Even as the two-day meeting of the GST Council slated to begin on Thursday, industry body ASSOCHAM, which submitted a paper done with consulting company KPMG, called for caution in formulating the rates as well as implementation.
“As we are in a transition period, several industry sectors are faced with challenges of adapting to new tax regime. While the GST is a path-breaking reform, its implementation should be calibrated in a manner to cause least disturbance to the existing taxation structure,” D.S. Rawat, secretary general of ASSOCHAM, said.
The study touches the sensitive but revenue-contributing tobacco industry, the textile industry that comes loaded with export potential, the telecom sector, and also addresses the restaurants sector, where it fears the taxes can go up by a 100 per cent!
Even as there is a strong campaign to raise the tax on tobacco to about 40 per cent, the study said that the structure for tobacco industry, “should not be based on some emotive issues, but be rational enough to check a huge amount of illicit trade which stays outside the taxation net”.
It said instead of subjecting the tobacco and tobacco products at a higher than the standard rate, the entire sector should be placed under the standard rate with the focus of bringing exempted items under the GST net to eliminate the rampant illicit trade.
The tobacco industry has been the second largest contributor to Indian excise revenue after the oil and gas sector and combined tax revenue collected from tobacco industry was more than Rs 29,000 crore in FY 2014-15, the study maintained.
The paper suggested that sharp anomalies in the taxation rates and structure across different industries such as telecom, tobacco, textiles, food processing and tourism be addressed as the country moves in a transition period for implementing the Goods and Services Tax.
It was pointed out that GST may negatively impact the working capital cost of the telecom sector since initial landed price of purchases including imports may increase due to increase in tax rates. Cost of procurement of services may increase to more than 18 per cent from the current rate of 15 per cent, which will be a challenge for the industry, especially if CENVAT credit on passive infrastructure and fuel consumption is continued to be denied.
Suggesting that the government retain lower rate for the textile industry by introducing a special lower slab of four per cent to six per cent under the proposed GST regime along with full input tax credit of GST paid on goods and services used in the supply chain, the paper pointed out that higher tax rates in the long-term, will result in India losing market share to the developing and highly competitive economies.
While the service tax is 30 per cent in case of composite package in the tourism industry, it is 60 per cent for dining in a standalone restaurant. This, the study pointed out, was leading to ambiguity and complexity in determining the value on which service tax is payable and called for one standard rate.
“In the current regime, all the taxes cumulatively applicable to restaurants (i.e. VAT, Service Tax and other applicable taxes) increases the value on which tax is payable to more than 100 per cent. Such a situation increases the tax cost substantially. Therefore, a mechanism should be introduced whereby value on which GST would be applied should not increase 100 per cent in any case.”
In the case of food processing units where there is concessional or zero tax now, the GST proposed to be based on minimal exemptions would increase the tax cost and trigger inflation, the paper said, calling for a zero tax on essential consumption items which constitute 14.3 per cent of the basket that makes for WPI.
