CAIT Memorandum on GST
1. GST Structure
1.1 It is proposed to have dual GST Structure which is proposed to be monitored by two Authorities i.e. one by Central Government and another by the State Governments.
1.2 Above proposition is likely increase burden of additional administrative machinery besides leading to Inspector Raj. Assesses too shall be burdened with tedious job of compliance of requirement of submitting two set of papers each to two Authorities.
1.3 We suggested that there should be a single GST taxation structure under which the Traders may be required to file only one Return. The issue as to which of the two Authorities shall deal with the Returns, should be decided between Central Government and State Governments. The traders should be made accountable only to one Administrative machinery preferably the State Government. The Centre and State may share their revenue on the basis of formula as may be suggested by the Finance Commission.
2. Multiple Legislations
2.1 It is proposed to enforce multiple legislations like CGST, SGST and IGST etc.
2.1 It will make GST complicated as the dealer will have to equip with knowledge of governing different laws. Since the laws will be framed by different Authorities followed by amendments, circulars, notifications the Traders shall confront much difficulty in proper compliance.
2.2 It is suggested that so far as possible there should be a single legislation of GST to cover all the transactions made locally and/or across the Country.
3.1 It is proposed to have multiple statutes in the sense that each State will have its own GST Act and Rules.
3.2 The practical experience under VAT regime clearly shows that authority to each State to frame its own GST Statute, fractures basic idea of VAT Act. Likewise, underlying idea of GST in the long run is likely to meet the same fate. The provisions of GST Acts of different States bearing variations will result into disparity and non-uniformity on the one hand and on the other hand it will also result into exodus of trade from one State to another State, depending upon the benefits available.
3.3 As the GST is viewed at bringing reforms in Indirect Tax, it is suggested that all significant features of GST including Chargeability definition of taxable event and taxable person, measure of levy iclusive of valuation provisions, basis of classification etc. should be uniform in each State and wide publicity thereof should be given. Any amendment in GST Act, Rules or procedure should be made with approval of the Empowered Committee of State Finance Ministers.
4. Threshold Limit
4.1 It is learnt that two different threshold limits are proposed to be fixed for the articles falling under present VAT Act and Excise Act.
4.2 In view of continuous rising inflation, it is suggested that threshold limit should be reviewed and determined from time to time to safeguard interest of small Dealers, if they are required to be brought under purview of GST. The threshold limit should be linked with consumer price index for the purpose of revision. Decision in this regard should be announced in March every year to be applicable for subsequent year. The threshold limit for Small traders, Small scale Industry, Small Service Provider should be made preferably double then the present limit prevailing under Excise, VAT and Service Tax Act because of constant appreciable rise in cost index.
5.1 As a matter of policy minor offences which do not reflect intentional fault, should be brought under ambit of composition.
5.2 The benefit of Composition/Compounding Scheme should be made available particulalrly to self employed small traders because of their various constraints and limitations.
5.3 It is further suggested that as a matter of policy based on sound principles, the benefit of Composition Scheme should be given to dealers having an annual turnover up to at least Rs. 60 lacs in accordance with present provision in the Income Tax Act under which special previlege has been made for such class of Traders. Prescribed ceiling should be revised as per trend of cost Index.
6. Taxes to be Subsumed
6.1 It appears that Central Excise and Service Tax are proposed to be replaced by Central GST and VAT is being proposed to be converted into State GST.
6.2 There is no reference about abolition of Taxes levied by the Local Self Governments as also regarding abolition of CST is yet to be announced in the wake of policy ammendment that all taxes are to be merged in GST.
6.3 It is suggested that holistic approach is called for with introduction of GST. In this context, all the taxes levied by Central and State Governments and Local Bodies should be subsumed. Consequently in relation to Trade, all Cess, duties etc levied by Central Government and Purchase Tax, Mandi Tax, Royalties, Road Tax, Vehicle Registration Tax, Taxes on Minerals, Forest Produce Tax, Stamp Duty, Octroi, Entry Tax, Property Tax on Commercial Properties, Electricity Tax and Tax on Petroleum products used in Industry and Trade as raw material levied by State Governments should be subsumed in GST.
