GST: 14 states ratify; cos want 18% rate but states seek assurance on passing on benefit

A truck driver brushes his teeth next to his parked truck while waiting to get his loads cleared to cross a checkpoint at the Commercial Taxes Department check post at Walayar in Palakkad district in southern Indian state of Kerala, India, September 5, 2015. At the Walayar checkpoint in southern India, lines of idle trucks stretch as far as the eye can see in both directions along the tree-lined interstate highway, waiting for clearance from tax inspectors that can take days to complete. The rollout of a nationwide goods and services tax (GST) from April was supposed to sweep away hundreds of checkposts on India's state borders, paving the way for the seamless movement of goods from the tropical south to the Himalayas in the north. But political opposition and the dilution of some of the tax's key tenets mean hopes are fading that the checkposts will be demolished any time soon, a major blow for Prime Minister Narendra Modi's reform agenda - and for India's economy. Picture taken September 5, 2015. REUTERS/Sivaram V - RTS1MYZ

Even as Goods and Services Tax Bill is slowly but surely moving towards being a law hectic parleys are on between the industry and the state governments on the rates and related issues.

As many as 14 states (Mint edit) have already ratified the constitutional amendment Bill with Sikkim, Telengana and Mizoram also passing it in their respective legislatures. This is close to the magic number of 16, which is required to turn the Bill into a law.


As the biggest tax reform nears implementation practical issues seem to be coming to the fore with the industry pitching for a 18 percent rate and conceding that the companies may not be prepared to meet the deadline set by the government.

The state governments, meanwhile, have sought an assurance from the corporates that they will indeed pass on the benefits of lower rate to the consumer.

Industry, according to a PTI report, is pitching for 18 percent standard rate as it feels this is the rate that would generate adequate tax buoyancy without fuelling inflation. The corporates have also demanded relaxation in the penal provisions.

In their interaction with the state finance ministers, industry chambers also said it is difficult for them to meet the 1 April 2017, deadline for rollout of GST as they need sufficient time to put in place the IT infrastructure, the PTI reported.

“We believe a maximum rate of 18 per cent as standard rate will be revenue neutral and ensure adequate tax buoyancy. Also the centre has agreed for full 5-year compensation for revenue loss to states, so 18 per cent rate will be more than adequate,” said CII president Naushad Forbes.

Ficci on its part suggested that the “standard rate” should be reasonable and be such that it checks inflation, and tendency to evasion and ensures compliance.

“Goods fully exempted from the levy of excise duty and VAT by all the states should be categorised as exempted goods in the GST regime as well,” it said.

As regards preparedness for the rollout of the new indirect tax regime, Forbes said CII is committed to 1 April deadline and to doing everything it can to ensure the deadline is met.

“If we work towards that deadline and if have clarity on some of the provisions as early as possible, we can ensure that our own IT systems are put in place quickly so that we can go live as early as possible,” said Forbes.

The government is planning to roll out the new indirect tax regime from 1 April. The GST will subsume excise and service tax and local levies, including VAT and octroi.

Assocham on its part demanded relaxation from the penal and prosecution provisions during the first two years of GST roll out, except in case of tax fraud or non-deposit of collected taxes.

They also demanded that the Centre and states should set up mechanism to advice traders on legal provisions following roll out of GST.

Chairman of the Empowered Committee of state finance ministers and West Bengal Finance Minister Amit Mitra assured traders and industry chambers that their concerns would be looked into.

He asked the industry to give suggestions on the quantum of penalty and said the empowered committee and the GST Council will look at the arrest and prosecution provision.

According to a report in the Mint newspaper, the state ministers have also pointed out that the effective tax rate on goods will come down from the present 27-30 percent, which will be beneficial for the corporates. They want the corporates to pass on this benefit to the consumer.

“The incidence of tax rates will come down from 30% to around 18-22%. Industry should proportionately reduce the MRP (maximum retail price) as they will be one of the biggest gainers,” Kerala finance minister Thomas Issac has been quoted as saying in the report.

The Economic Times said Issac reminded that when value added tax was launched, industry did not pass on any benefit to people. “…So we should know how it will be done this time,” he has been quoted as saying in the report.

Industry chambers also demanded single centralised registration of suppliers of services who operate in different states, in place of multiple state wise registrations for specific service sectors.

“The states recognised very much that certain telecom services come under central scheme. Under the current draft, you would need to register in each state which would make it very very cumbersome. And states were very receptive to the idea that one needs a simple, single registration. Because that wont affect revenue, it will only make a simpler and more transparent regime,” Forbes said.