Council should reconsider increase in GST Rates

Council should reconsider increase in GST Rates

There is a buzz in North Block that the Council is considering increase in GST Rates for items falling under 5% and 12% categories to 10% and 18% respectively. Not only the rates of GST are being increased but government is also considering to levy tax on goods exempted at present. The revamp of GST rates will not only increase the burden on the consumers but also prepare new set of challenges for business community.

We hereby set out the challenges new GST rates are going to bring:

1.     Inflationary Impact:

The new increased GST rates will have huge inflationary impact on the goods covered under lowest GST Slab. If the rates are increased, the prices are tend to increase which will prove an additional burden on consumers. Although such increase may not have impact on B2B transactions as ITC is permitted, but certainly not in case of B2C transactions. The increase will not only impact the goods in question but also hit the ancillary industries based on those goods.

2.     Check on price increase by dealers:

The past experience of GST shows that whenever Council has reduced the rates of tax, the taxpayers have not passed on the benefit to the consumers. This has resulted into piling of number of cases with Anti-profiteering authority. The reverse can also impact consumers to a large extent. If new GST rates are introduced, the government must ensure that the increase in rates should be in correspondence with the tax rate increase. Although prices cannot be controlled by the government, but a temporary restriction should be introduced so that consumers are not cheated under the umbrella of  GST Tax rate increase.

3.     Impact on Taxpayers covered under inverted duty structure:

The increase in rate of tax from 12% to 18% for 243 items will have huge impact on the refunds claimed under Inverted Duty Structure. On one hand government is increasing the rate of tax to fill its kitty and on the other hand it shall be a huge dent for industry covered under IDS. The industries such as tractor, kitchen fittings etc. who are presently availing the refunds on account of inputs being purchased at higher rates, will have to gear up for additional burden which new rates are going to pose. The government should consider that the new rates should be applicable only on the new purchases and not on the finished goods lying with the taxpayers.  

4.     Changes in GST portal

It has been two and half years since GST has been implemented, but unfortunately the GST portal has failed to function as per expectation. Leaving apart basic features, most of the features required for implementation of GST Act are missing from GST website. Amidst of the challenges which professionals and taxpayers face every month, introduction of new rates without appropriate preparation on GST portal will roll out another set of challenges. The goods in transit, already issued Purchase order, HSN mapping etc. all of them would be very difficult to handle if the portal is not updated well in time.  

5.     Business Loss for stockists:

A good business man is one who plans for future looking at the state of the economy. The business unit who had made huge purchase during these time of slowdown will be in trouble. The increase in rate of tax will not only prove additional burden but also push him to clear the stock lying at the earliest. This will force him to give discounts, bear losses in order to comply with the dynamic GST Tax Law. The government if really wishes that business should continue while thriving for survival, it must leave the idea of increase in GST Tax rates, at least till Indian economy revives and manufacturing sector starts operating in full swing.

6.     Further degradation of quality of life:

The very idea of 5% GST rate was to make essential daily need items pocket friendly. We understand that a large segment of Indian population has minimal resources. The new GST Rates tends to increase the rate of branded cereals, flour, travel, paneer, restaurants, outdoor catering etc. to 10%. It must be understood that these items are the necessities of life. Without GDP growth, employment and easy accessibility of government support and infrastructure, it looks that the increase in GST rates will further degrade the life of common man. He will now start having open food items, eat at meagre places or travel in third class which will make his life miserable and will pose an emerging challenge to keep himself healthy and safe in such poor quality of life. Further taxing the expensive hospitals is something which should be reconsidered. The inability of government hospitals to serve mammoth population, taxing the private hospitals is totally uncalled for. Those who some how could afford them, will again be pushed to degrade their choice of medical treatment.  

7.     Additional working capital

The issues listed above will certainly result into introduction of additional working capital for the taxpayers. On the one hand government is pressurising 45 day payment to MSME on the other hand rules like 36(4) are posing working capital threats on industry. On the top of it, the new rate increase will force the industry to further increase their working capital. At present where most of the industries are facing the heat of slowdown, the council must reconsider its decision to increase the gst rates. Even if they decide to do so, industry must be given ample breathing time to adjust. The past should not be repeated where council decision is enforced within 15 days of gst council meeting.

As a professional, I certainly feel that council must do aftermaths first rather then taking any decision in haste. This will not only further sour the taste of GST but also give genuine hardships to industry as well as consumers.

(Keshav R Garg)

B.Com, FCA, CS, ISA(ICAI), AMP-IIM-A, LLB

3328, F Floor, Sector 27 D, Chandigarh, INDIA 160 019

Phone: +91-172-461-3328, +91-98880-90008

E-mail: keshavgarg@kdai.in