The GST journey has seen more than its share of ripples. The government is now likely to make the first set of amendments to the GST Acts vide Budget 2018-19 on February 1 (except of course the extension of the Act to Jammu & Kashmir).
Petrol and petroleum products have been kept out of the GST net temporarily. One of the key demands of the sector has been to include them into the GST net to ensure non-breakage of the ITC chain. First steps in this direction may be taken through the Council meetings and/or Budget by considering products like natural gas. Being largely a business-to-business product, its inclusion in the chain will help reduce the cascade of indirect taxes.
In terms of tax rates, the current four-tier rate structure with two median rates, 12 and 18%, is proving to be quite complex. The Budget provides an opportunity to present statistical data in terms of GST revenues, upon which a decision to lower the median tax rate or merge two rate slabs could be deliberated upon. This will reduce complexity and classification disputes.
There are several industry representations around GST that are pending to be addressed. While the Council meetings and FAQs have helped, a more active set of sector-specific resolution of open issues is an urgent need. This will lead to simplification and reduce future litigation. The Budget may re-emphasise the engagement with industry, and could also share more information as to more platforms being created by the government for addressing open issues in a proactive manner.
Another area of focus could be Customs duty. This levy is entirely governed by the Central government, and therefore, from the point of view of regulation and revenue generation, under the direct control of the Budget statement. In my opinion, there will be changes in rates to further push the cause of some of the key initiatives led by the present government like 'Make in India', 'Digital India', 'Skill India', 'Startup India' and 'Standup India'. Also, rationalisation of rates to eliminate inverted duty structures may be carried out. SEZ and other export promotion policies may also be reviewed to bolster investments.
Specifically for computation of Customs duty, the manner in which the duty would apply on imported goods has been recently clarified (by way of a circular) if goods are first warehoused and then cleared. The circular seems to suggest that GST component of customs duty would apply twice in such arrangements. This aspect may be addressed in the Budget by rectifying the anomaly created by the circular.
Thus, all in all, the Budget from GST perspective is likely to be around more of financial statistics, which will create a roadmap for further developments in terms of reducing the median rate of tax and also consolidating the present four-tier rate structure. The suggestions given by the GST Council in their previous meetings could also be incorporated in the law, for instance, the threshold limit for opting composition scheme. There may be some changes in Customs to drive investment and exports. This could, therefore, be arguably the smallest Budget for indirect taxes.
Divyesh Lapsiwala, Partner - indirect tax, EY India
(Varun Parmar, senior tax professional, EY, also contributed to the article)
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