Need to sort out anomalies in GST tax rates across sectors: Report

New Delhi, Nov 2 (IANS) 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 here on Wednesday.

“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.

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 tobacco industry has been the second largest contributor to Indian excise revenue after the oil and gas sector.

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 per cent for dining in a standalone restaurant.

“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.

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 food products, which are essential for human consumption, should be taxed at zero rate,” it said.