CAIT CONFEDERATION OF ALL INDIA TRADERS

Ref. No.:  2241/1/45                                                                   02nd  June, 2017

Shri Arun Jaitley

Hon'ble Minister for Finance, Defence & Corporate Affairs

Government of India

New Delhi

Respected Shri Jaitley Ji,

Re: Request for revisiting proposed GST tax structures on key item categories consistent with policy priorities 

At the outset, please accept our commendations on pushing ahead with the Goods and Services Tax, a landmark taxation reform initiative in Independent India. We appreciate and support the Government’s policy push in this regard.

However, to achieve the stated objectives of the Government of higher tax buoyancy, revenue neutrality, public health and a no post GST inflation scenario, we believe there are certain issues which require your urgent attention before GST is rolled out.

These issues are critical to the survival and viability of not just the traders and the distributor community of India, who constitute a bulk of the SME segment but also important from a public health point of view.

In this context, may I humbly submit that the recent rate fitment exercise has resulted in the categorization of some important items such as FMCG products, daily consumables or items in the nature of raw materials being bracketed in the highest 28% slab which was originally intended for luxury or demerit goods. While this move may augment revenue no doubt, yet it would severely impact not just millions of traders, stockists, distributors and retailers but will also impact consumption through higher pricing of items which either have nutritional value like malt based drinks or food items such as  ghee and butter which are mass consumption items.

We would therefore be very grateful if you could kindly revisit the rate structure of the following items as discussed below:

Automobile and Tractor spares

Automobile spares

The automobile industry is the backbone of the Indian economy. These are not to be regarded as luxury items but as a critical element necessary for the smooth functioning of the auto sector. A higher rate of taxation will consequently increase cost of transportation with a spiralling effect on the price levels of goods and services. Besides, expenditure incurred on auto parts is a part of recurring maintenance expenses and hence we would urge you to consider the above and reduce the rate of taxation of auto spare parts from the proposed 28 to 5% by treating them as raw material.

Tractor spares

This though an element pertaining to tractor spares, has larger ramifications for India’s farming community. Interestingly, tractors above 1800 cc have been pegged at the 12% rate while tractor spares have been kept at 28%, thus leading to a possible inverted structure. Hence this anomaly should be corrected and a HSN code should be allocated for this, given it’s importance in India’s agri economy . It is suggested that Tractor spares may also be brought down under 5% tax slab.

Malt based products

Malt based products like Bournvita, Horlicks, Complan, Boost and AmulPro and other similar products used by Children irrespective of economic strata have been placed at 28%. These are drinks which have nutritional properties and are therefore extremely critical in a nutrition deficit country like India. In some states like Tamil Nadu such products are currently taxed at lower rates to ensure access and affordability to women and children to meet their basic nutritional requirements. 

We are therefore concerned that these items have been placed in the highest tax bracket which also includes cigarettes, cars and other luxury items. Besides, being items of general consumables these items should either be placed at the 12% .

Edible items of mass consumption

Ghee and butter also are mass consumption items and though milk has been exempted, it’s not quite clear why ghee and butter, also milk products have been slabbed at 12%. Our request is for the GST Council to revisit this for slabbing at 5%

Items like pickles, sauces and instant Mixers generally used by common man have been placed under 18% but need to be parked at a lower slab.

Items like turmeric, haldi, zeera and red chilly have been placed under 5% though most of the food items have been placed under exempted category.

Again items like spices which constitute the daily palate for millions of Indians, especially from the Southern states could see a spike in prices if the taxation rate is kept at 5%. This could also hit BPL families hard and hence we would request you to consider a 0% tax rate for the same.

Other Items of mass consumption

Soaps and Toiletries

Items like Soaps, Toiletries are some daily necessity items of mass consumption but have been placed in the 18% bracket. More importantly, soaps like laundry soaps are manufactured in SMEs and hence creates maximum employment for the weaker sections of society. An increase in effective taxation impact can adversely affect consumption with disastrous effects on employment in this sector. 

