GST: India Inc seeks more clarity, see ease of doing biz improving

From the auto industry, Pawan Goenka, ED of M&M said that the GST slabs are reasonable and expects ease of doing business to improve on the back of it.

Goenka said that 28 percent rate for cars is disappointing and he had expected it to be under the standard rate.

With regards to the definition of luxury cars more clarity is required, he added.

KK Modi of Godfrey Phillips said that he does want a reduction of tax but opines that all tobacco products should be taxed equally.

He said that currently bidis are taxed at a lower rate than cigarettes.

R Sridhar, Head of Tax at Coca-Cola and J Suresh, CEO of Arvind Brands & Retails also shared their views in the panel discussion.Below is the excerpt of the interview. Shereen: As both the finance minister and the chief economic adviser have pointed out that what product will fall under which tax bracket is a decision that will be finalised by the committee of secretaries with broadly its 5, 12, 18 and 28 percent, your first comments on the implication that you see for the FMCG sector? Duggal: Well, 28 percent is a bit of a surprise, we were expecting it to be in the 25-26 percent range. I am assuming that all or most of our cosmetic and toiletry products will come under 28 percent category, some of them might come under 18 percent, but this 28 percent is the rack rate for this category then we have around 3-4 percent downside, currently we are paying around 24-25 percent excise cum the state VAT. More importantly for us, we are not at all we are not at all clear as to where our food products and ayurvedic products will fit in, whether they will fit in 5, 12 or 18 percent and that’s what will determine the impact on our business, but broadly this is in line with the exception that 28 percent is a little bit on higher side. Shereen: From my understanding at least as far as the central commodities are concerned items like food etc, which fall and as the government would like to call it the basket that impacts most people, they would like to keep that in the lower bracket. Do you believe that perhaps there could be some relief there if toothpaste for instance they believe should move from 18 percent to about 12 percent, tea they believe should be in a lower bracket and currently is in higher tax bracket? Do you believe that we could see some changes that could perhaps positively impact you? Duggal: Packaged consumer goods toothpaste etc it is pretty unclear as to which bracket they would be, they could be at 12 percent, they could be at 18 percent, they could be at 28 percent and the impact of any of this move is going to be quite large for any of our businesses or any person playing in this categories. Till that clarity is obtained I think we are really shooting in the dark. First time I have heard of toothpaste in 12 percent, I was expecting to be in the 18 percent or 28 percent category, but let see 12 percent will be very welcome. The devil is in the detail and there are lot of moving parts for a business like us which has multiple plays in cosmetic, toiletries, food and medicines - - the clarity will emerge once the slabs for individual items are decided. Shereen: It is not clear whether cars will fall under 28 percent or not, but luxury cars will certainly have a cess that is imposed on them. Your first reactions on what you have heard from the finance minister on the GST rates that have been finalised? Goenka: I think to have 4 GST rates at 5, 12, 18 and 28 percent is a reasonable thing to do, to that extent I don’t have any concern, where my concern is what is the standard rate and I thought 18 percent was a standard rate and most goods would fall under 18 percent. Shereen: Two standard rates there is a 12 percent standard rate and there is an 18 percent standard rate that is the clarification coming from the finance minister? Goenka: That is the reason I am bit surprised that even small cars are talked about as being a 28 percent rate, because a 28 percent rate means that the GST simply becomes the current excise plus VAT and in fact it is probably marginally higher than current excise and VAT. All the expectation that was there for long time that with the GST rate that prices will come down, because there is a wider collection of taxes and therefore highly taxed goods will be taxed lower that expectation goes up and the cars will therefore not have any kind of price reduction and therefore one expectation we had was that will lead to higher growth in the industry that perhaps will be taken away. The second benefit of GST is still hopefully remain and it does simplify makes India as one market and hopefully that will not get compromise and will remain, but 28 percent rate for even a small cars is certainly disappointing and I would have expected that to be in the standard rate whatever that was. Latha: Your disappointment is just that it has not gotten lesser, but no worries that rates on cars have gotten higher at 28 percent it is still where it is? Goenka: 28 percent is still where it is, but till few days ago the expectation certainly was that it will be in the range of 18-20 percent. Shereen: You are clearly not a happy man today, are you? Sridhar: We are very well happy that the proceedings has culminated into GST rates, that is as far as the rates are concerned. The rate of any particular commodity is a decision of the sovereign and as a responsible company we appreciate the decision of the sovereign. Since I am from the tax field I would like to restrict myself to the technical aspect of the cess levy. I will now pose three major points on the technical side of the cess. Cess can be levied in two different ways. If it is levied as a top up inside the GST as a supply based tax then the event would be a supply. Suppose the government uses the residual taxable part and go for a separate law for cess then the taxable event could be manufacture. If you do that way then you are destroying the functionality of this whole approach which I wanted for the tax that there will be no distinction between whole goods, processed goods produced in other plants or goods produced in my plant A versus produced in plant B. This was all the advantage of a supply based tax. All this substitution or this additional levy would now take away the advantages which were ingrained in the draft model law. This is all extremely technical.