Assocham, KPMG warn against sharp anomalies in GST rates
The paper said differential rates are leading to ambiguity and complexity in determining the value on which service tax is payable,.
“While GST is a path-breaking reform, its implementation should be calibrated in a manner to cause least disturbance to the existing taxation structure,” Assocham secretary general DS Rawat said on Wednesday after the association and KPMG jointly submitted a paper to the GST Council on the proposed tax framework.
Taxation structure for sin goods like tobacco should not be based on emotive issues, but on rational parameters like the need to check illicit trade, the submission said, opposing the idea of taxing tobacco and tobacco products at a higher than standard rate. It said the focus should be on bringing exempted items under GST net and eliminate rampant illicit trade.
The GST Council at its meeting will seek to decide on the GST rates and the division of tax administration. The Centre has proposed four slabs and a fifth rate for precious metals besides a cess on ultra-luxury and tobacco products, which has not been accepted by states.
Chandrajit Banerjee, director general at industry body Confederation of Indian Industry (CII), said the government should ultimately reduce the number of GST rates to one or two. “The GST should begin with an absolute limit of four rates as suggested by the government, and over time, the government should commit to converging these four rates to one or two rates,” he said.
The Assocham-KPMG paper cautioned that for the telecom sector GST may negatively impact the working capital cost since initial landed price of purchases, including imports, may increase due to higher tax rates. The paper said the cost of procurement of services may increase to more than 18% from the current 15%, which will be a challenge for the industry, especially if CENVAT credit on passive infrastructure and fuel consumption is continued to be denied to the industry.
It also pointed out that for the tourism sector different abatement schemes addressing different situations are currently available under service tax, such as 30% in case of composite package and 60% for dining at a standalone restaurant.
The paper said differential rates are leading to ambiguity and complexity in determining the value on which service tax is payable, and pitched for a uniform tax treatment to overcome such a situation.
It said the food processing industry is taxed at a concessional rate or zero rate. GST is likely to be based on minimal exemptions regime, leading to increase in the tax cost for the food processing industry and inflation.