It would also hinder the Government’s flagship ‘Swachch Bharat’ campaign which has been flagged off by none other than the Honourable Prime Minister himself. Besides, being sourced from by products and waste products of refineries, it also has a mitigating effect on pollution. Hence, we would be very glad if the Government could look at placing soaps under a lower tax slab.

Cutlery

At present, as per the decision of the last GST Council meeting, utensils falling under the HSN No. 7323 attracts 12% GST while cutlery, spoons and forks falling under the 8215 classification attract a higher rate of 18%. We cannot fathom this differential rate classification for essentially the same group and hence would request you to please revisit this issue and remove the anomaly.

Handbags and wallets

Hand Bangs, Wallets, and like items manufactured by small manufacturers have been placed at 28% but given viability concerns surrounding the SME sector, should ideally be placed in a lower bracket.  

The leather and the plantation industries in India are a huge source of providing substantial employment opportunities and taxation policies should encourage labour intensity, not discourage the same.

Besides, this industry which has low price thresholds is somehow holding fort against Chinese companies and global biggies like the Guccis, the Armanis and the Versaces of the world. However, a higher rate of taxation will dilute that advantage by triggering a price rise resulting in reduced sales and inevitable layoffs, an undesirable situation. We would therefore request you to keep the taxation for these items at less than 5%.

Fabrics and garments

Fabrics of all kinds should be categorised at the 5% slab since up until now there was no tax on cloth. Being a new entrant to the taxation club and given that cloth is an item of mass consumption, 5% should be the appropriate rate of taxation. It’s well known that Chinese made synthetic cloth is cheaper than their Indian counterparts, essentially due to the massive scale of production there and Government incentives. A higher taxation rate will surely cripple Indian industry further by triggering a price rise which will ensure more market penetration for Chinese cloth in India. So while yarn can be kept at 12%, it’s imperative that a lower tax rate of 5% should apply on cotton and synthetic garments.

Weights and weighing machines

This is an essential part of India’s commercial economy and is vital to the supply chain of all goods. However, surprisingly enough, the scale of manufacturing of these implements is not commensurate with their importance in the economy. This is really a cottage industry where there is not much of scale and hence there is no logic in hobbling this sector with a 28% GST rate. Rather, as less a GST burden as possible will help.

Hygiene

Contraceptives have been exempted but Sanitary Napkins, a must for womens’ hygiene has been kept under 12%. It should be either exempted or must not be beyond 5%. This would be in keeping with the public health priorities of the Government.

Education

A sizeable number of items today are being used by school going children such as crayons, pastels etc. but these have been placed at the 18% slab which will make education costly. All such items may be categorised at a lower rates. Similarly, other items being used by school going children may also be kept under lower tax slab .

Affordable Housing

On another note, providing affordable housing has been a policy priority for this Government but the GST taxation policies on inputs such as like Cement, Marble Stone, Granite, Door and Window Hardware, Iron and Steel, Plywood and Electrical Fittings send signals to the contrary. These items have been placed under 28% and given the push for affordable housing, the tax rates on the same should be slashed to at least 18%.

Gems and Jewellery

Gems and jewellery are a shining example of Indian processing and technical capabilities at the higher end of the spectrum. This is as good an advertisement for the ‘Make in India’ initiative as it gets. India is an acknowledged global gems and jewellery hub today but the proposed 5% taxation could dull our competitiveness vis-à-vis other emerging hubs such as Hong Kong, Korea, Indonesia and the already established ones like Dubai and China.

This is a high denomination commodity and the peculiarity of this trade stems from the fact that 93% of diamonds are exported out. This essentially means the Government will have to refund GST collected which typically follows the export cycle and hence the implications of working capital blockage are huge which is something that could even make the trade unviable or atleast difficult to sustain.

Hence, we would request you to please consider the same and slash the GST rate to 2% from the current proposed 5%.

