Aam Admi under GST - Will prices indeed fall?

DECEMBER 09, 2009

B ! S "rasad, C#r#mandel $n%erna%i#nal &%d
'( GST, %)e G#*ernmen% repea%edl claims %)a% c#nsumer +#uld ,e ,enefi%ed #n
acc#un% #f fall in %)e prices in %)e l#n- run. $s i% reall s#? $% is difficul% %# c#mpre)end
f#r %)e c#mm#n man s# called Aam Admi.
As under GST a% eac) s%a-e #f suppl c)ain, a%%rac%s c#ncurren% le* #f CGST / SGST
%ill %)e -##ds reac)es %# %)e ul%ima%e c#nsumer. T)e dealer c)ar-in- %# %)e ul%ima%e
c#nsumer is %)e #nl %a0 +)ic) al#ne -#es %# %)e -#*ernmen% c#ffer as %)e %a0 c#llec%ed
, %)e -#*ernmen% in %)e suppl c)ain ,ein- re*enue neu%ral. $n %)is scenari#, +e assume
%)a% %)e ,enefi% #f seamless credi% all#+ed a% eac) s%a-e +#uld ,e passed #n %# %)e
ul%ima%e c#nsumer. As a resul%, %)ere +#uld n#% ,e #f an )idden %a0 leadin- %# cascadin-
effec%. All %)ese assump%i#ns are , %a1in- in%# c#nsidera%i#n %)a% in %)e c#mpe%i%i*e
mar1e% en*ir#nmen%, dealers +ill ,e f#rced %# pass #n %)e credi% ,enefi% ra%)er %)an
re%ainin- i%.
T)ese are all fine in %)e#r ,u% +)en i% c#mes %# prac%ical2 d# %)e dealers reall pass #n
%)e seamless credi% %# %)e ul%ima%e c#nsumer?
We )a*e e0perienced %)a% in %)e recen% pas% %)ere )as ,een reduc%i#n in %)e ra%e #f e0cise
fr#m 345 %# 365 and n#+ a% presen% 75. Bu% %)e c#nsumer )as n#% -#% %)e real ,enefi%
#f reduc%i#n in du%ies. T)e ,enefi% #f reduc%i#n in %)e e0cise du% +as n#% reall passed #n
%# %)e c#nsumer. 8eepin- %)e end price m#re #r less same, %)e dealers c#uld impr#*e )is
,#%%#m line.
E*en ,ef#re implemen%a%i#n #f 9AT %)ere +as a similar claim %)a% 9AT +ill ,rin-
reduc%i#n in %)e price and %)e ul%ima%e c#nsumer +ill -e% ,enefi%ed. Bu% i% is )is%#r %)a%
, implemen%in- 9AT, i% #nl increased %)e c#llec%i#n #f re*enue %# %)e -#*ernmen% and
did n#% d# muc) %# %)e )apless c#nsumer +)# #*er a peri#d f#r-#% e*er%)in- and ,ac1 %#
)is ,usiness as usual. T)e ,#unc in re*enue c#llec%i#n is a% +)#se c#s% ?
'n #ne side, cen%ral -#*ernmen% is )ell ,en% in implemen%in- %)e GST +i%) %)e falls
pr#mise %)a% i% +ill ,enefi% %)e c#nsumers , ,rinin- reduc%i#n in %)e prices a% %)e same
%ime i% is als# -i*in- %)e -uaran%ee %# %)e S%a%es #f increased re*enue c#llec%i#n. !#+ can
,#%) ,e p#ssi,le a% %)e same %ime? Assumin- %)a% #n acc#un% #f ,r#adenin- %)e %a0 ,ase,
%)ere +#uld ,e an increase in %)e c#llec%i#n #f re*enue. Bu% is i% reall )appenin-? T)e
same claim +as made e*en durin- 9AT implemen%a%i#n. We d#n:% find ,r#adenin- #f %a0
,ase as s%ill %)ere c#n%inue %# e0is% %)e parallel ec#n#m.
