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GST, a simplified or a complex tax?

OCTOBER 18, 2016

By Puneet Chopra

IN India, currently various Indirect taxes are levied at both Federal and State level. It is proposed to introduce Goods and Services tax ('GST') in India to subsume the various Indirect taxes. So effectively instead of various taxes there would be GST. This seems, on the face of it, to be simplification of taxes, but is it so in the true sense.

It may be noted that GST would not be a single GST, but it would be a dual GST with the Centre and the States simultaneously levying it on a common base. There would be a Central GST, Integrated GST (renamed as 'goods and services tax levied on supplies in the course of inter-state trade or commerce'), and separate State GST for each State. In addition there would be 'Rules', 'Notifications', 'Circulars' etc. for all the above laws. GST would not be that simple, because there would be multiple laws, rules etc.. But GST would not be that complex either because under GST the various laws would contain similar provisions, unlike the current Indirect tax system where there are many different laws with dissimilar provisions.

The concepts of 'Manufacture', 'Production', 'Sale', 'Provision of Service' is proposed to be replaced by the concept of 'Supply' under GST. Instead of so many definitions, there would be only one definition i.e. that of 'Supply'. The definition of 'Supply' is an inclusive one, thus it leaves enough scope for interpretation issues. 'Supply' would include transactions made or agreed to be made whether or not for a consideration and whether or not in the course or furtherance of business. Simply stated 'Supply' would include consignment transfers/ branch transfers, exchange and barter transactions, self/ captive consumptions of goods and services? The concept of 'Supply' is by no stretch of imagination a simple one.

Further, the applicability of the concept of 'Supply' would also require analysis of not only the definition, but one would also have to analyze the concepts such as ' Time of supply of goods ', ' Time of supply of services ', ' Value of taxable supply', 'Matters to be treated as supply of goods or services', etc. Not so simple, after all.

Basic Customs duty would continue to be applicable on import of goods in addition to GST, and Central Excise duty would continue to be applicable on tobacco in addition to GST. Simple!

Currently, a service provider providing services from various locations can apply for Centralized Registration, but under GST he would have to apply for Registration in each State, as there would not be any concept of Centralized Registration. So many more registrations would be required. Further each business vertical would have to take separate registration, which would further increase the number of registrations and compliance burden. Simple!

It may also be noted that to avail input credit the receiver would have to ensure that the tax charged in respect of input supplies has actually been paid to the credit of the appropriate government.This would definitely not simplify things for businesses.

Businesses at the initial phases would have to put in lots of efforts as it would require making changes in their supply chain models, re-negotiation of contracts, changes in ERP systems, training of employees, tax planning etc.

There would definitely be simplification due to the reason that currently there are multiple different types of taxes under which lot of compliance requirements are there. Under GST there would be fewer taxes with similar provisions, as stated above. Classification of goods would be simplified as there would be a single classification, unlike under the current Indirect tax system of different classification under Central excise and VAT for same goods. Further,there would be fewer slabs for tax rates.

The simplification due to GST is largely due the fact of subsuming of various laws, but the complexities in interpretation would remain or could also increase, as discussed above.

Definitely GST will simplify things, but not as much as the hyper around it!

(The author is Senior Manager with Mazars.)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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