MODEL GST LAW- INITIAL REACTIONS

[Dr. Sanjiv Agarwal]

Model GST Law (for CGST, SGST and IGST) in now in public domain for feedback by all stakeholders. The model law is still a draft of the proposed law which is itself subject to changes by the Empowered Committee and drafting panel. It is expected that draft of model law shall be finalized in due course after considering the suggestions of all concerned, once the enabling legislation is enacted by the Parliament.

 

Here are some quick  reactions on the proposed law -

 

• GST law should be a very simple tax law as the present law / provisions are too complex to understand by a common man.

• GST is not going to be governed by single legislation but by a bunch of legislations (38) – 36 state taxes for states and union territories, CGST and IGST.

• It will have to be ensured that all states have verbatim same provisions for rates, levy, administration and procedures. Only negative list or exemptions may vary based on regional issues.

• Negative list should be made public.

• Procedures proposed for registration and returns are complex, cumbersome and regressive. Provision of classification, valuation supply etc also go against the principle of ease of doing business.

• Department should not have power to refuse registration ab initio which will adversely affect the business men. Grant of registration must be made obligatory as is at present.

• Multiple registrations of same person in different states should be done away with.

• Multiple state wise registration will be a major hurdle for service providers who operate in multiple states or all India basis.

• Definition of supply should be 'comprehensive' and not inclusive. It is defined as 'supply includes…..' rather than supply means….'. This will add to litigation.

• Such office organizations will suffer a lot due to transfer pricing which is not required (deemed supplies).

• Valuation rules are too cumbersome so as to even prescribe valuation of services without consideration.

• Transaction value of goods and services should factor the 'discounts'. There should be no tax on free supplies.

• Inter-state activitiesshould exclude activities of same person.

• Non compliances attract very harsh and heavy penalties / punishment and need to be diluted in view of GST being a new levy and new law.

• Prosecution threshold should be kept at ₹ 2 crores.

• A large number of compliances / returns / reconciliations are proposed. This will only burden all stakeholders, will make GST inefficient and a regressive tax. Cost of compliance will be major issue taking away benefits of GST.

• Also, same person should not be asked to file separate returns in different states.

• Set off of credit should be allowed amongst all states as a pool.

• Refund of any credit balance other than for exports is not allowed. This should be allowed subject to safeguards.

• Tax demands should be restricted to one year only, GST being an indirect tax.

• GST to include electricity and petroleum products as also alcoholic products.

• Threshold exemption limit should be kept at least at ₹ 25 lakh as anybody with lower limit can always voluntarily get registered.

• Threshold limit should be common for entire country. Presently it is proposed ₹ 5 lakh for North East and ₹ 10 lakh for others.

• Composition threshold should be not below Rs. one crore.

• Special focus on awareness and training of all-officers, professionals and assessees including making literature on GST available in different languages.

• Smooth, transparent and simple transition provisions are needed rather than revenue centric provisions. These ought to be practical too.

• Current / past disputes on GST introduction should be proactively addressed by way of speedy redressal of cases and / or practical, proactive and objective dispute resolution scheme so that baggage of disputes in not carried forward.

• Common tax administration from assessee's view point is key to success of GST as CGST / SGST are administered by two different authorities / departments.

• Input tax credit (Cenvat) should not be denied to real estate sector and allowed to works contracts only. Guidelines for valuation of land should be made clear and transparent. Also, non-subsuming of stamp duty in GST should be reconsidered.

• GST is the tax future. GST law should therefore be forward looking and open for futuristic businesses such as e-commerce, technology based, IT etc and recognize internet, digital economy, start ups etc. Clubbing all such services under telecommunication may not be correct as it only reflects poor understanding of 'technology' itself.

• Government should not hurry implementation of GST from April, 2017. Even if the Constitutional Amendment is passed by Rajya Sabha in monsoon session, there is lot of ground work to be done left. The most important is awareness, education, training and trail runs. 1^st April 2017 is not that sacrosanct but introduction of a perfect law at the right time is more important. Country can wait for a strong and robust GST law for some more time.