NEW DELHI: Traders expressed great concerns on proposal of additional one per cent tax on inter-state supply of goods in budget 2015, offered in the constitutional amendment bill on Goods and Services Tax (GST).
“An additional tax on supply of goods, not exceeding one percent in the course of inter-State trade or commerce shall be levied and collected by the Government of India for a period of two years or such other period as the Goods and Services Tax Council may recommend,” says the Bill, tabled in the Lok Sabha in the winter session.
The proceeds from the tax are proposed go to states where the supply originates.
The tax is a way to woo states such as Gujarat and Maharashtra which are miffed at destination-based GST, saying it would work against manufacturing states.
The market players intone that the purpose of a national GSTis defeated by this provision as this will lead to continuation of supply chain inefficiencies.
The additional tax will remain non-creditable against the GST and will constitute additional revenues to producing states, over and above the GST in the destination states.
“This is going to be a bombshell for the industry and will have a negative impact on the common market of India. Moreover, it will be a blow to domestic manufacturers. Rather than promoting “Make in India”, it may become a tomb stone for manufacturers in India,” said a market player.
According to sources, the industry is planning to send a formal representation to the government against this provision. The industry is also seeking that they should be made a part of discussion on framing the regulations for GST and that the centre should engage in dialogue with the industry.
Another market player states that the proposal would require serious restructuring of their business and supply chain. The supply chain that is already marred with serious deficiencies is set to become more complex to structure.
The complexity would in the terms that supply of goods from the company’s one office in a particular state to another office situated in another state would also impose the 1 per cent tax liability on the company.
“The 1 per cent additional tax would be an issue as this is an origin based tax, non-creditable contrary to how GST functions. The efficiency of supply chain would be compromised; more so when there is multiple movements. This really needs to be thought through before implementation,” said Prartik Jain, Partner, KPMG.
