5 key concerns over GST

Business Standard looks at the five greatest concerns of the GST in its current form

The Narendra Modi-led National Democratic Alliance (NDA) government on Wednesday got the Bill for implementation of a goods & services tax (GST) regime passed in the Lok Sabha. And chances are, with better floor management and greater coordination with Opposition parties, it well be able to get it through the Rajya Sabha, too. 

However, given the various compromises the government has had to make to ensure the Bill’s passage, there are some serious doubts about the effectiveness of the new tax regime. Business Standard  looks at the five greatest concerns: 

No clarity on revenue-neutral rate
 

Finance Minister Arun Jaitley has conceded a 27 per cent rate, as recommended by an empowered committee sub-panel, will be too high. But there is no clarity on the actual rate; experts suggest it could be in the range of 18-20 per cent. A higher rate could erode competitiveness and run counter to the logic of lowering tax rates for increasing compliance. 

1% non-creditable tax on inter-state movement of goods
 

As GST is a destination-based tax, manufacturing states like Gujarat and Maharashtra have demanded an additional one per cent tax on inter-state movement of goods, to compensate them for the losses. 
 

The cascading effect of this, should the demand be accepted, will work against the overall theme of GST. The multiplier effect: The tax levied every time goods enter a new state will be substantial and it is likely to erode competitiveness of domestic manufacturing units. 
 

Tobacco, alcohol, petroleum excluded 
 

As the success of GST largely depends on its coverage, excluding these items, which account for a significant chunk of the government’s revenue, is likely to lower its effectiveness. 

Real estate left out 
 

As has been written earlier, since the real estate sector is excluded, all construction activities and expenditure incurred on them will be outside of the ambit of the GST system. So, suppliers will not be able to set off their intermediate tax burden against their final tax liability.