• CALL US : +91-422-4225333
  • WAPP : +91-9952412329

The Southern India Mills’ Association

Committed to Foster the Growth of the Textile Industry

1 step forward, 2 steps back. Is GST going the VAT way?

Tax experts say India has kept finding ways to complicate things. The Kerala GST cess takes things from bad to worse
By doubling the goods and services tax (GST) eligibility limit, India’s version of GST has inched closer to the global format. However, tax experts say India has kept finding ways to make things complicated, with the recent introduction of cess for Kerala taking things from bad to worse.
Although for a limited period, the move defeats the purpose of GST, because this mammoth tax change was introduced so that multiple cesses could be done away with.
“Re-introduction of cess sets a bad precedent. It may be for a noble cause, but instead of levying cess, the Centre could have funded the cause directly,” said Anita Rastogi, indirect tax partner at PwC India. The council allowed flood-hit Kerala to levy a calamity cess of 1% on intra-state sales for a maximum period of two years.
A moot question is if this takes us back to the days of VAT, or value added tax, which also started off with noble intentions before getting muddled. Drawing parallels with earlier tax regime, Saloni Roy, senior director at Deloitte India, said, “When VAT was introduced in 2004, its purpose just like GST was to have a unified tax system across the country. But after a while, states started drifting away. For example, some states like Haryana, Uttar Pradesh and Gujarat had additional tax on certain items which others didn’t. My concern with bringing back cess is that, are we going back to where we started from?”
Another important decision taken at the GST Council’s 32nd meeting was the extension of composition scheme to services providers. Services providers with a turnover limit of up to ?50 lakh are now allowed to avail of the composition scheme at a rate of 6%.
While the objective here is to encourage more businesses to come under the GST ambit, tax experts fear that introduction of a new tax rate makes the law more complex and could lead to non-compliance. Currently, businesses under the composition scheme are taxed under various slabs of 1% (manufacturers), 2% (traders) and 5% (restaurants).
“They have extended the composition scheme for service providers, aimed at widening the tax base, but at a new tax rate of 6%. Anyway, we had three different tax rates for goods providers who have opted for this scheme and this complicates the law even further. The more the complex law, more difficult it is to comply. A simple law leads to more compliance and increased revenue to the government—this is tried and tested globally in countries where GST/VAT is practised,” added Rastogi.
At a time when GST revenues are falling behind the required target, there is increasing worry that the added complexity will act as a deterrent for taxpayers. Thanks to the half-hearted approach, India’s GST has miles to go before it becomes a good and simple tax.