While the debate on the date continues, the stage is set for early GST implementation with passage of CGST, IGST, UTGST and Compensation laws by Lok Sabha as money bills. What remains is finalisation of key rules like input tax credit, valuation and transition in the next GST Council meeting slated on May 18-19. A draft of these rules are out in public domain for stakeholder feedback which is welcome as these rules are critical and need some changes for smooth implementation. The Working Groups set up for several sectors will again provide a final opportunity to iron out sector specific issues.
States will equally have to pass the SGST laws in their respective assemblies in April, May with Jammu & Kashmir also needing to ratify and integrate into GST when implemented.
The fitment of goods in identified rate baskets of 5 per cent, 12 per cent, 18 per cent & 28 per cent is another key step that's expected to be finalised by May or early June. The overall principle of this rate fitment exercise will be to align the current indirect tax taxes (central and state taxes put together) to aforesaid baskets so as to be closer to the current indirect tax. Services too will be under multiple rates, with standard rate expected to be 18 per cent. Services that currently are at a lower rate due to abatements are expected to be in the 5 per cent or 12 per cent basket.
Another critical area from the government's perspective is readiness of GST Network. While a lot work has happened in this space, now that the laws are public and rules imminent they need to quickly start testing with GST Suvidha Providers. Compliance under GST is critically dependent on the efficacy of GST Network and the ecosystem of service providers.
While many in the corporate are underway with their preparation for GST, the real concern is around the readiness of their eco-system of vendors, distributors, dealers and retailers. While Industry and their associations are doing their best to educate this community, it's critical for government to play a larger role in this awareness campaign especially in Tier 2 and Tier 3 cities. The success of GST will depend a lot on how the whole value chain adapts to this new regime.
The migration of existing VAT, Central levy registrations are still underway and requires to be completed by the extended date of 30 April.
Companies need to ensure their IT systems and processes are aligned to GST. The challenge here is till rules are finalised the ERP providers will not be in a position to release of GST compliant patches and customisation and testing cannot begin till June before the cut over to GST on July 1 which is worrying.
Another critical area of focus will be to closely monitor transition related issues. This will entail some inventory balancing in the supply chain, industry will tend to calibrate their interstate sales/ purchases to minimise CST costs on goods during transition. Further the draft valuation rules has prescribed a 40% presumptive credit of central taxes based on GST rate for those goods in the chain where excise invoice is not available. This rate is well below the embedded excise in such goods in several sectors and may lead to stock downs. So watchful decisions may have to be made to avoid stock outs, production disruption, and sales dips in weeks leading to GST.
Another challenge will be the anti-profiteering measures brought in to ensure benefits accruing out of removal of tax cascading and rate changes be passed on in the value chain. It remains to be seen how this would be implemented, the government has promised a light touch but industry needs to monitor this from a pricing perspective.
GST is at last a reality and there is still a lot that needs to be done in the next few months both by government and industry before we transition into this new regime with hope that brings the desired efficiency to our transaction tax system.
Guest Author
The author is National Leader, Indirect Tax, EY
