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November 2016
Sharp anomalies in the taxation rates
and structure across different industries such as telecom, tobacco, textiles,
food processing and tourism should be addressed as the country moves to
implement the Goods and Services Tax (GST), an industry report said on
Wednesday. The Total Investment &
Insurance Solutions
"As we are in a transition period,
several industry sectors are faced with challenges of adapting to new tax
regime. While the GST is a path-breaking reform, its implementation should be
calibrated in a manner to cause least disturbance to the existing taxation
structure," D S Rawat, Secretary General of Associated Chambers of
Commerce and Industry of India (Assocham) said.
"Instead of subjecting tobacco and
tobacco products at a higher than the standard rate, the entire sector should
be placed under the standard rate with the focus of bringing exempted items
under the GST net to eliminate the rampant illicit trade," a joint paper
by Assocham and tax consultancy firm KPMG said.
Under the GST regime, it is proposed to
levy both dual taxes as well as higher rate of GST. The endeavour should be to
tax the insignificantly taxed segments of the tobacco industry i.e. tobacco
products other than cigarette as the consumption of such products is way higher
than that of legal cigarettes, it said.
The Total Investment & Insurance Solutions
Thus, levy of standard GST rates with
excise duty on a wider tax base will yield a higher tax revenue collection than
continuing with levy of high rates of taxes on only one segment of the tobacco
industry i.e. cigarettes. The Total Investment
& Insurance Solutions
The tobacco industry has been the second
largest contributor to Indian excise revenue after the oil and gas sector. The Total Investment & Insurance
Solutions
Similarly, for the telecom sector, the
paper cautioned that GST may negatively impact the working capital cost since
initial landed price of purchases including imports may increase due to
increase in tax rates.
Likewise, the paper also went into the
impact of GST on the textile sector and suggested ways to find an ideal
situation. It said in case India opts for higher tax rates under the proposed
GST regime, then in the long-term, it will lose its market share to the
developing and highly competitive economies.
"It is recommended that India also
implements policies that capitalise on the potential of its textile and apparel
industry so that the country has a higher bargaining power in procuring export
orders in the international trade vis-a-vis other developing economies,"
it said.
For tourism sector, at present,
different abatement schemes addressing different situations are available under
service tax such as 30 per cent in case of composite package and 60% for dining
in a standalone restaurant. The Total Investment
& Insurance Solutions
"This is leading to ambiguity and
complexity in determining the value on which service tax is payable. In order
to overcome such situation, uniform tax treatment i.e. one standard rate
dealing with all the situations should be introduced," it said. The Total Investment & Insurance
Solutions
Besides, in the current regime, all the
taxes cumulatively applicable to restaurants (i.e. VAT, Service Tax and other
applicable taxes) increase the value on which tax is payable to more than 100
per cent. Such a situation increases the tax cost substantially. Therefore, a
mechanism should be introduced whereby value on which GST would be applied
should not increase 100 per cent in any case, the report said.
GST is likely to be based on minimal
exemptions regime leading to increase in the tax cost for the food processing
industry and inflation. The Total Investment
& Insurance Solutions
"The food products, which are
essential for human consumption, should be taxed at zero rate," it said.The Total Investment & Insurance
Solutions
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