Multiple tax slabs and cess to complicate GST

Satya Poddar of EY said taxation will get more complicated with different tax slabs

While the Indian industry pitched for a gradual reduction in number of goods and services tax (GST) slabs from four to ‘one or two’, tax consultants argued that imposition of a cess will complicate the proposed uniform indirect tax structure.
 

The GST Council on Thursday arrived at a consensus on a four-tiered rate structure — 5 per cent, 12 per cent, 18 per cent and 28 per cent — and a cess on demerit items, including tobacco, pan masala, luxury cars and aerated drinks to compensate states for a possible revenue loss.
 

"GST rates' structure can be an absolute limit of four rates as suggested by the government, and over time, the government should commit to converge to one or two rates," the Confederation of Indian Industry (CII) stated.

It is also important that the bulk of goods and services should fall within the standard rate of 18 per cent and only exceptions go to the higher rate of 28 per cent and a lower rate for essential goods such as unprocessed food items, CII President Naushad Forbes said.

Satya Poddar of EY told a television channel that taxation will get more complicated with different tax slabs and it will take away the aim of boosting the gross domestic product by one to two per cent through GST.

Nimish Goel, head, indirect tax at International Business Advisors, agreed that multiple slab rates may create confusion, which may lead to litigations. “At present, there are two main rate slabs under which majority of goods are covered — five per cent and 12.5 per cent — which will now increase to three (five per cent, 12 per cent and 18 per cent).Will this result in multiple litigations is anybody's guess.”

While the government on Thursday said the cess on demerit goods will only maintain the overall indirect tax incidence to current levels, experts argued it would distort the overall GST structure. “Proposal to impose cess on few products continues to be a disappointment. This goes against the philosophy of simplification and rationalisation of tax regime.  One would hope that the government examines the implications of the cess in more detail and takes industry's views into consideration,” said Pratik Jain, partner and leader (indirect tax) at PwC India.

“Imposition of cess is going to be an area of concern from a practical and administrative perspective” said Santosh Dalvi, partner (indirect tax) at KPMG. “While one can have some guesswork around the GST rate for some of the products, the devil is in the details, when the final classification list will be released which is the most challenging task for the policymakers.” 

Confederation of All India Traders (CAIT) demanded that irrespective of rates, there should be one single return and single authority to control the taxation system, only then will the tax net widen and revenue will be increased. 

CII also said it would be challenging for companies to meet the requirements of dual administration by both the central and state governments, while maintaining consistency across different filings.

“While the present approach is a departure from international practice of a single GST rate, this collaborative and consultative approach should successfully address the peculiar social, political and economic complexities in India, ”said Sandeep Chilana, partner, Shardul Amarchand Mangaldas.

Ficci complimented the GST Council for reaching a consensus and finalising the four-tier rate structure. "The rate structure will achieve the twin objective of protecting the revenues of the central and the state governments and further containing the inflationary pressures that may arise consequent upon the change of the taxation system," Ficci President Harshavardhan Neotia said.