BASIC CONCEPTS OF GST (PART-9)
By: – Dr. Sanjiv Agarwal
Goods and Services Tax – GST
Dated:- 18-2-2016
Challenges for GST Implementation
Any change in taxation is difficult to implement, and in a federal republic like India where states are as powerful as they are, problems get compounded.
The biggest of all challenges continue to be to understand the enormity of GST. It will impact every one and every part of business from manufacturing to financial reporting to tax accounting to supply chain to consumption. This will even require potential redesign of procurement vendor contracts, buying models, changes in information technology and ERP systems and logistics. The cost impact to achieve GST preparedness would differ from industry to industry and company to company. There will be issues on product mix, distribution, cash flows, working capital and ERP modules. Understanding and preparing for GST is a big management issue.
Because of the huge change costs, there coul
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ndia, being a federal state, there is wide disparity among the states in terms of their gross domestic production and tax base and revenue. As a result, it will affect different states and their revenues differently as also diverse impact on people.
However, it should be borne in mind that all kinds of goods and services tax (GSTs) in federal countries all over the world are imperfect. Brazil's GST is so complicated that economists have called it a patchwork quilt. In European Union also the structure is defective such that in poorer countries like Italy and Spain, etc, there is a lot of cash sale. Even in Canada, each state collects it own sales tax apart from the central levy of seven per cent. In India, we have been able to subsume the sales tax, which is a better model than in Canada.
Challenge also lies in making GST a clean and transparent tax law, unlike the present taxes. Also, we need to work out a clear and transitional phase. Economic fairness which comes from equity,
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increase in Assesses: The dual GST model will widen the tax net by taxing every economic supply in the distribution network. This will lead to rapid increase in assesses. It will require some of the businesses to restructure their distribution network to reduce additional tax burden on the consumer with a view to be price competitive. Though it will generate revenue in a neutral and transparent way, the Government will have to ensure that the ultimate consumer is not burdened with tax beyond his capacity.
Logistics: GST has to be implemented simultaneously by the Central & State Government. And, here Central govt can only provide the proverbial carrot but doesn't have the stick since it doesn't have constitutional authority to levy the tax without States acceptance, and hence its pretty much at the individual State's mercy to implement. And, forming a consensus between all 28 states having different political parties & their own agendas isn't that easy.
States relu
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ion and transfer of revenue to respective States. The person collecting the tax on his supply in case of inter-State transactions should deposit the tax in the account of the State where the supply has been made. Then on the basis of revenue reports of the respective Governments, the banks can allocate the revenue to the respective States or the Central Government, as the case may be. The banking system needs to be improved fur this purpose. The challenge can be met by proper training and up gradation of tax administration with technological interface.
IT infrastructure: If the Government wanted to introduce the proposed indirect tax, IT infrastructure for the Goods and Services would have to be put on fast track. IT infrastructure will play a huge role in interstate GST. IGST will be collected and passed on the states. It will have to be transferred electronically.
Effective Credit Mechanism: If for any reason the proposed dual GST model does not allow credit to State GST in respe
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big issue because service is taxed by the Centre and the place of levy does not affect revenue receipts. In GST, however, the place of supply will have to be clearly defined to avoid disputes among states in case of inter state transactions. Time of supply will explain the point at which tax would be levied – invoice date, due date or payment date. Currently, different taxes are levied by the Centre and the states at various stages. The service tax is levied on the receipt of payment, excise duty is imposed by the fifth of following month and sales tax is levied when the sale happens. These variations will be eliminated in GST.
The challenges posed by GST are no different from what other countries have faced while implementing major tax reforms. Despite the various impediments to the proposed transition, once implemented GST is likely to usher in a more taxpayer friendly regime that could help make various business decisions 'tax neutral' . Until the time GST is implement
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