India improves from 142 in 2014 to 63 in 2019 in World Bank's Doing Business Rankings February 2020
How will the new GST regime support medium and small enterprises and small entrepreneurs?
The GST regime has many provisions to address the concerns of medium and small enterprises and small entrepreneurs.The law provides for an exemption threshold whereby it is not mandatory for a business whose aggregate turnover in a financial year is less than Rs 20 lakh (Rs 10 lakh for special category states) to register. Such small enterprises would be exempted from paying GST.
In addition, there is also a composition scheme under which an eligible registered person, whose aggregate turnover in the preceding financial year did not exceed Rs 75 lakh, can opt to file summarised returns on a quarterly basis. Taxpayers dealing in goods (both traders and manufacturers) and the restaurant sector can only opt for the composition scheme. Under the scheme, the manufacturer will pay tax at the rate of 1 per cent; the restaurant sector at the rate of 2.5 per cent and traders at the rate of 0.5 per cent of the turnover each under the CGST Act and SGST Act. However, service providers and taxpayers making interstate supplies or supplies through e-commerce operators are not eligible for the composition scheme.
How will the menace of corruption be curbed under the new GST regime?
Indian GST will have a mechanism of matching invoices. Input tax credit of purchased goods and services will only be available if the taxable supplies received by the buyer are matched against the taxable supplies received by the supplier. The GST Network, which is responsible for the IT backbone, is geared up to match more than 3 billion invoices per month.
This will be a self-regulating mechanism and it will become increasingly difficult for businesses to avoid paying taxes. This will not only check tax frauds and tax evasion, but bring in more businesses into the formal economy. In the new GST regime, the taxpayer can register, file returns and make payment of taxes on a single portal on the Internet. Even in a rare case, if the taxpayer is to interact with the tax authorities, he will have to interact with only one authority, either from the state government or from the Central Government, as tax officers of the Centre and state governments are being cross-empowered to take action in each other's law. Corruption will be checked to a large extent as it will become increasingly difficult for the taxpayer to evade taxes and the taxpayer will have minimal interaction with the tax authorities.
How are states protected from loss of revenues, if any, on account of implementation of GST?
As GST is a destination-based tax, there was apprehension among some states, particularly manufacturing states, that implementation of GST may result in loss of revenue. Therefore, the Constitution (One Hundred and First Amendment) Act, 2016, provides for compensation to the states for loss of revenue arising on account of implementation of GST for a period of five years. Based on the recommendations of the GST Council, the GST (Compensation to States), Act 2017 has been enacted. The Compensation Act has fixed the revenues of the year 2015-2016 as the base year revenues and, further, a nominal annual growth rate of 14 per cent has been provided. The Act provides for levying a cess, which will be used for compensation to the states in case there is loss of revenue. This cess shall be levied on luxury items and in goods.
GST currently has 5 per cent, 12 per cent, 18 per cent and 28 per cent tax slabs. There has been a debate on multiplicity of tax slabs under GST with experts and analysts suggesting their reduction. Is the number of tax slabs expected to be reduced over a period of time and by how much?
While deciding on the tax slabs, the GST Council had a difficult task of balancing three objectives. First, to ensure that the interests of the poor and vulnerable sections of the society are protected, and goods of mass consumption and essential commodities remain at an affordable level. The second was to ensure that the overall revenues of the Centre and states are protected. The third was to see that the tax incidence on goods and services does not increase or decrease substantially from the present incidence. Taking into consideration all these factors and after long deliberations, the council has carefully decided on the tax slabs. Ideally, the number of tax slabs should be as few as possible, but even in developed countries there is more than one tax slab.
The decision regarding reduction of tax slabs over a period of time can only be taken by the GST Council and it is too early to say anything about it. At this juncture, everyone is interested in the successful rollout of GST based on decisions that have already been taken by the GST Council.
Speaking of the building sector, which areas will be out of the purview of GST?
Clause 119 of Section 2 of the CGST Act defines 'works contract' as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property, wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. In the new GST regime, the 'works contract' will be treated as service, and tax would be charged accordingly. However, 'supply of land' and 'buildings of which whole of consideration is received after completion certificate or possession' will be out of the purview of GST.
The composite supply of 'works contract' as defined in clause 119 of Section 2 of CGST Act shall be taxed at 18 per cent with full input tax credit. However, construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly (where the value of land is included in the amount charged from the service recipient), will be taxed at 12 per cent with full input tax credit but no refund of overflow of input tax credit will be admissible.
In the construction and infrastructure segment, which sectors (ports, power, paints, adhesives, construction equipment, cement, steel, etc) could be among the biggest beneficiaries of the new GST regime and why?
In my view, all sectors will benefit in the new GST regime owing to seamless flow of input tax credit and removal of cascading. Moreover, the GST Council has taken special care to fit various goods into the nearest slab based on the present incidence of tax (combination of excise, VAT, entry tax, cascading impact, etc).
In a majority of goods, the incidence of GST will be less than the present incidence of tax.
How are GST rates expected to impact the indirect tax burden for the construction and infrastructure industry, especially the working capital cycle of the industry?
It is expected that more players in the construction and infrastructure industry will shift to the formal economy. They will be able to get input tax credit and their own incidence will be only on the value addition done by them.
I don't think there will be a major change in the working capital cycle of the industry because the tax slabs under the new GST regime are in line with the existing incidence of tax.
What initiatives are being taken to create general awareness among stakeholders, especially in the construction and infrastructure segment?
The government has embarked on a major outreach and publicity programme to convey the benefits of GST to all stakeholders by making extensive use of the print, electronic and social media.
Central and state government tax officials along with trade and industry associations are holding seminars and interactions in different cities and towns to create awareness on GST. The Revenue Secretary himself has interacted with various stakeholders in a number of town-hall meetings. While the government is doing its part, it is also important that trade and industry associations take proactive steps to educate their members about the new GST regime and its simplicity.
Overall, how is the GST rollout expected to give a fillip to the Indian economy?
There is unanimity among all economists and thought leaders that the GST rollout will give a major fillip to the Indian economy. Trade and industry will benefit because of uniform single indirect taxation throughout the country, seamless flow of input tax credit, reduced logistics cost and minimal interaction with the tax authorities.
Manufacturers will be able to take rational decisions regarding sourcing of raw materials and location of manufacturing and warehousing facilities. Exports will become more competitive as goods and services will be exported without any taxes embedded in them. The 'Make in India' programme will get a boost owing to increased ease of doing business and protection from cheap imports. While it will be difficult to pinpoint to a number, all this will add up to a significant growth in GDP.
(Disclaimer: The answers provided are based on personal knowledge and are not to be treated as legal advice or opinion. For more details, one may refer to GST-related Acts, which are in the public domain.)