T)e e0ercise #n de%erminin- %)e Re*enue (eu%ral Ra%e ;R(R< is s%ill in pr#-ress. S%ill %)e
c#nsensus )as n#% ,een reac)ed in fi0in- %)e R(R. G#in- , lar-e ec#n#m #f %)e
c#un%r and lar-es% d#mes%ic c#nsumer, %)e ec#n#mis%s and %a0 e0per%s feel %)a% %)e sin-le
di-i% #f c#m,ined R(R ra%e under GST is m#re %)an sufficien% %# run %)e G#*ernmen%
mac)iner c#mf#r%a,l. T)ere is n# need %# re=uire sc)edule f#r l#+er ra%e. &#+er ra%e
d#es n#% reall ma1e muc) difference f#r %)e Aam Admi in de%erminin- %)e c#nsump%i#n
pa%%ern #f %)#se -##ds. Ra%)er spiralin- in prices +)ic) reall +#rr %)e Aam Admi. $% is
#nl %)e p#li%ician f#r %)e sa1e #f %)eir #+n -##d, +an% %# )a*e lis% f#r l#+er ra%e. $f n#%
in %)e near fu%ure, a% leas% in %)e l#n- run, %)e -#*ernmen% s)#uld %)in1 #f )a*in- unif#rm
sin-le ra%e #f GST +)ic) is ,ein- f#ll#+ed in %)e res% #f %)e +#rld. .
$% is %)e )i-) %ime f#r %)e -#*ernmen%, %# %a1e s#me firm measures if i% is reall c#ncerned
#n Aam Admi as i% is ,rin-in- in radical c)an-es in direc% and indirec% %a0 la+s +)ic)
+as s# far ne*er )eard #f. T)e -#*ernmen% measures s)#uld crus) %)e ,lac1 m#ne +)ic)
is runnin- %)e parallel ec#n#m and is ruinin- %)e c#un%r and f#rce %)em %# ,rin- under
%)e main s%ream #f ,usiness. 'n acc#un% #f %)ese ,lac1 mar1e%ers %)e -#*ernmen% is
sufferin- )u-e l#ss in %)e re*enue and pressure #n %)e )#nes% %a0 paers. (#+ i% is %)e
ri-)% %ime %# elimina%e %)em. We can n#% see %)e ,i- ref#rms li1e %)is #f%en in direc% and
indirec% %a0es. T)e -#*ernmen% s)#uld %a1e %)is rare #pp#r%uni% and ,rin- in sui%a,le
measures s# %)a% a%leas% %)e ne0% -enera%i#n c#uld en># %)e ric) ,enefi% #f i%. 'nce %)e
)a*e ,een ,r#u-)% under %)e main s%ream #f ,usiness, %)e R(R als# can easil ,e
reduced. T)e -#*ernmen% s)#uld 1eep %)e R(R fle0i,le en#u-) %# reduce i% in fu%ure.
Als# , 1eepin- %)e R(R d#+n, i% f#rces %)e ,lac1 mar1ers %# ,e under %)e main s%ream
#f %)e ,usiness since , 1eepin- a+a %)e ma n#% ,e ,enefi%ed.
!#pe %)e -##d sense +ill pre*ail and defini%el in %)e l#n- run Aam Admi +#uld ,e
,enefi%ed +i%) GST.
GST? T)e r#ad,l#c1s i% is li1el %# face
DECEMBER 36, 2009
" 9eera Redd, $RS
E9ER@ pr#,lem )as a s#lu%i#n. Similarl e*er s#lu%i#n crea%es s#me #%)er pr#,lem. $%
is a *ici#us circle. S#me #f %)e pr#,lems +)ic) ma ,e enc#un%ered +)ile implemen%in-
%)e GST re-ime, are discussed ,l#+.
