GST is likely to end the tax exemption

The basis of the Goods and Services Tax is not only to simplify the tax mechanism but also to bring the maximum number of sectors under the tax net. Only the manufacturing sector contributes around 17 per cent to the country’s GDP of 110 lakh crore. A large part of the industry is out of the ambit of taxation and this includes the small scale industries, textiles, and edible oil etc. On top of it, comes the area based exemption that is costing the economy around one lakh crore.

GST is a welcome change: At present, there is a general consensus among the industry which is largely in support of the GST. However, it is mainly led by the manufacturing sector as they expect a reduction in the taxation. There are many others sectors that are benefiting because of simplification in inter-state taxation and subsuming of many tax variants. The taxes including CGST, SGST, and IGST will all be payable online and process will be simplified. Keeping all this in mind the industry is welcoming the GST and wants it implemented.

Firm stance on exemptions: The surprise factor that is coming out the industry wants to continue with the exemptions. They want that keep on getting the incentives in future also. The government is very clear in its stance, "You cannot have the cake and eat it too." The GST implementation and the continuation of exemptions cannot go hand in hand. The exemptions are responsible for breaking the CENVAT chain. There is a tax tag on certain items which the next man in the chain has to absorb. Why should he be doing it? The government is bent upon bringing the maximum industry under the ambit of taxation and doing away with exemptions. They believe this to be the right path for the smooth implementation of GST.

Process simplification: The government is also trying to sort out the rules that are complex and result in litigations. Examples of this are the CENVAT Rule 6 and Rule 7 that accounted for around 11 per cent of the litigations. The government has revamped and simplified these rules. The impact of this would be around 1000 Crores but the government is willing to take it as the cost of litigation was higher than the revenue earned through it. The Central board of Excise and Customs is also working on withdrawing all old pending prosecutions also. The logic behind all this exercise is to make the system simple for the tax payer and reduce the interaction with the tax department.

Similar changes are being worked out in the Customs Act. These will allow for removal of goods directly from the port without going through a container freight station. Also, deferment of payment of customs duty is being permitted. The purpose behind the whole exercise is to simplify the entire process of complying with the tax laws while getting the maximum industry, trading companies and dealerships under the tax net. The government wants to bring in the GST with a wider tax base and limited or practically no exemptions.

The author is a Certified Public Accountant (Cpa) who specializes in tax preparation and nonprofit accounting. She worked for big enterprises in India as a cost analyst. For more information about Gst, you can visit www.onlinegst.in.