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GST: Anomalies Galore

A peculiar situation shall arise where a non-GST export is being made with the inputs that are part of GST. How will the zero rating of exports work in such a scenario?

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At last, with the passage of the OConstitution Amendment Bill in the Rajya Sabha, there is certainty that the Goods and Services Tax (GST) will finally come. However, it seems that though the political will to implement GST is in place, the design of GST is what the country is looking for.

There are certain discrepancies or anomalies in the Model GST Law that cannot be disregarded as these impact certain critical industries and need to be addressed in the final GST law. Talking about anomalies, let’s start with the basic question of what is liable to be taxed. Worldwide, transactions without considerations are not subjected to taxation. However, the Model GST Law suggests / states that the transactions without considerations shall also be taxed like a “stock transfer”.

Similarly, the definition of supply is also very unique and non-existent anywhere in the world. The place of supply may also lead to dual taxation in different regions.

The whole objective and premise of implementation of GST is to wipe out the cascading. Sectors like petroleum, power, alcohol (used for human consumption) have been kept outside the purview of GST. However, the inputs and the input services relating to them are within the ambit of GST, which eventually would be tantamount to huge cascading defeating the basic premise of GST.

Further, this will have a huge impact on infrastructure (which is one of the biggest need of this country) like ports, airports, dams, canals and irrigation projects, as power is a substantial cost in these sectors.

A peculiar situation shall arise where a non-GST export is being made with the inputs that are part of GST. How will the zero rating of exports work in such a scenario?

Another critical area one can point out is exploration where government has given commitment in various contractual obligations on tax neutralisation (i.e. to say that central taxes namely customs, excise, etc. shall be neutralised) but with the implementation of GST, there is no clarity on what will happen to state taxes.
In our view, no law can be a model law which subsumes all the indirect taxes, be it central or state, and keeps certain things outside the ambit of law and some things within. This, to our mind, is the biggest anomaly in the Model GST Law that needs to be addressed before GST is implemented.

I personally believe that GST, which is the largest reform in indirect taxes, will hugely transform the way businesses are conducted, restrict lot of leakages in the system, surely boost the business sentiment at large and help in the growth of the country gross domestic product (GDP).

Having said that, there are critical issues which impact a lot of businesses directly/ indirectly and need to be addressed in the final GST law for providing the optimum positives of this paradigm shift of the indirect taxes levy. We also propose to deliberate on specific issues in detail in days to come.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Praveen Nigam

Praveen Nigam is a Chartered Accountant with over 25 years of experience in the Consulting industry. He's a Gold medalist on taxation and has also authored a book on service tax. He started and spearheaded Tax vertical for Grant Thornton ( India), as the national head, is now the Managing Director & CEO of Amplus Consulting Pvt. Ltd. and is Co-Founder & CEO of Just Taxes. Amplus Consulting is a large consulting firm which provides comprehensive solutions in the area of Risk Advisory, Assurance, Taxation (Direct) & Corporate Advisory and just taxes is focused on Indirect tax Advisory.

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