“India’s existing indirect tax regime will undergo a complete revamp with the introduction of the Goods and Services Tax (GST) in the year 2017”.
If you had heard the above statement few months ago, you would have agreed with the first part of the statement – the existing indirect tax regime in India will undergo a complete revamp with the introduction of the GST – but probably would have laughed at the latter part of the statement – GST will be introduced in the year 2017.
Given the deadlock in passing the Constitution Amendment Bill, the pre-requisite for implementing GST in India, no one would have thought that GST could be a reality in the present tenure of the current Government. However, the significant developments in the past few months have not only confirmed the fact that GST can be introduced in the year 2017, but has also started concerning the entire industry about their readiness to implement the same as early as April 2017.
The Constitution Amendment Bill was passed on August 3, 2016 by the Rajya Sabha, quickly followed by the Lok Sabha (to endorse the changes made by the Rajya Sabha to the bill originally passed by the Lok Sabha) and 50 percent of the states by September 1, 2016. The Bill was finally assented by the President on September 8, 2016 thereby paving the way for the introduction of GST.
The journey to implementing GST did not stop right there. The GST Council – the body that will decide the exemptions, tax rates, threshold limits, etc – was immediately constituted and the Council has already held its meetings to decide on the threshold limits of turnover, above which GST would be applicable (INR 20 lakhs in general and INR 10 lakhs for north eastern states). Further, the model GST law was placed in the public domain in June 2016 and the draft rules made public on September 26, 2016 was endorsed by the GST Council in their meeting held on September 30, 2016.
As next steps, the Centre and the states have to pass their respective GST legislations in the Parliament and state assemblies, which is expected to take place in the winter session (generally during November – December). The tax rates and slabs is expected to be discussed by the GST Council during their meeting from October 17 to October 19.
The GST Network, which is expected to be the backbone of GST, and is being developed by Infosys, is in the advanced stages and the registration portal is expected to be open to the industry by November 2016.
While the Government is moving at a breath-taking pace to introduce GST by its target date of April 1 2017, the industry is concerned about its readiness to accept and implement GST by the said date. The first step for the industry would be to understand the impact of GST on business operations and the changes that need to be undertaken at the earliest. While every industry is expected to be impacted by GST, the impact could be positive or negative depending on the applicability of the current indirect taxes to the industry.
The Union Finance Minister, Mr. Arun Jaitley, has mentioned in clear terms that the number of exemptions under GST would be minimum. This is also a basic principle of GST across the world, wherein GST is levied on a wide tax base with minimal exemptions.
Thus, it cannot be assumed that the goods and services enjoying exemptions under the present regime will be exempt from GST. Once a product is subject to indirect taxes, it not only impacts the pricing but also brings with it the requirement of meeting compliances associated with the applicable taxes.
The poultry and livestock industry has been traditionally out of the indirect tax coverage. The products of the industry, such as feed, feed additives, eggs, milk, etc have generally been exempt from excise duty as well as the state level VAT taxes.
Given the present exemptions from indirect taxes, it is obvious to assume that the products should be exempt from GST as well. However, as the number of exemptions is expected to be minimal under GST, it is a possibility that the products of these industries can be subject to GST. If the products are subject to GST, it would directly impact the pricing of the said products, as the same is not subject to any indirect taxes at present.
It would thus, be essential to assess the impact of GST on the products of the industry. To maintain status quo with respect to the exemption from indirect taxes, it would be imperative for the industry to put forward their submission to the GST authorities with a strong case for exemption from GST.
It needs to be noted that where the exemption is provided to the output, the GST paid on the procurements would form part of the cost and thereby increase the price of the product. However, if a majority of the inputs are expected to be tax free under GST, the increase in cost would not be significant. It thus, needs to be evaluated as to whether to approach the authorities or not for an exemption for the products of the industry.
Another important aspect to be taken note of is the definition of the term ‘agriculture’ as per the model GST law. Agriculture is defined to include ‘floriculture, horticulture, sericulture, the raising of crops, grass or garden produce and also grazing, but not to include dairy farming, poultry farming…’ (as per Section 2(7) of the model GST law). This definition becomes particularly relevant from the definition of the term ‘agriculturist’ who is defined as ‘a person who cultivates land personally, for the purpose of agriculture’ and is excluded from the category of taxable person (as per Section 9 of the model GST law).
From a combined reading of the above provisions, it can be concluded that while an agriculturist would not be covered by GST, a person involved in dairy and poultry farming will be considered to be a taxable person for GST and the products of the same could be subject to GST, unless the same are specifically exempted from GST.
While, one may argue that dairy and poultry should be treated at par with agriculture and be exempt from GST, as mentioned above, it cannot be assumed that the dairy and poultry industry would get the same benefits as that of agriculture and hence strong representations should be made to the GST authorities to consider dairy and poultry farming at par with agriculture.
Given the pace at which the Government is moving towards implementing GST, time is of essence in approaching the GST authorities and putting forward a strong case for exemption from GST for the products of the industry and treat the industry at par with agriculture. If the exemption is not provided, then the industry needs to prepare itself for implementing GST and meeting the compliances under the same.
The author is a Chartered Accountant and a MBA from the Indian School of Business and is a specialist in the field of indirect taxation. He is the author of the book “Introduction to Goods and Services Tax – The Biggest Tax Reform in India”. The views expressed above are in a personal capacity and are based on few documents placed by the Government in the public domain.
by Krishnan Venkatasubramanian, BSR & Associates LLP