New Delhi: All eyes are on the 14th meeting of the goods and services tax (GST) council scheduled next month in Srinagar where tax rates under the new indirect tax system will be discussed for finalization after President Pranab Mukherjee on Thursday signed off on the last batch of GST statutes.
Tax policymakers are poring over the multiple indirect taxes on goods and services at central and state levels to make sure that the GST rate on every item is as close to the existing effective tax rate on them, adding up various central and state levies. The intent is to finalize the rates at the council’s meeting on 18 and 19 of May as businesses need time to assess the impact on their products well in time for the expected 1 July roll-out of the unified indirect tax regime.
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The focus is on rates as the legislative framework is final. Rules under the four laws notified in the official gazette on Thursday—the Central GST Act, the Union Territories GST Act, the Integrated GST Act and the GST (Compensation to states) Act—are also almost final. Four set of rules relating to input tax credit, valuation norms, composition and transition provisions will be cleared by the council next month and five are already approved.
Experts said that ensuring a revenue neutral transition to a new tax system was complex but the broad idea is to make sure the new rate is as close as the current tax outgo on every item and to put similar items in the same slab. One concern voiced by the opposition parties during the GST discussion in Parliament is possible inflation in services as the rate of tax on services could go up from 15% now to 18%. Experts however, said the impact may not be as high as feared.
“It unlikely that all services will be taxed at a flat 18% in the GST regime. As in the case of goods, there could be different rates for services too. Many services on which abatement (a relief on the taxable value of the transaction) is available at present, could be taxed at a lower GST rate. Also, in many services, due to imperfect flow of tax credits across the value chain in the current system, the tax outgo at present may be higher than the service tax rate of 15%. That means the gap between the existing tax incidence and the 18% GST slab may be smaller than anticipated,” said Bipin Sapra, tax partner, EY.
The GST law entering the statute books is a major feat for a federal system, where states have diverse socioeconomic challenges and exercise substantial taxation and policymaking rights. The unprecedented consensus on GST has been achieved through pooling of sovereign rights of the centre and the states regarding indirect taxation to the powerful GST council, where neither can take decisions without the support of the other.
