DEAR, NEARS, FEARS FOR GST

         

   As GST nears, CBEC officers get jitters about job security

    As the deadline for implementing Goods and Service Tax (GST) across the country nears, there is growing unease among officials of the Central Board of Excise and Customs about their job security and future, according to Cogensis   report."Any change causes anxiety," an Indian Revenue Service officer said. "If the   government   thought, a change as big as GST will not lead to any protests, then they are functioning in a utopian world." The government is planning to implement GST from Apr 1, 2017. In a letter to Chairman of Central Board of Excise and Customs Najeeb Shah, the Association of Indian Revenue Service (CBEC) has expressed apprehension over job security, especially since   the GST Council is discussing dual   control  over  service  tax assessees. There are currently   about 1.1  million service tax assessees, who are directly assessed by  the  CBEC. "If  the service tax  assessees are divided between Centre  and  states  that  could  mean lesser  requirement for  service tax officials," another officer said. The GST Council in its last meeting decided to reconsider the earlier decision to allow Centre to have sole over  existing  service tax   assessees under the new tax regime. The GST Council had last month decided that the Centre will have sole control over the assessment of existing 1.1 million service tax assesses. The  service   tax assessees added will be divided between the Centre and states. Most states are opposed to the    entire   service tax  vertical  being solely  handled  by the Centre. The  letter  by  the association, sent a  fortnight ago,  has  also  raised  worries  about fully automating the GST network." We are worried that an entirely digital system will start replacing humans," another official said. Shah has assured the officials that their interests will be taken care of under the new  indirect  tax  regime.    "The chairman   has   assured to   protect  our  interests  and communicated to us in his reply that we have nothing to worry about," the second official said. The chairman has said with GST, the tax base would only increase, which would mean work for more people. Notwithstanding the assurances, the unease is only likely to grow. 

 

   Right GST rate can unlock India’s potential

By next April, India aims to introduce the dual GST to provide a common nationwide market for goods and services. Under the proposed indirect tax reform, both central and state governments will have concurrent taxation power to levy tax on the supply of goods and services. The proposed regime is expected to improve tax collection and minimize leakage.

Though Parliament passed the GST Bill this year and began working on implementing it, there are many teething troubles, one of them being the revenue neutral rate (RNR), which is the rate at which there is no revenue loss to the Centre and states.

THE TUSSLE OVER RNR

The states want the RNR to be high, above 20%, to ensure they do not lose revenue, while industry wants it to be around 18%, implying that higher tax will hurt them.

So far, a range of rates have been proposed. Earlier, a National Institute of Public Finance and Policy report suggested a revenue neutral rate of 27%. In 2009, a task force of the 13th finance commission suggested a GST rate of 12% (5% central GST and 7% state GST). However, 27% is considered too high and 12% too low even by international standards.

A survey of 132 countries by KPMG International Cooperative’s Corporate and Indirect Tax Rate Survey in 2014 showed that the highest GST rate was 27% in Hungary and the lowest 1.5% in Aruba. The 10 highest rates ranged from 27% to 18%.

The government at some point will have to make a tradeoff between collecting enough revenue and not overtaxing people. Moreover, a high tax can trigger inflation. An RNR with a lower rate of 12% and a standard rate of 22% would increase inflation by around 0.3-0.7%.

Today, the overall tax rate totals to around 26%, 12% excise duty and 14% VAT on goods. And since the tax rate now for services is nearly 15% with the Swacch Bharat cess, if the RNR is greater than 15-15.5%, the rate for services will be in the 20-22% range, making the GST seem like a considerable tax rise. So what then should be the ideal tax rate?

OPTIMUM TAX RATE

Ideally, the tax should be levied comprehensively on all goods and services at a single rate to achieve the objectives of simplicity and economic neutrality. But that may not be viable politically due to concerns over the distribution of tax burden (e.g., food) or because of administrative and conceptual difficulties in taxing certain sectors. This then leads to exemptions.

This explains why the Centre has proposed a four-slab rate structure for GST, ranging from 6% to 26%. The structure proposes zero GST on many goods and services, such as food, health and education, and slabs of 6%, 12%, 18% and 26% on remaining goods and services with the highest tax on luxury items such as fast-moving consumer goods and consumer durables. It also proposed a cess over and above the GST rate on ultra-luxury items and demerit goods, such as big cars and tobacco products.

