Impact on SME Industries on Abolition of Cess
GST is the biggest tax reform in India after the Independence. The GST tax reform can clearly be termed as a landmark and India’s biggest tax reform since independence with the aim to streamline India’s fragmented tax system with a single levy. The passing of the GST bill is clearly good news for Indian businesses and will be a game-changer for the SME sector.
Irrespective of the bright side of upcoming GST, SMEs must be cautious of its accompanying challenges such as increase in compliance costs and alignment of IT systems with new processes and transition towards GST.
In order to lay down the path for rolling out Goods and Services Tax (GST) from July, Union Government in a recent Cabinet Meeting held on 23rd March 2017 abolished 16 cesses and surcharges on union excise and service tax.. This would lead to a loss of about Rs 65,000 crore by the exchequer.
It also approved repeal of the Central Excise Tariff Act, 1985 and amendment or repeal of the provisions relating to Acts under which cesses are levied. Cesses to be abolished also include Krishi Kalyan and Swachh Bharat Cess The following proposals was approved by Union Cabinet:
- Amendment to the Customs Act, 1962;
ii. Amendments to the Customs Tariff Act, 1975;
iii. Amendment to the Central Excise Act, 1944;
iv. Repeal of the Central Excise Tariff Act, 1985; and
v. Amendment or repeal of the provisions relating to Acts under which cesses are levied.
The amendments in Customs Act will have the following implications for SMEs and Industry:
- It will allow for furnishing of information relating to import/export of goods by specified persons so that situations of under/over-valuation in imports and exports can be detected.
- It will also authorize Custom Officials to allow for misuse of export promotion schemes including the Drawback Scheme and violations of the provisions of the Customs Act and various other laws under which Customs officials have been authorized to effectively implement these laws
This Amendment in the Customs and Excise Act, relating to abolition of Cesses and Surcharges on various Goods and Services by Union Government can be seen as a cleansing process for removal of the irrelevant portions from the Statute Book which will no longer be relevant once GST is implemented.
In the present situation as per the New Goods and Services Tax ( Compensation to states) Bill 2017 which was passed recently proposes to impose a cess on luxury and demerit goods for the first five years, to create a corpus to compensate states in case of revenue loss once goods and services tax (GST) is implemented. With the levy of this the centre is estimated to gain a corpus of Rs 50,000 crore.
The revenue loss of states will be decided on the difference between revenue from GST and the money a state would have garnered under the old indirect tax regime after considering a 14% increase over the base year of 2015-16
The cess, proposed to be on “water including mineral water and aerated water” that contains sugar or added flavouring, @ 15% .
The objective is to ensure that the tax incidence under GST on specified sin and luxury goods remains at the current rate and also raises receipts to compensate States for revenue loss.
The cess on tobacco products has been capped at ₹4,170 per 1,000 sticks or 290 per cent ad valorem, while on pan masala it is at 135 per cent ad valorem. The cess will be levied over and above the basic GST that will be imposed on these products.
Thus for SMEs GST throws a mixed bag of opportunities and challenges to explore. They need to take into account the slab rate ( 5%, 12%, 18%, 28% ) and cess proposed by government on the products they deal in and take viable business decisions accordingly.