Govt's GST draft positive for India: Experts

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » RELATED NEWS Experts hail draft GST paper but want octroi to be subsumed Govt unveils draft of dual-structure GST Exclusive: GST to have dual rates for centre, states Nifty BSE | NSE 13/02/12 Are Mutual Funds betting on Nifty?

Government has released its draft white paper and goods and services tax (GST). The draft proposes a dual rate structure which separates central and state rates. However, there are no dates mentioned on the implementation nor is any timeline or rates specified in that white paper.

In an interview to CNBC-TV18, Pratik Jain, Executive Director of KPMG and S Madhvan, Indirect Tax Leader at PricewaterhouseCoopers (PwC) discuss the takeaways of this white paper.

Below is a verbatim transcript of an exclusive interview with Pratik Jain and S Madhvan on CNBC-TV18. Also watch the accompanying video.

Q: Let me break this down into a simple good, bad and ugly takeaway from this white paper. List what you consider are the good features of this white paper. What are the features that surprised you pleasantly?

Jain: According to me, the white paper is a very positive development because it is the first official document which has come in the public domain on GST. It outlines the broad structure of GST, talks about a dual GST model and about all the taxes which are going to get subsumed into GST. It also talks about tax administration and IGST model which is integrated GST model for inter-state transactions. It is a simple and unique model for India. It also talks about a threshold of Rs 1.5 crore at a central level and Rs 10 lakh at the state level. It is a positive move because many of these small tax payers or small traders will get excluded at least at the central level.

Q: What would you like to add to the list that Mr Jain has drawn up on the good?

Madhavan: The good thing is that finally there is an official document which lays out the philosophy and contours of the dual GST, how it would typically apply for inter-state and intra-state transactions, also welcome indications in terms of the fact that there will be singular rates for services and in terms of the differential thresholds for the two taxes to apply. It gives a clarification as to the fact that both taxes would be charged on each transaction to be paid over to the respective center, states and for a fairly easy and uncomplicated mechanism of tax collection and tax compliance procedures to have been set out in this first initial document. This is just the first document as the title suggests. So there is probably more to come but those probably are essentially the things that industry would welcome in terms of the clear articulation of the philosophy behind this fundamental tax reform.

Q: What would you qualify as the bad or the unpleasant surprises that you were not expecting that have come to light in this draft paper?

Madhavan: It is very hard to say what the bad part is. We did expect that this document would go much further than what it has on certain dimensions. For example, we thought that it would address the issue of how the inter-state transactions would be taxed under the IGST model with a further indication of the fact that it would preserve the zero rating in the origin state with the tax in the destination said that detailing is not there.

The pleasant surprise is the extension of the GST to tobacco. If you say it is unpleasant, we expected some good news that it could be extended to other products as well but the fact that alcohol and petroleum products currently have been kept out was expected but it is probably not pleasant news at this point of time. Hence, it is unfair to say that there is anything bad here, there was probably a higher expectation of the document going much further than what it did but this is probably what was possible. So we have to wait for the unaddressed areas to be resolved perhaps in a document in due course that the key thing which in terms of the listing or the categorization of products into the dual rate structure for goods is the real expectation. This is yet to be addressed. Then that is the one about the timeline, I did not expect this document, nor do I expect the future documents to address the timeline, but I would have expected at least a clear best efforts basis to reach April 1 deadline if not a few months later. That articulation of the go-live date would have been welcomed but we will wait and watch on that.

Q: Would you like to add to the list of bad. Go one step ahead and maybe create a list of ugly and wane on the fact that nor do we have a timeline, nor do we have any indicative rates. Was that too much to expect at this point in time?

Jain: Yes I think it's too much to expect because as far as rate is concerned, that is still being worked out between Central government and the State government. You have to bear in mind that you have a federal structure and a state structure. So Centre can at best persuade the State to come on board. The rate would depend on two factors- one is a tax based, so if you want to have a larger base and there are many sectors today which is not subject to GST per se for example aviation; there is no tax on air travel and on real estate except for stamp duty. Therefore, I believe that if the tax base is expanded, the rate should be moderate. The other aspect is that you want to restrict the concessional rate list to a bear minimum and I don't think all the States are agreeing to that. So the rate will take some time. As far as timeline is concerned, I think that April 1, 2010 is a bit stretched; it might get deferred by few months or so. October 1 looks better realistic deadline to me.

One aspect which I want to highlight is on the tax administration. The paper talks about the fact that all the tax payers will have to be governed or will fall within the purview of Central government as well as State government except for those who are exempt, who have less than Rs 1.5 crore of threshold on the Central level. I believe that is something which I was not expecting. It is better for the businesses to go to one tax authority and get all the compliance at one place.

Q: Does this paper tell us anything of the number of rates that we might be faced with because there was one Central, one State within the State there were some items that were exempt or across both there were items that were exempt then there were concessional list. So we were talking about plethora of rates under this dual structure, weren't we?

Jain: Yes we are talking of multiple rates.

Q: Does this paper guide us on how many rates it's going to be or is there anyway to minimise these rates or whether State have reached any consensus?

Jain: No, this paper only says that there will be a standard rate, there will be a concessional rate, it does not talk about the items and the services which will fall under the concessional rate, it does not talk about any agreement or disagreement in that sense. As things stands out today, you will have a merit rate, you will have a concessional rate. Hopefully, concessional rates would be only on few items. There will be a schedule of exempt commodities and services and there might be 1% or a small, a very low rate for precious metals such as gold and silver and thing like that.

Q: How close we are in being able to implement GST? I am not even considering April 1, 2010 being a realistic deadline. So are we looking now at the next financial year after that?

Madhavan: Not at all, I think that much is certain that the government will not envisage full year's postponement. I do not believe that is the case at all. The expectation on a best case basis is three months delay.

Q: Do you have enough details to believe that we are only going to see a three months delay or is it likely that based on the lack of details you can say that by the time we fill in all these gaps and come to consensus and are able to implement this at least in the first few States it will take more than three months?

Madhavan: The honest answer to that is if you really look at in terms of how much work there is to be accomplish between now and the go-live date, you can easily envisage a full year's postponement. However, I believe that there is intent to purpose to introducing the GST by no later then September 30 or October 1 deadline, that's a six month delay. I think the final comment on this question that you have is essentially what we really looking at a perfect dual GST at the time that we go-live. If we look at 80% product then we refine it as we go along. The answer is that we will have an imperfect GST at the time of its introduction even if it is 1st October then we will refine it as we go along. This is the situation in India.