7. Inter-State Transactions
7.1 The proposed model of IGST reflects a new concept in respect of Inter-State Trading activity.
7.2 The requirement to have E-Registration in IGST will prove to be counterproductive in particular for small traders. So the, provision of E-compliance as pre-condition for IGST transactions will be too harsh for compliance by small dealers as the level of computerization amongst traders is very low.
7.3 It is suggested that apart from E-compliance, the manual compliance should also be made applicable in initial period. Besides, an extensive campaign should be launched in cooperation with Trade Associations to educate the traders about the need of computerization. Over and above a scheme should be evolved to make available Computers and its accessories to traders .
8. GST Rate Slabs
8.1 It is proposed to have different scale of taxes such as Standard Rate Higher Rate etc.
8.2 The different slabs of rates under GST will destroy the basic fundamental of GST and will further lead to tax war amongst States in an anxiety to earn augmented revenue as it visualised VAT regime.
8.3 The composition of GST includes all sorts of taxes applicable on Goods and Services. It is apprehended that tax will be levied on each transaction with a motto to earn more revenue. It is, therefore, suggested that maximum and minimum slabs should be prescribed with provision for Tax free items. Items of daily needs and consumptions such as food grains, Agriculture Produce, Tea, Salt, Vegetable, Milk, Items of Weights and Measures, Textiles, Computers etc. should be placed under Exempted Category. Industrial inputs, Capital goods, Gold, Silver etc. should be covered under lowest rate of 1% and rest of other items should be placed under the Standard Category with a tax ceiling not exceeding 12%.
9. Special Industrial Area Benefits
9.1 Under policy of the Central Government the Industrial Units are enjoying tax holiday and incentive in backward notified areas. Interest of such Units should be protected by ensuring that they do not undergo any financial loss.
10. Statutory Declaration Forms
10.1 It is suggested that all sorts of Statutory Declaration Forms like C Forms,F Forms, E Forms etc. should be abolished for ensuring smooth flow of business throughout the Country.
11. Road Permits & Entry Forms
This proposal is in consonance with policy of the Government of India as declared and advocated at various International Forums purported to make Asia as a Free Trade Zone. By pursuing the dictum “Charity begins at home”, above step shall be in proper direction.
12. Closing Stock in Transition Period
The dealers who are holding stock of goods as on the date of enforcement of GST should not be put to any pecuniary loss. It may be feasible by stipulating that sale out of closing stock should be kept tax free.
13. Penal Provisions
An atmosphere of mutual confidence and trust between dealers and taxation Authorities should be outlined as per the policy of the Govt. by introducing concept of ” Self Assesment” . It should be appreciated that Traders are acting as “Tax Collectors” of the Government by collecting and depositing the tax without claiming any remuneration, rather at the risk of financial loss under certain circumstances. It is suggested that while incorporating penal provisions in the law, provision be made to impose nominal penalty for any violation of the law provided conduct of the Dealer does not reflect any malafide fault. Further, for first three years, minor lapses not involving loss of revenue should be condoned.
It is a matter of common knowledge that the Government is always prompt in realisation of taxes but in the matter of Refunds, lethargic attitude is visible. The procedures are so complicated that normally the dealers have to run from pillar to post to get their refund, yet refund, but in vain. It is suggested that refunds should be sanctioned on the basis of self- assesment. To safeguard revenue interest of Govt, verification of correct or incorrect Return can be made subsequently. The amount of refund should be transferred electronically to the Bank Account of the dealer as soon as the return is filed, under intimation to the dealer concerned.
15. Stock Register
Large number of dealers deal in hundreds of items and effect sale in retail in quick intervals. Further, because of paucity of space, the goods are kept in different places by taking go down. The dealers also have limited staff. Therefore, in view of such constraints, it becomes practically impossible for a dealer to maintain stock register. Hence, compulsory maintenance of Stock Register should be dispensed with. In particular small dealers as defined under the Income Tax Act, should be given such a privilege.