But multiple rates increase the costs of administration and compliance. They lead to classification disputes, require more record keeping and create opportunities for tax avoidance through misclassification of sales.

INTL EXPERIENCE

The GST regime has been most successful in countries, with the exception of a few Scandinavian nations with the rate of around 25%, which had a broad base and a modest tax rate in the beginning. For example, the New Zealand GST was introduced at the rate of 10%, with a base consisting of virtually all goods and services (with the exception of financial services).

The Singapore GST was introduced at 3%, which has now been increased to 7% as inefficient excises and customs duties have been eliminated. On the other hand, in Europe, the regime is not as efficient as the taxes have been levied at multiple rates.

WHAT GOVT PANEL SAYS

In December 2015, a government committee, chaired by Arvind Subramanian, chief economic adviser, recommended an RNR in the range of 15-15.5%. It said the average standard rate for comparable emerging market economies was 14.4% with the highest standard rate being 19% and even in the high-taxing advanced economies, the rate was 16.8%. The committee said, an RNR of anything beyond 15-15.5% will possibly result in a standard rate of about 19-21%, making India an outlier among comparable emerging economies.

The GST has the potential to make taxes more simple, raise compliance, and increase the GDP growth rate by about 1-2%. For instance, in Canada, the GST that replaced the federal manufacturers’ sales tax resulted in an increase in potential GDP by 1.4%. Therefore, as international experience shows, only a single-rate GST with a large base can transform the economy.

      Govt says need to have 4 GST rates; may reduce number later

The government believes there is no option for the country but to have four rates of the goods and services tax (GST), though in time it might look at reducing the number.

The ideal GST has just one rate or two. But senior functionaries of the finance ministry believe that a single rate, or two, would stoke inflation. And there is the task to protect the revenues of the Centre and the states. That is a combined ₹8.8 lakh crore, divided equally between the Centre and states.

As the rollout of the GST enters the home stretch, some have questioned the rationale of having four rates – 6%, 12%, 18% and 26%. There is also a zero rate, a rate of 4% on gold, a demerit rate on certain items such as alcohol and cigarettes, and a cess. That, say critics, defeats one of the purposes of the GST, which seeks to create a single market and simplify the current system mired in a plethora taxes.

A wide range of rates may lead to disputes over classification: which item or service should be taxed at what rate. For instance, should a refrigerator or a television be taxed at the same rate as air-conditioners? All three are consumer durables, but refrigerators and televisions are bought even by low-income groups, though air-conditioners remain toys of the relatively rich.

Whichever country has a high dependence on indirect taxes – India, where only a handful pay income tax, is largely dependent on indirect taxes such as sales tax, excise, and customs duties – the number of tax rates is large. European countries have a standard 20% GST rate, but two to three other rates. Nearly all of them tax alcohol, cigarettes, and petroleum products at a much higher rate.

But India, said the finance ministry functionaries, could not do without the four rates. “We have to have a 6% rate to protect the poor. There are many consumer items, such as edible oil and tea, on which there is no excise duty, only a value added tax. These are consumed in large volumes,” they said.

So, they should be in a slab lower than the 12% rate, which some wanted to be the standard rate. Putting them at zero will lead to a massive loss of revenue, and putting them at 12% will make them very expensive.

For India 18% is the standard slab. And then there is the 26% rate, which applies to most of the items – among them consumer durables and FMCG – which now have a total tax incidence of close to 30%, including excise and value-added tax.

Some officials expressed the hope that with time the 26% slab may become the one for demerit goods.

      NO THREAT TO TAX DATA, SAYS GSTN CHAIRMAN

Debunking criticism over equity structure of the company building world’s biggest tax system, GST-Network chairman Navin Kumar on Tuesday said all measures have been taken to protect sensitive tax information and the government will have strategic control over it.By keeping Goods and Services Tax Network (GSTN) private, the company has been equipped to take decisions quickly as an agile and nimble organisation not bound by red tape that can retain talent by paying market salaries, he told PTI.

Kumar insisted that enough firewalls and 8-levels of security is being built to keep the data safe. BJP leader Subramanian Swamy has questioned the structure of the entity created under the previous UPA regime saying how can a private firm be allowed access to “sensitive” tax information without security clearance.

   

                                                                                                                        From Sources:-