India was falling in the pecking order of investment destinations because of the complexities in the goods and services tax (GST) laws, says Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs (CBIC). He tells BT the GST reforms will reduce litigation and provide a stable and transparent tax regime. Edited excerpts:
How will the government ensure that the GST rate cuts are passed on to consumers?
We are keeping a watch on price trends, and if we find that industry is not passing on the benefits, we will take it up with the industry bodies.
Several industry bodies are also raising the issue of inverted duty structure, which still continues…
Wherever there is inverted duty structure or there is accumulation of credit due to that, they can claim the refund. In the process reforms cleared by the Council, there is also a provision for fast-tracking refunds provided they have good credentials as per our data analytics.
Given the tax cuts and the net fiscal implication of Rs 48,000 crore, what kind of a dip will the Centre see in GST collections?
The net fiscal implication of Rs 48,000 crore is a mathematical calculation based on certain consumption patterns in 2023-24, but the exact revenue implication is difficult to calculate because rate changes have happened on inputs as well as on finished goods. In such a scenario, it is difficult to predict the impact whether in terms of revenue, boost to consumption or spur to economic growth. Initially, inventories still exist where tax has been paid at a higher rate and input tax credit is available, which will be utilised during the transition period. For initial months, there will be a greater decline in revenue, but then again, it will start picking up. So far, GST collections are good, and there is sufficient growth in GST revenues.
Several states have raised concerns on revenue losses and sought compensation…
The GST Council approved the rate rationalisation unanimously. It was a collective decision. Compensation is required if somebody is hit by somebody else. Can we say that the Centre has hit states? By this exercise, revenue of both the Centre and states has taken a hit. Where is the question of compensation? If there is a fiscal requirement, states can approach the Centre.
But states are expected to bear a larger part of the revenue loss.
The revenue from GST collections is divided equally at 50:50 between the Centre and states. Out of the 50% that the Centre gets, 41% again goes to the states. If states or analysts are saying that they will be impacted more, they are taking into consideration the devolution of funds through Finance Commission. But otherwise, the hit is same for both the Centre and states.
One of the key issues for businesses with GST has been the high litigation and notices. Will these reforms reduce this problem?
India was becoming a non-preferred investment destination because of the complexities in the GST laws. There were four rates, and this was leading to many classification and rate disputes, and notices were issued to trade and industry on that count. This was creating uncertainty and instability. With this restructuring, there is no ambiguity in classification. This will provide absolute certainty to businesses about their tax liabilities. Businesses want a simple, stable and transparent tax system for investing in a country.
One of the concerns from industry is what happens to existing stock and inventories when the rate changes come into effect…
They have already paid taxes on the existing inventory and have taken input tax credit. This ITC will get utilised over time, and then they will again be making the payment on the value addition in cash.
