GST Countdown: Rules, Rates On Select Items Next Pit Stop

Two rules pertaining to the Goods and Services Tax (GST) law and rates on items such as gold and cigarettes remain the next important steps to ensure that the new indirect tax regime rolls out by July 1.

“We have almost finished 95 percent of the work, we hope to complete the remaining 5 percent in the next meeting of the GST Council on June 3. If need be, we will have one more meeting before the July 1 rollout,” Revenue Secretary Hasmukh Adhia had told BloombergQuint in Srinagar on the sidelines of the GST Council meeting last week.

Rules relating to transition and returns were deferred for clearance by the GST Council and will be put in public domain once they are cleared by the decision-making body.

Rates on contentious items like beedis, cigarettes, precious metals, footwear, textiles, biscuits and power-driven agricultural products are yet to be finalised by the council. Service tax rates on lotteries under GST are also in the works.

So far, no consensus has emerged on the likely tax rates on tobacco products such as beedis. However, some health lobbies have questioned the rationale behind taxing beedis at a lower tax rate as compared to cigarettes, as both lead to similar repercussions.

Will GST Increase Gold Prices?

States have a divided view on taxing gold, with some like Maharashtra and Gujarat asking for a lower tax rate on the precious metal and Kerala favouring a rate of 5 percent.

“…Don't see any good reason why gold should be taxed at a subsidised rate of 1-2 percent. I don't see any ethical or economic reason why gold should not be taxed at least at 5 percent,” Kerala Finance Minister Thomas Issac had said after the GST Council's meeting at Srinagar. Jammu & Kashmir's Finance Minister Haseeb Drabu had suggested a rate of around 4 percent.

A higher tax on gold and jewellery may lead taxpayers to seek alternative gold investment vehicles such as gold bonds, Satya Poddar, senior tax advisor at EY, told BloombergQuint. Gold bonds are already exempt from GST and earn a positive rate of interest. Moreover, they can be converted into physical gold anytime, he said.

Also Read: GST Rules: Significant Changes, Welcome Clarity

Another important sector where the tax rate is yet to be finalised is textiles. The industry sees consumption worth Rs 5 lakh crore, almost 10 percent of total GST consumption base, said Poddar.

The sectors for which rates are yet to be finalised will be left with very little time to make the transition to the new indirect tax regime, said Sumit Lunker, indirect tax partner at tax advisory firm PwC.

Rules Awaiting Clearance

1. Transition Rules: The provision allows for a credit mechanism for transition stock or inventory. The previous rule specified that a person who is not registered in the current regime, but is registered under GST, will be allowed to claim input tax credit on goods in stock at the rate of 40 percent of the central GST applicable. The government is now considering an increase in the transitional credit.

2. Return Rules: The rules for filing returns are also yet to be finalised. “Returns format is yet to be notified in public domain, hence preparedness for IT compatibility is a big challenge,” said Lunker.

Over and above the nine rules that the council is either considering or has already cleared, there are another five draft rules which it has not taken up so far. These include:

• Accounts and Records: This rule relates to maintaining records under GST to ensure these can be verified at a later date, and outlines how information should be collected at assessees' end.
• Advance Ruling: It is a written decision given by authorities to an applicant on questions relating to taxing of certain goods and services.
• Appeals and Revision: The rule states that a show-cause notice will be issued to an assessee if he has availed the wrong input tax credit or has not paid the correct amount as tax
• Assessment and Audit: Rules relating to auditing an assessee to check whether the assessment carried out by him is correct.
• E-Way Bill: The rule says that movement of goods over Rs 50,000 will need securing an electronic bill by prior registration of the consignment on GSTN.

According a finance ministry official, the government is considering ‘watering down' the provisions in the e-way bill, and increasing the existing threshold of Rs 50,000. The provision is unlikely to come into effect from July 1, even though GST will be rolled out then, the official added.

Although these five draft rules will not stall implementation of GST, industry is hoping for more clarity for better preparedness.

Also Read: GST: One Nation, Many Taxes, And Many More Rates