India Inc gives thumbs up to GST, but says long way to go in fixing issues

GST-related litigation set to rise as companies and the government differ on tax rates and data reconciliation

While India Inc is largely positive about the Goods and Services Tax (GST), which completes five years of operation on July 1, most CEOs say that a lot more needs to be done to fine-tune the tax rates and reduce litigation.

Industry leaders in various sectors say that though the GST has been a good piece of reform, there ought to be more rationalisation and clarity on the tax rates.

“For instance, the GST charged on railways and metro projects is at the rate of 12 per cent. However, we end up paying 28 per cent on inputs such as cement. The balance 16 per cent gets stuck in working capital. These anomalies have to be corrected,” said Vimal Kejriwal, MD and CEO at KEC International, a leading engineering, procurement and construction company.

Corporate leaders appreciate the fact that the GST has streamlined several overlapping taxes by subsuming a wide array of levies and taxes into it. However, the timelines for its implementation across sectors have varied. For example, petroleum products have not yet been brought under the GST.

T V Narendran, MD & CEO, Tata Steel, said the GST has been a landmark reform in the area of indirect taxation. “A reform of such a magnitude cannot be without its share of challenges. Through the continuous effort of the government, active participation of trade and industry, and a robust IT backbone, we, as a nation have done well in implementing the vision of One Market, One Tax in India,” Narendran said.

Most CEOs echo that view and believe that the GST has matured in the last five years. “Having said that, there is scope of further improvement,” said Vinod Aggarwal, MD & CEO at Volvo Eicher Motors. “The government should examine the rate structure and not levy peak GST rates of 28 per cent on non-luxury items like trucks. Transportation of goods comes under essential services and should not be taxed on a par with luxury goods.”

A sector like real estate, however, is less gung-ho about the GST. In real estate, which is the biggest employer of semi-skilled labour, the reform has not been applied across the board, but has been done in bits and pieces. “When one looks at a real estate project, you pay one set of levies during stage one, and another set of tax during stage two and then, finally, the sale of property has to be registered with the payment of stamp duty. Obviously, there is an overlap of taxes and levies and it has resulted in major challenges for real estate as an industry. Compliance vis-a-vis taxation becomes a major issue, especially when the business works under various regulatory authorities, including the RERA,” said Niranjan Hiranandani, managing director, Hiranandani Group, a major real estate firm.

However, Hiranandani hopes that these issues will get sorted out as the Centre and the state governments bury their differences. “As an industry, we are waiting for a quick resolution of the issue, so that GST can play its role and bring in seamless application of taxation norms, rates and systems across the country,” he said.

Other real estate moguls point out that while GST has simplified a complex process of taxation, in its current form, it is going against the government’s vision of housing for all. “The removal of the input tax credit has had a huge impact on developers. It is vital for the government to re-introduce input tax credit in order to make housing prices competitive as builders can then pass on the benefit to property buyers,” said Murali M, CMD, Shriram Properties, a Chennai-based property firm.

Rise in litigation

Experts warn that GST-related litigation is set to increase in the coming years as companies and the government differ on issues such as tax rates and data reconciliation. The government wants to enforce compliance and to that end, it is using data analytics, and companies are seeing a lot of data and GST credit-related queries being raised by the authorities.

“This means that industry is evaluating how to improve their source systems/ERP processes. Further, industry is looking at better adoption of technology given the quantum of reconciliation and other data-related activities involved. It is important that the government also examines how it can act more like a facilitator who ensures right compliance by the taxpayers and works along with industry to reduce the number of investigations. The GST Tribunals are still not in place and making them functional should be one of the top priorities for the government,” said Prashanth Agarwal, Partner, at global management firm, PwCPL.

Heads of real estate majors also said that the recent spike in construction costs has further increased the GST input cost, which is not available as credit and, hence, has affected the developers’ margins. This, too, may lead to litigation. “Therefore, it is important that the government brings back the input credit with a reasonable output tax, but not at 18 per cent,” Abhishek Kapoor, CEO, at real estate developer Puravankara, said.

The good news is that thanks to GST, tax evasion has gone down significantly, and the entire supply chain has also started accepting the tax. “However, one difficulty is that brands that sell rice, pulses, wheat and wheat flour have to pay 5 per cent higher GST compared to the non-branded ones, which means that there is no level playing field. But we are hopeful that the issue will be sorted out by the government,” Angshu Mallick, CEO of Adani Wilmar, said.

(With inputs from Dev Chatterjee, Raghavendra Kamath, Viveat Susan Pinto, Shally Seth Mohile, Ishita Ayan Dutt and Sharleen D’Sousa)