Sharp anomalies in the taxation structure across different industries such as telecom, tobacco and textiles should be addressed as the country moves towards the goods and services tax (GST) regime, said a paper submitted to the GST Council.
Taxation structure for sin goods like tobacco should not be based on emotive issues, but on rational parameters like the need to check illicit trade, said the Assocham-KPMG paper.
It said that instead of taxing tobacco and tobacco products at higher than the standard rate, the entire sector should be placed under the standard rate, with focus on bringing exempted items under GST net to eliminate the rampant illicit trade.
The next meeting of the GST Council is on November 3-4. 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.
It said the cost of procurement of services may increase to more than 18 per cent from the current 15 per cent, which will be a challenge for the industry, especially if CENVAT credit on passive infrastructure and fuel consumption is continued to be denied.
“While GST is a path-breaking reform, its implementation should be calibrated in a manner to cause least disturbance to the existing taxation structure,” Assocham Secretary General D S Rawat said.
The paper also went into the impact of GST on the textile sector and suggested ways to find an ideal situation. It said that in case India opts for higher tax rates under the proposed GST regime, the country will lose its market share in the long term to developing and highly competitive economies.
It recommended that India should implement 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.
“Thus, the government should take a conscious call to retain lower rate for this industry by introducing a special lower slab of 4-6 per cent under the proposed GST regime along with full input tax credit of GST paid on goods and services used in the supply chain,” the paper, which was submitted recently to the GST Council, said.