16. Adjustment of Debit & Credit Notes
In a business enterprise, it is very common practice in mercantile usage that the goods supplied sometimes are rejected or returned fully or in part by a purchasing customer. As a matter of business policy deal, it is also possible to offer price reduction. All such events may occur after Return is filed in prescribed period. To cope with the situation, there should be proper provision for rectification in Return and adjustment of entries in Account Books. Similarly, suitable provision should be made in the Return Form itself where the purchase pertaining to earlier period as per adjustment made by the seller as a result of above eventualities, may be made by the purchase in subsequent return. This could obviate any chance of detection of any disparity in business dealing of purchase and Seller and without any financial implications from revenue point of view.
17. Training and Education to Staff
It is a matter of common knowledge that sometimes such officers from Administrative cadre are posted as Senior Officers to administer taxation Department who don’t possess experience in handling important matters pertaining to governing Act and procedure. It is, therefore, desirable that competent officials are appointed who are also well versed with taxation matters. On the pattern of National Academy of Direct Taxes, a National Academy of Indirect Taxes should be established separately. It will be in fitness of things if a separate civil service with name Indian Taxation Service (ITS) is instituted.
18. Accountability of Officials
In order to ensure harmonious and faultless functioning of Bureaucrats it is necessary that their performance should be made answerable and accountable. Subordinate Officers too should be made accountable. Furthermore, to discourage corruption, discretionary power should be done away with.
19. Website of State Governments
In order to keep all the dealers up dated about latest provisions of GST, it is necessary that all State Government’s tax department keep their website updated on daily basis. All Circulars and Notifications of the department should be uploaded on the website, beside mailing to Trade Associations.
20. Draft GST Act and Rules
It is noticed that though the date of enforcement of GST has been deferred to Year 2012, the draft Rules and Model Act of the GST has not been released. The CAIT feels that GST should not meet the same fate as was witnessed in respect of VAT. As such, it is emphatically stressed that the Model Act and Draft Rules should be made public well in advance so as to give sufficient time to all stake holders to acquire full knowledge about implications of GST.
21. Sanctity of Law
It is bitter experience that after any law is enacted, soon after the process of making amendments is resorted to. It is suggested that there should be sufficient provision in the law itself whereby authority of State Government to increase or reduce rate of taxes, to change classification of any goods in any category and/or make any amendment should be subject to prior approval of the Empowered Committee.
22. Coordination Committee
The GST is a new concept which is going to affect all sections of the Society and in respect of which it is claimed by the Govt. that it will be beneficial for all concerned. It is natural that initially there may be some confusion or practical problems in accurate compliance. It is also possible that because of some ambiguities, some lapses not reflecting malafide intentions may occur in faultless compliance. To cope up with such eventuality, it is suggested that at National level and State level as well as at local level, joint Committees of Officials and Trade Associations should be set up for interaction off and on as also to recommend remedial measures to take care of legitimate grivience of Stake Holders.
23. Workshop and Computer Education
It is learnt that the proposed GST will be a computer based online compliance mechanism taxation system. The knowledge of law, Rules and computer literacy amongst dealer of all classes are integral part of GST. Thus, it is strongly urged that a massive literacy campaign about GST and computerization should be launched. The standard software for accounting and compliances under GST should be prepared by the Government with facilities to download the same from the website of respective States. To provide easy access to computers, the tax department should install Computer Kiosks through which the traders can get processed their return electronically.
24. Stock Transfer and Consignment Transfer
The Stock transfer and Consignment transfer should be made eligible to claim input tax credit. There should not be any reduction or rejection in input tax credit on account of such transfer of stock or consignment.
25. Tax Collector
It is an open secret that the dealers are collecting and deposit of tax on behalf of the Government by rendering services without any remuneration. The dealers are required to maintain lot of record and also seek professional advice and spend lot of money in proper tax collection of money and are also subject to penalties etc. In view of such role, the dealers should be given incentive in the form of allowing 5% rebate on the quantum of collection and deposit.
For all the existing dealers, the current VAT No. should be deemed to be adopted as GST Registration No. For new tax payers, a simple procedure should be prescribed for acquiring registration under GST.