Comment

The first step towards an eventual rollout of Goods and Services Tax have been taken, but, it stills seems a distant dream as key questions remains unanswered.

The merits and demerits of the dual rate model are bound to be deliberated by experts in the coming days.

It is also clear that cesses and surcharges would also be subsumed in the Central GST, along with central excise, service tax, countervailing duty and special additional duty on imports and the excise duty on alcohol-based medicinal and toiletries.

While tax levied by local bodies and purchase tax has been kept out of the state taxes to be subsumed under SGST, it needs to be seen how the octroi levied in Maharashtra will be treated.

Further, alcoholic beverages and petroleum products are kept out of GST ambit, while tobacco products would be subjected to GST with input tax credit.

The Centre has been given the option to levy excise duty on tobacco products over and above GST without input tax credit.

Though the discussion paper clarifies on the threshold limit, ambiguities still prevail on tax rates.

Both central and state GST will be levied on import of the goods and the services.
Given the destination-based concept of GST, the tax revenue in case of SGST will accrue to the state where the imported goods and services will be consumed, while exports will not attract levy of GST.

The proposed model does not offer fungibility of CGST with SGST and vice versa.
The present area based exemption scheme would make way for cash refund schemes after collection of GST so as to maintain the chain of set-offs.

With view to integrate the PAN based income tax number and facilitate data exchange and tax payer compliance, each tax payer would be allotted a PAN-based taxpayer identification number with a total of 13/15 digits.

The present levy of CST for inter-state transactions is proposed to be replaced by IGST providing the credit mechanism to do away with the negative cost impact that CST had on such inter-state movement of goods.

The paper will be the centre of deliberations in the days to come.
It would have helped if the EC had provided clarity on the likely effective date, rates, whether the MRP based valuation scheme would continue, how the refund mechanism of CGST and SGST, which replaces area-based exemption scheme would be put to effect to overcome the cash flow issues, what would be the treatment for accumulated Cenvat credit / VAT credit while transitioning into the proposed GST model and so on.
An earlier clarity on these critical aspects would settle the speculation and will help all the stakeholders plant their future course of action.

(The authors are senior tax professionals with Ernst & Young, India)