Launch date awaited

Oscar Wilde once said, “Marriage is the triumph of imagination over intelligence. Second marriage is the triumph of hope over experience.” The taxpayer in India can only hope that the proposed GST (Goods and Services Tax) will be better than past experiences as far as indirect taxes are concerned.

At the end of every meeting of the GST Council, taxpayers eagerly await the final word on when GST would make its entry, (with July and September being the only possible dates), what the negative list comprises and an idea about the rates of taxes applicable to their commodity or service. Every single time till date, they got disappointed because, apart from anything in their wish list, other administrative matters get announced.

The government is unleashing GST on the nation in instalments. While this is understandable in a law that replaces almost all indirect taxes in the country, keeping the important bits of the law till the slog overs could result in a hurried legislation which is not recommended for a law that is supposed to be a game-changer.

The model GST law which was circulated last year has undergone many iterations and the law that was passed by the Lok Sabha recently has altered many clauses that were present in the November version of the law. The next meeting of the GST Council has been scheduled for May when the rates would probably be decided along with the negative list. While July appears over-optimistic, the fact that September will be the only other option should comfort the taxpayer.

In order to reduce the guessing game, the Council should announce a firm date for transitioning to GST. Entities would need some time for transition as they may have to change their systems and technology. They would also need to brace for the impact of a higher rate of tax. The Council should just announce that GST would be implemented from the September 1, 2017.

The Bill adopted by the Lok Sabha has also cleaned up the provisions with regard to input tax credit which was direly needed. Transitional provisions form a very critical part when moving over to GST — the substance of the intention of the government to facilitate an easy transition has been retained in the transitional provisions. The only area of concern as far as the transitional provisions go is that the oft-repeated “appointed day” has not yet been announced.

The agricultural sector or any taxation department have never had to debate on any issue pertaining to either direct or indirect taxation as taxation laws have invariably swayed towards ignoring the sector for the purposes of taxation. Sporadic references have been made to agriculture but there was no major impact of taxation on the sector.

One of the concerns that the Central GST law has produced is whether agriculturists would be subject to GST. This concern has arisen due to a change in the definition of the agriculturist from the previous version. The latest version of the law defines agriculturist to mean an individual or a Hindu Undivided Family who undertakes cultivation of land by own labour or by the labour of family or by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family.

A question that pops up instantly is whether there are any other forms of cultivation possible which the law may have omitted. While agriculturist has been defined, neither agriculture nor cultivation has been defined anywhere in the law. To add to one’s interest, the provisions regarding registration clearly state that an agriculturist to the extent of supply of produce out of cultivation of land need not take a registration.

Interesting situation
A combination of all the above facts leaves the agriculturist in an interesting situation wherein his profession finds a mention in the law ostensibly with the purpose of taxing but he doesn't have to take a registration nor is the activity of agriculture or cultivation defined. So, why the definition of an agriculturist only? The only possible answer could be that the lawmakers had a thought to tax some agricultural activity but have kept it in abeyance.

Another area of concern in the law as adopted by the Lok Sabha is that as per Schedule I, supply of goods or services or both between related persons or distinct persons when made in the course or furtherance of business would be deemed to be a supply even though there is no consideration in the arrangement.

This would impact entities such as banks, financial institutions and companies with a place of business in multiple states who are forced to take multiple registrations under GST but have a number of inter-branch transactions without charging any consideration. For instance, the head office of a bank may obtain services from a common vendor for many branches without invoicing the individual branches as the head office absorbs the cost.

There is a pressing need for greater clarity on such issues which the next set of FAQs (frequently asked questions) have to tackle. If the intention of the government is to actually tax such supplies, taxpayers may start debiting nominal values to such transactions to minimise their tax outgo. Salaried employees should be happy that as on date, there is no plan to slap a GST levy on salaries. However, there is a proviso that gifts not exceeding Rs 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

As a tax mechanism, GST relies a lot on technology. Transitioning taxpayers have had to spend a lot of time during the transition process on providing information online. The website of the Central Board of Excise and Custom is already showing signs of strain due to the traffic hitting it. If the same trend continues, www.gst.gov.in could well become the website on which maximum time is being spent by users.

(The writer is a Bengaluru-based tax expert)