Basic Cus%#ms Du% ;BCD<? Cus%#ms du%ies +ill remain #u%side %)e GST re-ime. T)us,
%)e applica,le Basic Cus%#ms Du% ;BCD< uAs 32 #f %)e Cus%#ms Ac%, 3942 +ill c#n%inue
%# ,e le*ia,le #n imp#r% #f -##ds, ,esides ,#%) %)e CGST and %)e SGST. T)e impac% #f
%)is p#lic decisi#n is %)a% ,asic cus%#ms du% is n#% a*aila,le f#r se% #ff %)ere,
,urdenin- %)e c#nsumers in %)e suppl c)ain ,e a manufac%urin- en%i% #r a %rader #r an
indi*idual. Trade demands f#r e0emp%i#n fr#m BCD #r ma1e i% a*aila,le f#r se% #ff.
Credi% - carr f#r+ard #f unu%iliBed credi%? T)e discussi#n paper d#es n#% men%i#n
+)e%)er carr f#r+ard #f %)e a*aila,le credi% ;e0cise A9AT< +ill ,e all#+ed #f %)e CGST
/ SGST credi% a% %)e cl#se #f %)e ear #r n#%. $% is ,e%%er if %)e unu%iliBed credi% is all#+ed
%# ,e carried f#r+ard +i%)#u% an ins%ead #f %)e refund r#u%e +)ic) )as s#me in,uil%
pr#,lems. "r#cedure s)#uld ,e prescri,ed f#r eli-i,ili% and u%iliBa%i#n #f %a0 credi% in
case #f inpu%s, inpu% ser*ices and capi%al -##ds.
C)ec1 p#s%s? $% n#% clear +)e%)er %)e in%er-s%a%e c)ec1 p#s%s +ill c#n%inue under GST.
T)ere appears %# ,e n# need #f suc) %)in-s in %)e c)an-ed scenari#.
C#mpliance c#s%s? T)e c#mpliance c#s%s ma -# up si-nifican%l due %# separa%e
re-is%ra%i#n, rec#rds and re%urns, assessmen%s, appeals, especiall f#r ser*ices pr#*iders
+)# are curren%l n#% in %)e pur*ie+ #f 9AT.
Cu%-%)r#a% c#mpe%i%i#n am#n- %)e s%a%es? T)ere is an ample sc#pe f#r cu%-%)r#a%
c#mpe%i%i#n am#n- %)e s%a%es due %# %)e discre%i#nar p#+ers +i%) re-ard %# %a0 ra%es,
e0emp%i#ns e%c. C#un%r is firs%, s%a%e is ne0% and self is %)e las% principle %)e ,es% #ne. Bu%
+)en %)e self en%ers in %)e -ar, #f %)e s%a%e, %)e +#rs% )appens due %# -r#+in- feelin-s #f
re-i#nalism.
Des%ina%i#n principle? Des%ina%i#n principle ma crea%e pr#,lems ,ecause %)e pr##f #f
c#nsump%i#n a% a pre- de%ermined des%ina%i#n s%a%e ma n#% ,e p#ssi,le in e*er case
dependin- #n %)e na%ure #f %)e %rade and indus%r. (#+ a das, re-i#nal are feelin-s
+)ipped up , %)e *es%ed in%eres%. Transac%i#n in*#l*in- imp#r% a% %)e Mum,ai p#r% and
imp#r%ed -##ds passin- %)r#u-) And)ra "rades) and reac)in-, le%:s sa, C)ennai, %)e
des%ina%i#n. 'fficers +#r1in- in Ma)aras)%ra ma n#% +illin-l and =uic1l facili%a%e an
imp#r% %ransac%i#n, f#r +)ic), Tamil (adu +#uld -e% %)e %a0 re*enue.
Dis%#r%i#n? S#me %ransac%i#ns are lia,le %# SGST ,u% s#me d# n#% a%%rac% CGST. $% ma
,ec#me a ma>#r dis%#r%i#n in %)e %a0 ,ase.
