Confident of Smooth Migration to New GST Slabs, Engaging with Industry on Software Upgrade: CBIC

The Central Board of Indirect Taxes and Customs (CBIC) is confident of getting its backend technology ready by September 22 for a smooth transition to the next-generation GST and is engaging with industry on software upgradation for their return filings, a top tax official said on Thursday.

In an interview with PTI, CBIC Chairman Sanjay Kumar Agarwal also said the tax rate and slab rejig, which was approved by the GST Council on Wednesday, is based on classification of goods and services based on the bracket of 'merit' and 'standard', unlike in 2017, when it was on the basis of revenue neutrality.

The Goods and Services Tax (GST) was rolled out on July 1, 2017, and it subsumed over a dozen local levies. The taxes were levied at the rate of 5, 12, 18, and 28%, besides a compensation cess in the range of 1-290% on luxury and demerit goods.

The GST Council, comprising finance ministers from the Centre and states, on Wednesday decided to prune the slabs to just two, with tax rates at 5 and 18%, and a special 40% rate on demerit and ultra-luxury items.

The tax rates will be effective on September 22, except for tobacco and related items.

"We are confident that the time, which is available to us, about two weeks...we will be fully prepared for the new levies. The department has already contacted the industry and given them a heads-up so that they can also upgrade their systems.

"They can also incorporate these (rate and slab) changes in their ERP systems, so that the entire rollout is very smooth, which will not have any glitches, we are confident about that," Agarwal said.

Asked about industry worry on accumulation of input tax credit (ITC) on inventories, on which tax rates have been cut, the CBIC chief said the industry can pay GST dues using their entire ITC claims even after the new tax rates are rolled out from September 22.

"When they sell the goods or make the supplies, from September 22 onwards, new rates will apply. They (dealers) can utilise the ITC for making the duty payment while filing returns," Agarwal noted.

The GST rate rejig has seen tax rates on white goods like AC, washing machine, dish washer and TV (above 32 inches), and small cars coming down from 28% to 18%.

Besides, big cars with engine capacity above 1200 cc in petrol and 1500 cc in diesel have been put at a 40% rate, which is much lower than the current tax incidence of about 50%.

He said the ITC accumulation will be there for a very short period, and as industry uses it to pay taxes, the system will become smooth again.

Under the GST law, businesses can pay up to 99% of their tax liability using ITC, and the remaining liability can be paid in cash.

Agarwal said that as businesses pay taxes using ITC, there might be some dip in monthly collection.

"Whenever a rate rationalisation exercise happens during the transition period, there will be some dip in revenue collections, but our experience is that increased consumption will lead to higher GST collections. Rate rationalisation leads to more economic activity, an increase in GDP and overall better collections," Agarwal said.

He said the revenue buoyancy should pick up in 2-3 months, and collections would start improving. Also, pent-up demand in the festive season, starting with Navratri on September 22, should see higher sales and support GST collections despite rate reductions.

Agarwal said at the time of GST rollout, the main consideration for deciding tax rate on any item was revenue neutrality based on the then prevailing excise or VAT rate. Going by that theory, cement was placed in a 28 per cent slab.

However, in the current rationalisation exercise, goods and services were categorised as 'merit and standard' and taxes were lowered on them without going into the revenue consideration.

The move to simplify the tax regime - first announced by Prime Minister Narendra Modi in his Independence Day speech, where he assured citizens of a Diwali gift in the form of lower GST rates.

Asked why the September 22 date was decided, Agarwal said customers were delaying their purchases in the anticipation of a rate cut and industry demand for early rollout started coming in.

Therefore, the GST Council meeting was conducted promptly, and it was decided that new rates will be effective from September 22, which is the first day of Navratri, when the festival season starts, Agarwal said.