With the upcoming budget being the first after GST, there is pressure on the government to take up legislative reforms to ensure effective implementation. Apart from the usual expectations of corporate tax rate cuts and revamping of the deductions which top the wish list of the industry, the demand is for the rationalisation of the GST rates and reforms in the GST procedural framework. Another contributory factor to the mounting pressure for reforms is the long gap between the GST Council meetings.
The complex framework of GST is such that duty rates and the exemption list under GST can be modified only upon the recommendations of the GST Council. So, it is likely that this budget session will be confined to the rate changes in relation to customs and excise duties and industry will have to hold on to its wish-list a little bit longer. However, it is quite likely that there will be a teaser of what is to come regarding the rates with the formal execution being delayed till the conclusion of the next GST Council meeting.
Inclusion of all sectors within GST framework
Time and again, this demand has been raised. Even the finance minister has stated that the real estate sector will soon be a part of the GST framework and stamp duty on such land transactions would be subsumed into GST. However, this is easier said than done since this would require another Constitutional amendment to realign the entries under List II (State List) because the power to enact laws on stamp duty rates for documents other than financial instruments is the exclusive domain of the state government. This would have to be expanded to allow the Centre to also legislate. Inclusion of real estate sector could address problems concerning valuation and input tax credit absorption, thereby, bringing down overall costs and giving much-needed relief to home-buyers.
The need of the hour is also to bring petroleum products under GST because the industry is anyway struggling with issues relating to blocked credits and reversals. Even the benefits of concessional rate of sales tax have been restricted in the case of inter-state sale of petroleum products. This, combined with commercial fluctuations like rise in crude oil prices, is sure to raise the topline costs for these businesses.
There is also a need to align the procedural framework with industry realities. Numerous representations have been made to the GST Council and the finance ministry for the strengthening of the framework and reasonable deadlines being set for the filing of returns without confusion reigning regarding the authority and form. The initial concerns were addressed by the Council, but the issue concerning processing of refunds for exports continues. A separate section must be identified within the revenue to focus on the export sector as they are major source of contribution to India’s forex revenue. Also, the interim notifications that granted exemptions on imports and purchases from unregistered persons will come to an end in around March 2018. An early re-looking of these is advisable since this may leave scope for more petitions for any slip-ups in continuing the same.
Even the anti-profiteering framework appears to lack sanctity, with notices being issued to assuage consumer sentiments that are often based on misinformation. Major business houses have been asked to answer vague information requisition notices, and will suffer because of the bad publicity that accompanies such notices. The notices that have demanded expedite responses leave open the question whether the procedure of reference is being followed by the many levels of authorities that form the anti-Profiteering framework. If this is not the case, then it exposes the whole framework to litigation along with the very basis for determination of anti-profiteering.
All these issues lead to one conclusion: The government will have to make efforts to reinforce the procedural framework and weed out credit-flow issues to arrest increasing costs without compromising on revenues. It must tread a fine line since this will be the last full budget that will be presented before the 2019 elections.
By Rashmi Deshpande, Associate partner, Khaitan & Co Views are personal