GST Bill passed in Lok Sabha: Here are 6 issues that may haunt tax payers, consumers

GST Bill was passed by Lok Sabha on Wednesday raising hopes of the new tax regime coming into force from 1 July, 2017. Here are the few contentious issues that may haunt the tax payers as well as consumers if they are not addressed properly.

Multiple tax rates: When the GST was conceived it was supposed to be a single uniform rate across all product categories, but the shape that the GST has taken is far removed from the actual concept of one country-one tax. What instead we have got is a multi-ties tax structure with 4 different tax rates --5, 12, 18 and 28 per cent. Besides, there would be  exempted and zero-rated goods, which means there would be at least six different categories of products under GST.

Taxation of free supplies between related parties: The GST law proposes to tax any free supplies between two related parties. The problem arises especially in case of related parties located in different states. Such transactions between related parties in different states mean each party would have to generate invoice, maintain documents, etc. There is no centralised  registration under GST and therefore, this would create compliance issue for companies.

"The bigger issue in this is valuation. If stage one of a good is manufactured in Delhi, stage two in Noida and stage three in Faridabad, how would a company value the goods at different stages. The GST law does not give a formula for valuation and this could create dispute between manufacturer of goods and services and the tax department," says Rajat Mohan, director, indirect taxation, Nangia and Co.

Controls conundrum: To avoid dual control, the GST council has reached a compromised formula --90 per cent of tax assessees with an annual turnover of Rs 1.5 crore or less, will be assessed by states and the rest by the Centre. For those with turnover of over Rs 1.5 crore, the states and the Centre will share it equally.

However, this 'solution' has its own set of issues. For example, if an entity with a turnover of less than Rs 1.5 crore in one year, posts turnover of Rs 1.5 crore in the following financial year, who would be the new authority to take over the assessment? And, how will existing investigations, if any, against the entity be addressed, and by whom? "There are a lot of procedural issues, and if these issues are not addressed properly, they would lead to litigations

Issue of casual taxable person: If a person registered in one state moves to another state for a short period for some business transaction -- say to participate in an fair or exhibition, then that person would have to get himself registered in that state for that period.

The GST law says in case of casual taxable person, he/she would have to pay taxes in advance by making an estimate of the sales. This is another pain point because the sales can be lower than the estimate, and the person may be paying higher advance taxes. Though the higher taxes paid would be refunded, it would take time in many cases may create working capital issues for such businesses.