 "Industry miffed at 1% tax for manufacturers in GST")
“An additional tax on the supply of goods, not exceeding one per cent, in the course of inter-state trade or commerce shall be levied and collected by the government of India for a period of two years or such other period, as the Goods and Services Tax Council may recommend,” says the Bill, tabled in the Lok Sabha in the winter session of Parliament.
It has been proposed proceeds from the tax will go to states in which the supply originates.
The tax is aimed at wooing states such as Gujarat and Maharashtra, which are miffed at destination-based GST, saying it would work against manufacturing states.
Market players say this provision defeats the purpose of a national GST, as it will lead to supply-chain inefficiencies. The additional tax will remain non-creditable against the GST and will constitute additional revenues to producing states, over and above the GST in destination states.
“This is going to be a bombshell for industry and will have a negative impact on the common market of India. More, it will be a blow to domestic manufacturers. Rather than promoting ‘Make in India’, it might become a tombstone for manufacturers in India,” said a market player.
Sources say industry is planning to send a formal representation against this provision to the government. It is also seeking it be made a part of the discussion on framing GST regulations and the Centre engage in dialogue with it.
Another market player said the proposal would require restructuring of business and supply chains. The chain, already hit by various deficiencies, would become more complex, he added.
Complexity would result from the fact that supply of goods from a company’s office in a particular state to a different office in another state will also be taxed at one per cent. “The one per cent additional tax will be an issue, as this is an origin-based tax, non-creditable, contrary to how GST functions. Efficiency of the supply chain will be compromised; more so, when there are multiple movements. This really needs to be thought through before implementation,” said Pratik Jain, partner, KPMG.
Some experts term this a necessary evil. “It is a concession and restricted for the first two years. Considering it is the last allowance while still a dampener, it is worthwhile because it gives industry a GST, which it wants. However, if it is one of the many concessions, it is a cause of concern,” said Vivek Mishra, leader (indirect tax), PwC.
Another industry concern is whether or not the measure will be temporary. While the intent is to restrict the tax to two years to get states on board, there is concern because of the way it is worded in the constitution amendment Bill.
“As a provision the Centre could extend the tax if required,” said a market player.
The industry is pegging this tax as a distortion and if the centre wants to adequately compensate the states for any loss in revenue then the GST rate should be kept high, they argue.
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