Branded and unbranded food items

Another key issue which the GST Council would do well to look at is to sort out the confusion and close the arbitrage window between branded and unbranded items. The definition of "branded" needs to be revisited to avoid confusion over tax rates. The branded principle is applicable on almost each and every commodity from food items to luxury goods and hence a cautious but clearly defined approach is needed to avoid classification disputes between the two categories.

Please allow me the liberty of dwelling a bit on the issue mentioned above as it concerns not just the trading community but the population as a whole since the Government’s move to adopt a tax differential between branded and unbranded foodgrains and pulses to the extent of a whopping 5% has inflationary consequences for all constituents of the population for whom rice and pulses are part of the staple diet. If this mode of taxation, which we believe, is without merit is persisted upon, then it is but natural that price levels could rise, (given low margins of 1% or less in the business), perhaps even beyond the 5% threshold which is not desirable.

It is inexplicable that on the one hand, the Government has invoked the FSSAI and Legal Metrology Acts to ensure standardization in the food business and improve hygiene levels and hence ensure quality packed and branded goods, which is welcome.

However, it must be understood that while traders dutifully comply with these obligations as part of their fiduciary duties towards customers, yet this encourages us to ensure branding and sealing, at which point these become branded goods and  attracts 5% GST. 

In a way therefore, we find it hard to fathom that two policy objectives of the Government- promoting standardization and quality packing as mandated by law and the GST taxation policy may be at odds with each other, in which the trading community, already operating at sub optimal margins gets hurt for no fault of theirs.

Hence, may I request you in the interest of not just the trading community but for the population as a whole to please reconsider this position and exempt 0713 food grains and pulses completely whether branded or unbranded. 

Rules

Excise paid stock

A key requirement under the rules is that excise credit will be allowed provided the goods have been procured within the last 12 months, there is an excise invoice and the excise component is clearly mentioned on the invoice. However, in reality, excise invoices are not always issues by companies but by their trading arms. Besides, even if excise is mentioned, it is normally restricted to the distributors and not down the line channel partners.

However, whether the retailer has an excise invoice or not, the fact is that these are all genuine goods in the trade channel on which the Government has collected revenues. Inspite of this, if credit is not allowed, it tantamounts to double taxation, eventually leading to sale beyond MRP prices. However, fearing that this may not be allowed in the new regime, dealers are now not procuring new stock but concentrating on clearing old stock.

It is also suggested that period of 12 months for providing input credit on stocks may be enhanced to 24 months .

E-way bill

Another key requirement enshrined in the rules is to generate an e-way bill from the GST Common Portal for transport of goods valued at more than Rs 50,000/-. Given the cumbersome compliance obligations already imposed upon the SMEs as a result of the impending introduction of the GST and in keeping with the Government’s own objective of facilitating ease of doing business in India, we request that this provision applicable for intra-state movement of goods may be withdrawn.

Trial & Transition period

With a view to facilitate smooth transition of trade & commerce from current VAT regime to GST tax regime, we request that period of nine months beginning 1st July,2017 ( the likely date of GST implementation) may be declared as “ trial period” and no penal action is taken against any trader for procedural lapses except willful tax offenders. It is also suggested that first three years of GST implementation in India may be declared as “Transition period” and instead of a penalizing approach, due support is given to trade & industry to cope up with new taxation system.

Special Working Group

In order to ensure smooth implementation of GST across the Country and advancing the principle of mutual trust & confidence, a Special Working Group may be constituted both at Centre and State levels comprising of senior tax officials and representative of trade & industry to regulate and monitor correct & timely implementation of GST in the Country. It is further suggested that GST facilitation Centres may be opened all over the Country to disseminate correct information and awareness about GST and for this purpose we offer offices of Trade Associations all over the Country where such Facilitation Centres may be opened.

We, the trading community of India, therefore look to you Sir, with hope and optimism in the expectation that our concerns, which largely coincide with the concerns of the middle class and the public health priorities of the Government, would be considered favourably in the forthcoming GST Council meeting. 

Thanking you. With kind regards

Yours truly

Praveen Khandelwal

National Secretary General

Contact Cell : +91-9891015165