Budget 2015: GST key to improving ease of doing business; govt efforts offer hope
By Sachin Menon
The last Union Budget showcased the government’s intent to focus on preparing the existing indirect tax regime for a transition to Goods and Services Tax (‘GST’), widen the tax base and enhance compliance.
Unfortunately, in certain instances it appears that one objective was only met in isolation of another. While this may perhaps be the result of a lack of peripheral view to keep the promise of a streamlined tax administration and fair dealing, it is indispensable that the government revisits some of the propositions, some historic, others more recent.
Transition to the negative list regime in July 2012 evidenced the government’s intent to widen the indirect tax base and prepare for the introduction of GST. Elimination of the cascading effect of taxes through an efficient function of cross credits has been one of the most advertised feature of GST and an obvious lure for trade. Having said that, the restrictions at present imposed on the availment of CENVAT credit fails to embody sentiments in line with the philosophy of GST.
CENVAT credit restrictions
To begin with, numerous restrictions on availing of CENVAT credit of taxes paid on certain goods and services is in stark contrast to the taxation of all services except those exempted or specified in the negative list.
Prescribing a time-frame of six months for availing CENVAT credit of taxes paid on procurements also appears unreasonable, particularly, when tax authorities are empowered to invoke an extended period of limitation of five years.
Similarly, providing a payment for the value of services to the vendor as a pre-requisite for availing credit of service tax paid on input services, appears out of place, especially when such a condition in respect of availment of credit of Central Excise paid on inputs and capital goods is conspicuous by its absence.
Varied interpretation in recent times has led to considerable ambiguity in respect of an otherwise established manner of reversal of CENVAT credit of taxes paid on common inputs and services used in exempt and taxable operations. Similarly, a clarification on the manner of distribution of CENVAT credit by an input service distributor as well as the bar on transfer of credits from one manufacturing unit to another, has sent trade into a tizzy. Conclusive guiding principles issued by the government spelling out expectations aims at nipping potential litigation in the bud.
Certain sectors make a good case for exemptions from a socio-economic point of view and a considered view would also give these sectors a much-needed fillip. Similarly, cleansing the inverted duty structure that plagues certain sectors is a continuous process and needs to be continued with the same gusto as last year.
Low rank in ease of doing business
India currently ranks 142 out of 189 economies, in terms of ease of doing business according to the Doing Business Report published by the World Bank Group. It fares even worse when it comes to payment of taxes securing rank 156 which perhaps is not difficult to see why.
Given the blatant use of powers vested in the tax administration, particularly in respect of issue of summons, scrutiny of voluntary tax payers under amnesty after a promise of no vendetta and the rigmarole refund claimants are subject to, this ranking can probably be looked at positively. With the entire country making a concerted effort to improve investor sentiment, actions of the tax administrator belie the gesture.
While these only address the past, a progressive view without mentioning GST will be incomplete.
The previous Union Budget saw the government finally take cognizance of the fact that the debate on introduction of GST must come to an end. Originally intended to be introduced in April 2010, introduction of GST was officially deferred until April 2013 and later unofficially shelved in perpetuity.
As the Finance Minister signed off promising to find a solution in the course of the year and approve the legislative scheme which enables the introduction of GST, introduction of the One Hundred and Twenty Second Constitution Amendment Bill in the Lok Sabha in December 2014, has certainly rekindled hope.
Even while the government stays non-committal on the date of introduction, it certainly is encouraging to hope for a go-live by April 2016.
India is only inching towards the anticipated date of introduction, but given the legislative and infrastructural preparedness, it is far from ready. For a change, trade is enthused to adopt GST, which is at present perceived as a magic portion that cures all.
But for a makeover which travels beyond the realms of being a mere tax reform, and promises to be a socio-economic reform, it takes more than a few months for an economy like ours to cope with this change and a final framework and a roadmap with indicative time lines is the least the government can offer for an audience that has been more than patient.
Centre-state trust deficit
It is not out of place to mention that the discussion on phasing out Central Sales tax (CST) is as old as the conception of GST in India. The ‘trust deficit’ between the Centre and States bridged with renewed dialogue suggests that all hope is not lost yet.
Reduction of the rate of CST, if not abolition altogether, will fall in line with the ideology of GST and certainly add substance to the government’s intentions for reform.
While some of these may appear to be fundamental issues, some even recurrent, with the passage of time, for trade these have assumed greater nuisance value than they actually deserve.
A robust tax system must steer clear of any allegations of lopsided administration and some of these provisions appear to tip a scale that is already perceived imbalanced.
(The author is Chief Operating Officer- Tax, National Head - Indirect Tax, KPMG India. Views and opinions herein are those of the authors and do not necessarily represent that of the company. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.)