GST: 6 key issues that may haunt tax payers, consumers

When the GST was conceived it was supposed to be a single uniform rate across all product categories, but the shape that the GST has taken is far removed from the actual concept of one country-one tax.

GST Bill was passed by Lok Sabha on Wednesday raising hopes of the new tax regime coming into force from 1 July, 2017. Here are the few contentious issues that may haunt the tax payers as well as consumers if they are not addressed properly.

Multiple tax rates: When the GST was conceived it was supposed to be a single uniform rate across all product categories, but the shape that the GST has taken is far removed from the actual concept of one country-one tax. What instead we have got is a multi-ties tax structure with 4 different tax rates --5, 12, 18 and 28 per cent. Besides, there would be exempted and zero-rated goods, which means there would be at least six different categories of products under GST.

Fear of high tax rates:
One of the earlier expectation from GST was moderate tax rates on goods and services. However, with a peak rate at 28 per cent (which can go up to 40 per cent) and a cess of 15 per cent over and above the peak rate for demerit goods have dashed all the hopes of a moderate tax regime at least in the near future.

The 15 per cent cess would be levied at least for the first five years during which the central government would compensate the states for any revenue loss due to implementation of GST. The proposed higher rates have already made the industry a little jittery.

"It is important for the Government to ensure that 18 per cent is a general rate and exceptions, particularly those falling under 28 per cent category are minimised," says Pratik Jain, Partner and National Leader - Indirect Tax at PwC India.

Anti-profiteering measures:
The government is planning to set up an authority to see if any reduction in tax rates after GST is passed on to the consumer by companies or not. The industry and businesses are not taking this idea kindly and they see it as a backdoor entry of inspector raj. Experts say that prices should be market determined and no government authority has the business of deciding prices for goods and services.

Taxation of free supplies between related parties:
The GST law proposes to tax any free supplies between two related parties. The problem arises especially in case of related parties located in different states. Such transactions between related parties in different states mean each party would have to generate invoice, maintain documents, etc. There is no centralised registration under GST and therefore, this would create compliance issue for companies.

"The bigger issue in this is valuation. If stage one of a good is manufactured in Delhi, stage two in Noida and stage three in Faridabad, how would a company value the goods at different stages. The GST law does not give a formula for valuation and this could create dispute between manufacturer of goods and services and the tax department," says Rajat Mohan, director, indirect taxation, Nangia and Co.

Controls conundrum:
To avoid dual control, the GST council has reached a compromised formula --90 per cent of tax assessees with an annual turnover of Rs 1.5 crore or less, will be assessed by states and the rest by the Centre. For those with turnover of over Rs 1.5 crore, the states and the Centre will share it equally.

However, this 'solution' has its own set of issues. For example, if an entity with a turnover of less than Rs 1.5 crore in one year, posts turnover of Rs 1.5 crore in the following financial year, who would be the new authority to take over the assessment? And, how will existing investigations, if any, against the entity be addressed, and by whom? "There are a lot of procedural issues, and if these issues are not addressed properly, they would lead to litigations

Issue of casual taxable person: If a person registered in one state moves to another state for a short period for some business transaction -- say to participate in an fair or exhibition, then that person would have to get himself registered in that state for that period.

The GST law says in case of casual taxable person, he/she would have to pay taxes in advance by making an estimate of the sales. This is another pain point because the sales can be lower than the estimate, and the person may be paying higher advance taxes. Though the higher taxes paid would be refunded, it would take time in many cases may create working capital issues for such businesses.