D#u,le %a0a%i#n? 9ari#us %a0es A le*ies suc) as elec%rici% du%, purc)ase %a0, s%amp du%
e%c are li1el %# ,e c#n%inued and %)en %)e impac% #f d#u,le %a0a%i#n and cascadin- effec%
are una*#ida,le.
E0emp%i#n-dis%#r%i#n? S%a%e Au%)#ri%ies +ill ,e emp#+ered under %)eir respec%i*e s%a%e
GST s%a%u%es %# e0emp% *ari#us -##ds. Cer%ain -##ds e0emp%ed , SGST in %)e s%a%e ma
,e su,>ec% %# CGST. E0emp%i#n is separa%e f#r CGST and SGST. $f CGSTA SGST is
e0emp% %)en n# credi% is all#+ed. $GST paid #n in%er-s%a%e %ransac%i#ns +ill ,e a*aila,le
as credi%, sum %#%al #f CGST and SGST. T)ere is a sc#pe %# s)#+ m#re %ransac%i#ns as
in%er-s%a%e %# a*ail %)e ,enefi% #f credi% #f ,#%) CGSTA SGST in %)e f#rm #f $GST.
E0emp%i#n-Area ,ased e0emp%i#ns? T)ere is n# sunse% clause #n %)e area ,ased
e0emp%i#ns.
$mp#r%s / 9AT? Curren%l imp#r%s are n#% su,>ec% 9AT since 9AT is le*ied , S%a%e
G#*ernmen%s ,ecause %)e d# n#% )a*e %)e p#+er %# imp#se %a0 #n imp#r%s i% *es%s +i%)
#nl %)e Cni#n G#*ernmen%.
Dammu and 8as)mir? $s GST applica,le if ser*ice pr#*ider #r recipien% is in %)e S%a%e #f
Dammu and 8as)mir?
D#, +#r1? T)ere is a silence #n %)e %rea%men% #f -##ds sen% f#r >#, +#r1.
Manufac%ures / e0emp%i#n? SS$ uni%s +ill en># e0emp%i#n up%# Rs. 3.E cr#re under
CGST. Bu% s%a%es ma res%ric% %)is e0emp%i#n %#, sa, Rs. 30 la1)s, c#nse=uen%l m#s% #f
%)e small manufac%urers +)# )i%)er%# en>#ed %)e e0emp%i#n +ill ,e lia,le %# SGST.
"amen% #f %a0? "r#cedure f#r pamen% #f %a0 is %# ,e prescri,ed. E-pamen% s)#uld ,e
all#+ed.
"enal pr#*isi#ns s)#uld ,e s#f% %#+ards %ec)nical lapses and s%ric% f#r fraudulen% cases.
"r#cedures? S%eps )a*e %# %a1en f#r s%andardiBin- ss%ems and pr#cedures a% na%i#nal
S%a%e le*els.
"urc)ase %a0? "un>a,, !arana, e%c +)ic) are +#rried a,#u% re*enue l#ss #f Rs3,000
cr#re and Rs 400 cr#re respec%i*el fr#m %)e su,sumin- #f purc)ase %a0 in%# %)e GST.
Real% Sec%#r? T)e "aper d#es n#% men%i#n #n )#+ %)e Real% Sec%#r +ill ,e %rea%ed. T)e
firs% sale , a ,uilder al#ne s)#uld ,e %a0a,le, n#% an su,se=uen% sale.
Rec#rds? Main%enance #f separa%e rec#rds prescri,ed separa%el , %)e Cen%re and %)e
s%a%es +ill increase %)e c#s% #f c#mpliance.
Refund? Refund pr#cedures s)#uld ,e li,eral, %ime ,#und +i%) a pr#*isi#n f#r in%eres% #n
delaed pamen% #f refund.
