From business ranking to further rate revisions: More GST measures likely

GST Council to implement a ranking of businesses based on their tax payment track record from January

Companies will soon be able to decide which business entities to conduct business with and which ones to avoid, if they do not wish to face hassles over GST taxation, while the Centre may also reduce the number of items falling under the highest rate slab even as the GST Council moves to discourage any further tweaking of rates after last week's measures. 

In what Prime Minister Narendra Modi described as Diwali come early, The Goods and Services Tax (GST) Council on Friday took major decisions to prevent working capital of exporters from getting locked up and reduce the compliance burden on small and medium enterprises, while reducing rates on 27 items of daily use, including khakhra, which may help the ruling party, the BJP, in poll-bound Gujarat. It deferred implementing the controversial e-way Bill and the reverse charge mechanism. The Council also postponed imposing tax deducted or collected at source, which will particularly benefit e-commerce companies. It also decided to set up a committee to frame principles to reduce rates, depending on revenue patterns of the GST so that no ad hoc decision was taken. (Read our detailed report on the GST measures announced last week)

GST Council to bring in ranking of businesses

From January, the GST Council will implement, according to the body's plans, a ranking of businesses based on their tax payment track record, the Livemint reported on Monday. 

The proposed ranking system, the report said, would enable businesses and firms to ascertain the chances of a supplier defaulting on its tax payments. Under the new tax regime, such a default could lead to the blocakge of tax rebates for the firm that procured materials or services from the defaulting supplier. According to the report, the ranking system is aimed at solving issues faced by companies which have complained that their tax rebates were getting blocked for no fault on their part. Instead, these rebates were getting blocked because after charging tax-inclusive prices, their suppliers had not remitted taxes to the government. 

More rate cuts ahead on essential items

Products used by one and all could also be removed from the highest tax slab, at 28 per cent, by the GST council. Any such subsequent relaxation in the tax rate would be over and above last week's announcement that cut rates on 27 items. Currently, products like bath fittings, cement, and steel products such as rods used for construction fall within the top bracket. 

According to the Times of India, the GST Council might move to reduce the number of products under the highest tax slab. The move, according to the report, might come due to complaints by some state finance ministers who have said that the common man is facing hardships since several common-use products fall within the 28 per cent GST slab. 

"The idea was to classify the goods and services into merit and non-merit goods with the non-merit goods in the top bracket. But we have gone beyond that," one state finance minister told the national daily, while another minister said, "In the medium-term the aim is to move to fewer slabs." The second minister also told the national daily that the issue was expected to be discussed at the next GST Council meeting scheduled in Guwahati.

GST Council moves to remove ad hoc revisions

However, while the Council and the government appear to be reportedly open to reducing the GST rate on certain items, they have also moved towards ensuring that no manufactured goods would be given an outright exemption under the tax regime and that rate revisions would not be ad hoc in nature, according to the Economic Times.  

The financial daily reported that the Council had adopted a concept paper to this effect. The report added that exemptions would not be given since that would have a negative impact on the government's Make in India programme and that states that wanted to reduce the tax incidence on an item should employ direct subsidy transfers. Further, the financial daily said that this could mean that global technology major and iPhone maker Apple, which had sought similar exemptions, would not be getting such a break.

Further, despite indications that more rate revisions might be under consideration, according to the financial daily, the concept paper said the GST rate of 28 per cent should be reviewed only after three months. High-revenue yielding, luxury, and sin goods would not be considered for such a revision, the report added.

Large companies hope further measures will be rolled out for them

While SMEs and exporters got a relief from last week's measures, large companies are disappointed that many key issues following the rollout of the GST, such as anti-profiteering laws, transition credit issues, and denial of certain input credit, were not addressed by the GST Council at its meeting last week. According to reports, large corporates, who pay 90 per cent of the total tax revenues, now hope that their concerns will now be addressed in the next council meeting in November. (Read more here) 

"The government has addressed the immediate concerns of 90 per cent of taxpayers who contribute approximately 10 per cent of the tax collection by relaxing the compliance norms. But the concerns of minority taxpayers who pay 90 per cent of the tax revenues, will hopefully be addressed in next council meeting," said Sachin Menon, Partner and Head of Indirect Tax at KPMG in India. Citing an example, Menon said the 35 per cent abatement on GST payable on existing car leases is indeed welcome but is not good enough as still the lessee will end up paying 28-30 per cent GST as against 15 per cent service tax in the earlier regime.

The corporates are also grappling with other issues such as how to comply with the anti-profiteering provisions which have the potential of litigation, and restrictions on single credit note against multiple invoices.