a tax rate they deem fit.
Instead of the existing 2 per cent CST, a 1 per cent interstate tax will be invoked.
Purchase tax, stamp duty and vehicle tax will continue.
The entertainment tax, luxury tax and Octroi imposed by the state governments will continue.
Taxes will simply be called in another names, like old wine in new bottles. The GST will not benefit consumers in anyway. It will only benefit a minority comprising large-scale manufacturers, major merchants and e-tailers.
Merchants at the receiving end
The GST will affect medium and small retailers the most. All merchants who get themselves registered will get a permanent account number and a GST registration number linked to it. Every financial transaction will come under the close scrutiny of the tax department.
A merchant will be answerable to even the smallest transaction he does without sufficient knowledge of the intricacies of law.
Merchants are required to submit their tax details in front of a single officer in the state. Once the CGST is in place, they will have to submit related information to an officer appointed by the central government.
Figures on the SGST will have to be submitted before a state officer.
Merchants do not have to be registered if their annual turnover is below Rs 10 lakh. Merchants, whose annual turnover is up to Rs 50 lakh, are supposed to pay 0.5 per cent compounding interest rate. But they will have to keep records to prove that their turnover was below Rs 50 lakh. They may be required to convince both central and state officers.
If a trader in state sells a product to a consumer in another state, only IGST may be collected.
The CGST component of this will go to the central government and the SGST to the state where the consumer is based. The bill allows for sending goods up to Rs 2.5 lakh without any documents.
This will hit hard the small-scale merchants who are already reeling from the expansion of e-commerce. The provisions of the bill may lead to abuses as unregistered merchants may bring products from outside the state in the name of the consumer.
Even a merchant with a turnover of just Rs 3,000 on average per day will be forced to get registered. Even the sale of tax-exempted good will be added when total turnover is calculated. The sale of milk, eggs, salt and handicrafts will be considered as part of total sales. In effect, even pan shops will have to be registered.
Without the help of computing software, tax determination will be complex. This will force small-scale merchants to buy billing software worth tens of thousands of rupees.
The GST draft is harmful to the retailers who are registered.
(The writer is former president of All Kerala Distribution Association)
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