Re-is%ra%i#n? Dealers )a*in- presence in mul%iple S%a%es +#uld ,e re=uired %# #,%ain
separa%e re-is%ra%i#n in eac) #f %)e S%a%es. Separa%e re-is%ra%i#n +ill crea%e m#re +#r1
increase c#s% #f c#mpliance. Cen%raliBed acc#un%in- ss%em and cen%raliBed re-is%ra%i#n
ma ,e e0pl#red.
Re%urns? Separa%e re%urns are %# ,e su,mi%%ed %# %)e cen%re and %)e s%a%e. $% is ,e%%er %#
)a*e a sin-le c#ns#lida%ed re%urn ,#%) f#r CGST and SGST.
Ser*ices? (# %)res)#ld e0emp%i#n limi% )as ,een prescri,ed f#r ser*ices. !#+e*er, %)e
e0is%in- %)res)#ld e0emp%i#n #f Rs. 30 la1)s ma ,e c#n%inued. Ta0a%i#n #f in%er-s%a%e
suppl #f ser*ices ma ,ec#me a )eadac)e. $ssues li1e classifica%i#n #f ser*ices, imp#r%
and e0p#r% #f ser*ices, re*erse c)ar-e mec)anism, place #f suppl and pr#cedures e%c
ma c#n%inue %# na-.
Su,-c#n%rac%#r? Ta0a,ili% in case #f su,-c#n%rac%#r )as n#% ,een discussed in %)e paper.
Su,-c#n%rac%#r is su,>ec% %# ser*ice %a0 +.e.f. 2F.7.200G. Sunse% clause s)#uld ,e
inc#rp#ra%ed %# ,rin- %# an end %# %)e e0is%in- li%i-a%i#n.
Ta0es #n +)ic) decisi#n e% %# ,e %a1en? $% is ,e%%er %# %a1e a =uic1 decisi#n #n "urc)ase
Ta0, Elec%rici% du%, Ta0es #n (a%ural Gas, Ta0es #n Su-ar, Ta0es #n Te0%iles
Ta0es +)ic) ma n#% ,e su,sumed under GST? T)e f#ll#+in- %a0es are n#% li1el ,e
su,sumed under GST resul%in- in n#n-a*aila,ili% #f credi% and cascadin- effec%.
Cen%ral Ta0es? E0cise du% #n pe%r#leum pr#duc%s and E0cise du% #n %#,acc# pr#duc%s
;in addi%i#n %# GST<
S%a%e Ta0es? Ta0 #n alc#)#lic ,e*era-es, 9AT #n pe%r#leum pr#duc%s, En%er%ainmen% %a0
;, l#cal ,#dies<, En%r %a0 f#r l#cal ,#dies and S%amp du% Transi%i#nal pr#*isi#ns
s)#uld ,e prescri,ed %# )a*e a sm##%) %ransi%i#n fr#m %)e #ld %# %)e ne+.
Cncer%ain%? Cnif#rmi% and cer%ain% are %)e c#rner s%#nes #f an la+. Cnf#r%una%el
*aried in%erpre%a%i#ns and c#nflic%in- decisi#ns defea% %)e *er purp#se #f la+. T)is
resul%s in uncer%ain% in arri*in- a% es%ima%es, e*alua%i#ns, lia,ili% and pr#fi%a,ili%.
W#r1s c#n%rac%s? De%ailed pr#cedure s)#uld ,e prescri,ed f#r %rea%men% f#r +#r1s
c#n%rac%s 1eepin- in *ie+ %)e la%es% la+ e*#l*ed and %)e >udicial pr#n#uncemen%s.
C#nsidered #pini#n #f %)e e0per%s is %)a% a sin-le GST adminis%ered , %)e Cni#n
G#*ernmen% is -##d f#r %)e c#un%r as a +)#le. $% +ill ,e -##d f#r %)e na%i#n if ec#n#mic
+isd#m pre*ails #*er p#li%ical e0pedienc.
;T)e *ie+s e0pressed are pers#nal #f %)e au%)#r<