Speculative fears on GST taxation

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There are a lot of thought processes going into the various aspects of taxation to bring out the remotest of possibilities that could happen with the passage of the GST. It is good to have healthy debates on some real concerns and to pre-empt the issues but it seems that the imaginations are running wild with loads of interpretations. Any new development like the model law released by the authorities gets the experts to react and come out with both real and speculative concerns. While the general public is definitely interested in finding solutions to the real problems but the speculative ones generate unwarranted fears.

Extra taxation by States: Since the constitution allows it the states and centre can levy taxes independently and jointly. The GST exercise focuses on subsuming all these taxes to bring them under the ambit of one taxation system. The speculation is that the states may go in for levying additional taxes to cover up for their revenue shortfall as the constitution allows it. Is it really right to express views on this sort of tax terrorism?

Pharmaceutical sector: Nomura has recently come out with a report on GST where it has analysed that the pharmaceutical companies will pay 80% more taxes on average medicines. This is because of the supply chain that involves the Active Pharmaceutical Ingredient (API) supplier, formulation manufacturer, wholesaler, and retailer in that order. Since there is value addition at some stages there is the incidence of VAT and excise duty before it reaches the customer. The speculation is that the medicine prices will rise about 4% in the GST regime. Actually, work should be done by the pharmaceutical industry to seek parity for the consumer end price for the medicines. Representation in the form of best case studies can be made to the concerned authorities by the pharmaceutical industry to attain the required concessions and quell speculative fears.

Banking sector: Another speculation is that the banking sector may come under pressure with the launch of GST due to the destination based model. A loan disbursed by the Mumbai branch may be utilised by an industry for an expansion of its works in Punjab. This may require the banks to maintain state wise disbursal accounts for complying with the SGST and IGST provisions. Currently, the banks have a centralised system where the branch business is consolidated and taxes paid. Banks are anyway complying with the taxation norms and can always find out the right methodology to switch over to the GST regime. This does not seem to be a cause for concern and certainly not a reason to speculate that the banking sector would be in trouble with the GST launch.

Summary: The Indian industry is mature enough to work on the impact of Goods and Service Tax on their sector. In fact, many of them are already working on it jointly with the other industries in the same category. They have formed forums and making the requisite representation to the authorities. The banking sector and the state governments as independent identities are sensible enough to work for the smooth implementation of the GST rather than fuel the speculative news.

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