States ask industry to pass on GST benefits to consumers

31 August 2016

With around 13 states ratifying the Constitution Amendment Bill on Goods and Services Tax (GST) and the industry pressing for revenue neutral rate of 18 per cent, the Empowered Committee of State Finance Ministers has implicitly asked India Inc to pass on to consumers any advantage that may be derived by keeping standard tax rates for goods and services tax low.

States have been demanding a revenue neutral rate not less than 18 per cent in order to protect revenues. In fact, they have been lobbying for a rate between 18 and 22 per cent.

State finance ministers meeting for the first time after the Parliament approved the Constitution Amendment Bill to enable a GST regime, wondered if low taxes would mean cheaper products.

''It will be between 18 per cent and 22 per cent with a band of 1 per cent,'' said a state finance minister, adding that industry associations did not object to a 5 per cent tax on gold and jewellery.

According to industry associations low tax rates would increase competition, which in turn would help them pass on the benefits to consumers.

''When value-added tax was introduced, hardly any benefit was passed on to customers despite promises from industry associations; it is likely that companies will similarly not pass through lower taxes to consumers,'' said a member of the committee, adding that the committee had asked industry chambers to revert with a detailed study on the issue.

The Confederation of Indian Industry has called for a standard rate of 18 per cent to ensure that the tax revenues of the centre and the states would not be adversely impacted by the introduction of GST.

Meanwhile, FICCI said the merit rate under GST should be lower and the standard rate should be ''reasonable''.

Nasscom, in its representation, said the sector is creating huge job opportunities and allowing small industries to sell their products. Stating that e-commerce facilitates competition, it made a case for the sector to be exempt from GST net.

Online retailers say they only provide a 'platform' to vendors and customers and do not make money out of sales made by sellers.

They also demanded relaxation in penal provisions while admitting that the 1 April  2017 deadline will be tough as they need sufficient time to put in place the IT infrastructure.

''A lot will depend on the timing of rules and notifications. (About April 2017), it looks difficult,'' industry body FICCI said.

After the meeting, Amit Mitra, finance minister of West Bengal said, ''The committee is taking (feedback) in an open and transparent manner from the businesses of India, whether they are big, medium or small. Many points were made looking at GST from the other side - those who would be paying taxes - as against the government which would be collecting taxes.

The constitutional amendment mandates that at least half of the 29 states and two Union Territories should ratify the Bill for its rollout.

Once implemented, the national tax will subsume indirect ones like excise duty, service tax and VAT.

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