11 Jul 2016 19:23 IST

How the GST can affect you

Here’s an overview of the model GST Bill, which is available in the public domain

“In order to move on, you must understand why you felt what you did and why you no longer need to feel it,” said Mitch Albom, in his book Five People You Meet In Heaven. Such has been the impact of indirect taxes in a country like India.

As a step towards transforming the indirect tax regime in India, the model Goods and Services Tax (GST) Bill has been released by the Ministry of Finance. Revenue Secretary Hasmukh Adhia said the Empowered Committee of State Finance Ministers, at their meeting in Kolkata, approved the model GST Bill, which is currently available in the public domain for comments.

While the 122 nd Constitutional Amendment Bill for GST is yet to be passed, this model Bill clearly signals the current Government’s determination to get it cleared at the earliest, for the benefit of all stakeholders.

Model GST Bill

The model GST Bill covers three proposed taxes — the Central GST (CGST), Integrated GST (IGST) and State GST (SGST). The CGST and IGST will be framed based on the model GST Bill, and it is expected that the states will adopt the same with minor variations after incorporating State-based exemptions.

The Bill is divided into 25 Chapters, four schedules, 184 Sections and 162 clauses. It is evident that a lot of thought has gone into drafting this Bill, specifically when one looks at its structure.

The Bill appears to be clearly worded. For example, the definition of ‘service’ and ‘supply’ is crisper. It has also gone one step ahead in defining what constitutes a transaction in ‘goods’ and in ‘services’.

More clarity

One should concede that this is a bold attempt that seeks to bury some of the most vexing issues in indirect taxes.

A classic example can be the transfer of right to use goods. Currently, both VAT and service tax are applicable, depending on the facts of the case. However, the model GST Bill clearly states that a transfer of title in goods alone would be considered as a supply of goods, while any other transfer of goods, including right to use it but without transfer of title, would be considered a service. This approach, we believe, will go a long way in reducing the number of litigations.

E-commerce chapter

Another commendable aspect of the Bill is the introduction of a chapter dedicated to the e-commerce industry. This move, in the right direction, comes at a time when the online market in India is expected to nearly double to ₹2 lakh crore by December 2016, according to Internet and Mobile Association of India (IAMAI) and IMRB.

The model GST Bill seeks to obligate the e-commerce companies to collect tax at source. Such tax will be available as credit for the supplier of goods or service.

The Bill also casts additional burden on the e-commerce firms, like filing monthly statements detailing the tax collected at source, which is somewhat akin to the tax deducted at source provision contained in the Income Tax Act, 1961.

Though this could be viewed as a good move from the tax administration standpoint, it could also mean increased compliance burden for e-commerce companies as, in course of their business, they deal with thousands of vendors.

Lastly, the model Bill provides for an elaborate transitional provision, covering most of the aspects like migration of existing taxpayers to GST, carrying forward of Cenvat credits, amalgamation, and transfer of business, amongst others.

In conclusion…

These provisions require some more refinement for a smooth transition to GST. For example, the Bill states that pending refund claims will be dealt with according to the provisions of earlier law. It goes even further to say that if any refund claim is fully or partially rejected, the rejected amount shall lapse.

This is in contradiction with the former statement, where refunds have to be dealt according to the provisions of earlier law.

To sum up, the model GST Bill is a definitive step towards transitioning to GST regime. It is, however, reasonable to expect some issues at the time of transition and in the initial years, GST will undoubtedly constitute a major reform in the structure of indirect taxation and help create a seamless national common market.

For consumers, it may mean lower prices and for industry and trade, it will definitely mean more convenience and ease of doing business.

(The writers are senior tax professionals with EY)