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GST – A Reboot

The 23rd GST Council has announced a slew of measures beyond what many had expected. It’s a bonanza for all stakeholders, with easing of GST rates across tax slabs on approximately 200 items, simplifying compliance both for small and large businesses by allowing summary returns and deferring other identified returns till March 2018, reducing the composition rate to 1 percent (other than for restaurants) with a further proposed increase in composition threshold to Rs 1.5 crore with a cap of Rs 2 crore.

The rate changes are significant, especially the drastic pruning of items in the 28 percent tax slab with a shift of 178 items to 18 percent and some others moving down across the other slabs. This consumer-centric move will have an impact on prices and is an excellent decision. It may well spur consumption and somewhat cushion the Rs 20,000 crore projected revenue loss.

I wish they had equally removed construction related goods, consumer durables, tyres etc. from this category and kept a very small list. My sense is this list of residual 50 items in the 28 percent category will further be pruned at a later stage and will then be more aligned to what was suggested by the Chief Economic Adviser’s report at the outset.

Also, the fact that these rate changes will be effective from November 15, 2017 was a welcome announcement, unlike the last rate tweak where there were inconsistencies in dates. With this exercise, it appears that sometime next year a stage is set for convergence to rates of 18 percent and 12 percent, with maybe some very limited items in the 5 percent and nil categories.

Restaurants other than in hotels with tariffs of Rs 7,500 and above will now be taxed at a rate of 5 percent without input tax credit whereas for others it will be at 18 percent with credit.

The restaurant industry’s reaction to a 5 percent GST without tax credit is divided, with large, organised restaurant formats unhappy with the lack of credit as they expect blockages on inputs like rent at 18 percent and procurement of other goods services embedded with GST.

Customers browse groceries in a supermarket in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Another area of concern was the pain around compliance across both small and large taxpayers. The expectation was interim tweaks to the compliance calendar. The response from the Council was exactly that. As a first measure they have allowed summary GSTR-3B monthly returns till March 2018, a welcome move. Most have become used to this form of reporting. Further for zero return filers further simplification of this return is expected.

Another key change has been to defer GSTR-2 and GSTR-3 returns for the period July 2017 till March 2018, till such time a committee reviews and announces fresh timelines; till then taxpayers will have to file only GSTR-1 (outward supplies indicating one’s tax liability). Even here, for taxpayers up to an aggregate turnover of Rs 1.5 crore, returns will have to be filed quarterly by prescribed dates and for those above Rs 1.5 crore on a monthly basis as per the prescribed date schedule. So, sufficient time has been provided and by keeping GSTR-1 filing mandatory, they have maintained transaction level reporting for outward supplies except for matching with inward supplies (GSTR-2) till March 2018 which will allow the GST Network to stabilise and stakeholders to get better prepared. Also, with these GSTR-1 filings, the government will be able to link and monitor how presumptive input tax credits and refunds work in the summary GSTR-3B returns.

For other returns and transition credits too, the time period has been extended and will provide the required breathing time for industry to comply.

In summary a commendable move by the government and the GST Council to have displayed the courage to do a reboot of GST after 4 months and address the concerns of all stakeholders.

Harishanker Subramaniam is national leader-indirect tax at EY India.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.

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