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GST: What still needs to be done
May, 15th 2017

The Goods and Services Tax Council will meet on May 18-19 to finalise various rules involved with implementing the new tax regime in the country, including on issues like input tax credit, valuation norms, composition and transition provisions, among others. What remains to be done between now and the final rollout? Here’s a lowdown.

What has been done so far?

The GST Council has met 13 times to finalise the minutiae of the five laws that will help bring the new tax regime to reality. Four of these laws have been cleared by the Union Cabinet and passed by Parliament. The fifth, the State GST law, needs to be passed by the legislative assemblies of each state and union territory with legislature. The Council still has to finalise the rules and rates of individual products and services.

Where is clarity needed?

According to experts, the draft rules that will be finalised during the upcoming Council meeting do not as yet address key operational issues that directly affect vendors, distributors, and service providers. These issues include the place of supply rules for service companies. Clarity on this will determine whether a service has been provided on an inter-state or intra-state basis, which in turn will determine whether the Integrated GST tax will apply.

Another major issue is the treatment of cases where the billing address is different from the shipping address. Since most companies have so far configured their ERP programs to incorporate GST as a destination-based tax, there is no clarity as yet in the rules as to what happens if the destination of the goods or service is different from where the bill is to be made. For example, if a company places an advertisement in the Mumbai edition of a Delhi-based newspaper, it can be billed in Mumbai only if the paper can show that it has an establishment in Mumbai and can print invoices there. Else, it will be billed to Delhi. Industry associations have sought for greater clarity on such issues from the government.

Another issue is the e-waybill, required for the transport of goods across the country. The e-waybill has to be accepted by the seller, transporter, and recipient for the transaction to be closed as far the GST Network is concerned. Tax experts say that the reconciliation of waybills is currently a big problem, with the recipient usually failing to accept the waybill, leaving the transaction incomplete. The e-waybill system will require a big change in behaviour for it to work, they say.

A larger issue is that incorporating GST will require SMEs to overhaul and computerise their systems, since even dealing with the Harmonized System of Nomenclature (HSN) codes for individual products will require a computer. The codes are up to 10 digits in length. The first four define the category and the subsequent digits specify the exact product. For example, Lay’s chips and Kurkure could have the same first four digits, but subsequent digits would be different. Such an overhaul of systems and the implementation of a new ERP system takes time. Industry players are complaining that with the rules only being decided upon on May 18-19, they will be able to finalise their software only by the first week of June, leaving barely any time for testing.

When can we expect tax rates to be made public?

The tax rates are not likely to be made public in the next meeting of the GST Council. Experts working on ERP systems say that there is no great urgency on this count, because the numbers can simply be plugged into the software as and when they are known without having to change the coding itself. The rules are more critical in that respect.

Also, revealing the rates too early may lead to people hoarding goods that are likely to become more expensive under GST due to higher tax incidence. However, knowing the tax rates of individual items could greatly help companies in their procurement decisions for the July-September quarter.

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