Budget 2016: GST Rollout: One Target Different Perspectives

With the budget session of the Union Ministry right around the corner, the taxpayers are keeping their fingers crossed. Pinning up lot of hopes and expectations, they are waiting eagerly for the budget to unfold. Where on one side, the upcoming budget may be a cause of anxiety for many; it is an ideal opportunity for the government to bring about changes in the current tax regime so as to help it align with the GST.

To begin with, the government may increase the service tax rate to 16-17% in order to bridge the gap between current tax regime and the proposed GST regime.  They may also rationalise the service tax exemptions that are presently available to the taxpayer in order to align it with the exemptions as proposed under GST.

Another important aspect that needs to be looked into is the CENVAT credit. At present, there are various restrictions imposed on it which prevents one to claim full credit on the tax inputs. Moreover, these limitations are not in accordance with the principles of GST. Therefore, for efficient implementation of GST and to ensure smooth flow of proceedings, these restrictions must be removed altogether.

There is also a need to clarify ambiguity surrounding interpretation of Rule 6(3A) of CENVAT Credit Rules, 2004. The current rule doesn’t expressly provide that inputs and input services used exclusively for taxable service should not be considered for reversal of credit. The government may clarify that such credit is wholly permissible and there is no requirement of reversal.

Taxability of services pertaining to sourcing of goods and services also needs attention. While such services are considered as exports worldwide, in India they are taxable. Ideally they should be considered as exports as per global standards.

The problem of lack of provision for adjustment of service tax paid on bad debts may also be rectified. There are cases where, based on the issuance of invoice or completion of service as per the Point of Taxation Rules, 2011, service tax payment is made, but service charges collection could not be made from service recipients. In such a scenario, service charges become bad debts for which the service tax law does not provide any adjustment.

All in all, it appears that ease of doing business and laying further groundwork for GST would be the two cornerstones on which service tax changes would be based in Budget FY17

Expectations of Common Man

Common Man or an Aam Aadmi knows little about the GST but what he expects is the reduction of his monthly grocery bill. But to the contrary, his grocery bill would be increased post GST implementation. There are various grocery items that currently are not subjected to any excise tax or a tax of as low as 6%. However, under the proposed GST regime, the government is planning to do away with excise exemptions for some items. As a result of which, items like cheese, yoghurt, ice-cream, ready-to-eat foods, frozen foods etc could witness a rise in excise duty to even up to 12.5% thereby affecting the end consumer.

At present, the excise duty structure is laden with various exemptions with around 300 goods being exempted from the list but under GST, the list of exempted items needs to be revised substantially so as to keep the GST rate low. Only essential items need to have exemption post-GST implementation.

The roll out of GST is an opportunity for the government to do away with practices that are hampering the overall growth. It is the time to clean up the system off various exemptions that are available and that result in a complicated system. Applying a universal rule of tax will help simplify things.

Expectations of Government and Tax Authorities

The Chinese and US slowdown could adversely affect the global economy. In the wake of these apprehensions, India lowered its GDP growth protection by 1% from the earlier forecasted rate for the coming year. The lowering of GDP has become a growing cause of concern for the government as it is likely to affect their ability to meet the fiscal deficit target. It is believed that until and unless major reforms are brought about, the situation is not likely to improve.

For 2015-16, indirect tax collections are way ahead of target. The direct tax collection is slightly behind but is narrowing down on the target. So, overall tax collection this year is reasonably comfortable. As per the mid-year review report of the economy, the improvement in buoyancy reflects improved tax administration, especially in relation to indirect taxation. By implementation of GST, the government is expecting to further narrow down this gap and also increase its revenue through indirect taxes by bringing in more businesses in tax net.