GST in April 2016 – Our Concerns (Part I)

By Tirthankara

On 28 February 2015, in course of his 2^nd Budget Speech, the Hon’ble Union Finance Minister declared that on and from 01 April 2016 GST (Goods and Services Tax) will be rolled out in the country. Since the Central Excise & Service Tax offices are expecting to have a major role in such dramatic developments, the buzz in the corridors of these offices is growing since and curious eye-brows are raised seeking replies to a ‘How?’ The queries are left unattended or replied back with a matching dance of eye-brows.    

It is though not much difficult to appreciate the silence. The only official communiqué available to the departmental officers is a GST status report posted on the CBEC site (www.cbec.gov.in) just two months back (dated 01/01/2015). (To be more truthful this status report is an upgrade version of an earlier report posted in March last year.)

This report is not a mere statement on the GST developments, while concluding it brings forth the role of CBEC in the scheme. It states:

“8.           The CBEC is expected to play an important role in the drafting of GST law and procedures, particularly the CGST and IGST law, which will be exclusive domain of the Centre. This apart, the CBEC would need to prepare, in advance, for meeting the implementation challenges, which are quite formidable. The number of taxpayers is likely to go up significantly. The existing IT infrastructure of CBEC would need to be suitably scaled up to handle such large volumes. Based on the legal provisions and procedure for GST, the content of work-flow software such as ACES (Automated Central Excise & Service Tax) would require review. Augmentation in human resources would be necessary to handle such large number of taxpayers scattered across the length and breadth of the country. Capacity building, particularly in the field of Accountancy and Information Technology, for the departmental officers have to be taken up in a big way.”    

This small paragraph, in fact gives some specific points which CBEC (i) is expected to do, (ii) would need to prepare, (iii) would need to scale up, or points which (iv) would require review, (v) would be necessary, and (vi) have to be taken up. These points are:

1.      Drafting of CGST & IGST laws,

2.      Meeting formidable implementation challenges,

3.      Updating IT infrastructure due to increased number of taxpayers,

4.      Reviewing content of workflow software (ACES),

5.      Augmenting human resources, and

6.      Capacity building of officers in the fields of Accountancy and Information Technology.           

The above content thus depicts that the apex body for central indirect taxes itself is yet to get a clear sense of things happening/ will happen, and we don’t need to walk far to find the reason behind the prevailing confusion on GST in the department. Moreover, the status report apparently being silent on some major issues further fuels apprehensions.

First, the report is totally silent about a major GST institution viz. GSTN, a private limited company set-up by the government in 2013 as a special purpose vehicle (SPV), primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST).

It appears from the reports available, that the government intends GST administration to have simpler control mechanism. While the mainframe will be administered by the GST Council (GSTC, a body similar to present Empowered Committee), IT infrastructure will be taken care of by the GSTN. The CBEC, as things stand today may only play a supporting role. That be so, the future of CBEC and its employees will remain much dependant on the work of these bodies, and shall have to abide to the decisions taken there.

Second, despite references to Empowered Committee, it does not reflect some major developments/ decisions taken there even when such reports are available in the public domain. Specific reference may be drawn to a long standing expectation (reflected in the status report also) that number of taxpayers/ assessees for CBEC would swell from the present 25-26 lakhs (manufacturers, dealers and service providers) to above 60 lakhs under the GST regime.

Yes, under present conditions and projected threshold of Rs. 10 lakhs (turnover), GST will have a sufficiently large tax base and the number of taxpayers would still be above 60 lakhs. But, and this is a very big ‘but’, as per reports published in leading national newspapers, and we quote from Economic Times:

“As per their recommendation, GST would not be imposed on businesses with an annual turnover of less than Rs.10 lakh. Currently, the threshold for Value Added Tax (VAT) is Rs.10 lakh in most states.

On the vexed issue of dual control of traders by both the union as well as state governments, the states recommended that they be given legal powers to collect tax from businesses with an annual turnover of up to Rs. 1.5 crore. Those with below the turnover threshold of Rs. 1.5 crore would pay their taxes to states, which would subsequently pass on to the Centre its share.”

(Report: 21 October 2014)

If this demand of the states is accepted and if report from some independent researchers, which indicate status quo in administrative control of ‘traders’ and ‘service providers’ by the centre and the state does not come true for turnovers upto Rs. 1.5 Crore, all taxpayers whose annual turnover would fall between Rs. 10 lakhs to Rs. 1.5 crores will be within administrative and legal control of the states. If that be so, the majority (more than 90%) of service tax assessees will go out of CBEC control and the total assessee/ assessable returns number will reduce drastically to be around 5-6 lakhs and instead of augmentation, retrenchment will be looming large for CBEC.

Thus post GST we are having three sets of possibilities as far as taxpayer base for the department is concerned.

Possibility 1.  Turnover threshold for GST is fixed at Rs. 10 lakhs/ annum and centre gets responsibility to look after entire CGST and IGST collections. Expected tax base would be more than 60 lakhs. As things stand today, this is least possible among options.

Possibility 2.  Turnover threshold for GST is fixed at Rs. 10 lakhs/ annum. Centre continues to look after CGST, IGST and SGST collections for services upto annual turnover of Rs. 1.5 Crore, while states continue to look after SGST, CGST and IGST collections for traders falling within Rs. 10 lakhs – Rs. 1.5 Crore annual turnovers. Expected tax base increases marginally due to addition of big traders (those above Rs. 1.5 Crore turnovers). This seems most practical at the initial phase.

Possibility 3.  Turnover threshold for GST is fixed at Rs. 10 lakhs/ annum. States are given responsibility to look after SGST, CGST and IGST collections for all businesses falling within Rs. 10 lakhs – Rs. 1.5 Crore annual turnovers. Expected tax base reduces drastically. This does not seem practical especially in the initial phase, but if a decision is taken to have single interaction point for small taxpayers, it may prevail.          

In any of the above situation with introduction of single registration and single return under GST, the department would have to go through another reorganization exercise; the specific situation would only determine the magnitude.

Meanwhile opinions be formed on the direction of such reorganization.