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Businesses prepare for GST after parliament passes laws

31 March 2017

Anjana Haines

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India’s goods and services tax (GST) regime is set to begin on July 1 after the lower house of parliament passed four GST-related laws and the upper house prepares to do the same.

Marking another major milestone in the long-awaited GST regime, the Lok Sabha (lower house of parliament) on March 29 passed the Central GST Bill, the Integrated GST Bill, the GST (Compensation to States) Bill and the Union Territory GST Bill.

The passage was not easy, however. Parliament was locked in a seven-hour long debate as government ministers tried to negotiate a host of amendments demanded by opposition parties and answered numerous questions on the government’s chosen GST structure.

There were no significant changes made to the bills presented to the parliament when compared to the third drafts. However, some definitions in the bills were clarified and changes were made to the input credit and transitional provisions.

Businesses now have less than two months to complete their preparation for the new tax regime, which will apply from July 1.

With the passage of the GST laws, the "uncertainty about the GST implementation is put to rest," said Sachin Menon, national head of indirect tax at KPMG in India. 

"The state GST (SGST) bills are yet to be passed in all 29 state assemblies, which is expected to be completed in April and May. In any case, passage of the SGST bill is a foregone conclusion, the delay in passage of these bills may not impact the industries from getting ready for implementation as the SGST law is a mirror image of CGST legislation," Menon said.

Working quickly

The laws were approved only two weeks after the GST Council approved the bills and later gained the Cabinet’s approval.

Earlier this year, the GST Council agreed on a four-tier structure for GST of 5%, 12%, 18%, and 28%, as well as some items at 0%. It has also approved the ceiling rates for the cess (tax) to be levied on top of the maximum GST rate of 28% on 'demerit goods’ such as some luxury goods, tobacco and sugar-sweetened beverages.

The government has also confirmed that it plans to migrate 8.5 million central and state taxpayers to the GST system by March 31. So far, more than 5.1 million taxpayers have migrated to the new system.

Although the main laws have now been passed, the GST Council still needs to approve some regulations.

Nine sets of rules and regulations require approval, of which five have already been agreed, namely laws relating to registration, payments, refunds, invoices, and returns. Four laws, relating to composition, valuation, ITC and transitions, now require formal approval.

Finance Minister Arun Jaitley said these final rules would be approved at the GST Council’s meeting on March 31.

However, after these are approved, one major action will be required to categorise certain commodities into the GST rates structure. After March 31, officers will begin the process of fitting various commodities into the defined tax slabs and once this is completed, these would be approved by the GST Council ministers in their next meeting, the finance minister said.

"Once that is done, we will be ready for GST implementation," Jaitley said after the last GST Council meeting.

For businesses, Menon said it is crucial that every company is prepared. The taxpayers who are not prepared may face the risk of continuity of business as non-compliant dealers will not be able to pass on the tax credit to buyers and, therefore, may be blacklisted by their customers. That is a serious threat to businesses that are not GST complaint," he said. "Secondly, the time available for implementation is relatively short and hence GST service providers capable of helping companies in GST transition will all be pre-occupied. This will put pressure both on the companies and their advisers."






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