The Pre GST Survey 2009

Before change happens

September 2009
2 The pre GST Survey 2009
Contents

4 Foreword

5 Executive summary

6 Methodology and respondents profile

7 Analysis: The complete picture

25 The road ahead

26 Contacts

The pre GST Survey 2009 3

Foreword

The proposed implementation of the Goods and

Services Tax (GST) in India has generated a significant
amount of discussion and debate in the industry.
Marking a sea-change in the way tax will be levied,
the GST, when introduced, will have an impact on
businesses, organisations and their operations. Simply
put the GST is a comprehensive value added tax on
goods and services. It is levied and collected on value
addition at each stage of sale or purchase of goods or
supply of services with applicable set-offs in respect
of the tax paid at previous stages. Ideally, the GST
mechanism envisages no distinction between taxable
goods and taxable services and they are taxed at a
single rate in a supply chain of goods and services till
the goods/services reach the consumer. It is basically
intended as a tax on final consumption.

Indirect taxes in India which include Customs Duty,

Central Excise Duty, Service Tax, Value Added Tax (VAT)
and Central Sales Tax (CST) constitute a major part of
the Governments exchequer. These indirect taxes have
undergone significant changes in the current decade. The
changes, which include permitting inter-sectoral credit of
taxes paid on goods and services and implementation of
VAT across the country, were introduced with the aim of
making these taxes more transparent and reducing the
cascading effect of taxes at various levels.

With the Indian economy set to enter the next phase

of globalisation and aided by the buoyancy in revenues,
the Government believes it to be the right time to As April 1 2010, which is the proposed date for the
introduce more reforms in the structure of indirect introduction of GST draws near, the time has come
taxes. Introducing a unified GST would represent a move for the nation at large to gear up for a successful
to adopting global standards and would tackle the changeover. Considering the nationwide importance
challenge of the multiplicity of taxes imposed in India. of the topic, Deloitte developed The Pre GST Survey
2009 (the Survey) to engage with industry and trade
The introduction of the GST regime is perhaps the single to seek views from and gauge their reactions relating
most important tax reform in India. The proposed GST to the proposed Dual GST model and understand their
seeks to integrate multiple indirect taxes on goods and expectations to make this transition a smooth and less
services at the State and Central levels, remove the complex affair.
cascading effect of taxes and improve competitiveness
of Indian Industry. The proposed GST will be a Dual GST
with the Union and State Governments having power to
legislate, levy and administer the Central and State GST
respectively. It is expected that the two taxes; Central
and State GST will operate parallelly and throughout the
supply chain.

4 The pre GST Survey 2009

Executive summary
The proposed introduction of the GST signals the next
generation of tax reforms designed to address the
barriers to trade and to expand the tax base. The Survey
was initiated to gauge receptivity of trade and industry
to the implementation of GST in April 2010 and analyse
the feedback for wider communication, including to the
policymakers.
The Survey results demonstrate an almost unanimous
consensus that GST will be beneficial to the Indian
economy. But the suitability of Dual GST which seems to
be the only practical alternative in the short-term is not
favoured by a majority of the respondents. In addition,
the possibility that a few states may not join the GST
bandwagon presents as area of concern.
Coverage by GST of current multiple levies, uniformity
of rates, option to claim refund of excess tax credit
and need to introduce binding common directives
came out loud and clear. The respondents were divided
over extension of GST to products of conspicuous
consumption which attract high tax rate or the manner
of availability of tax credit on capital goods.
The most significant point to note out of the Survey, not
entirely unexpected, is the view that the appropriate
date for GST introduction is April 2011. This clearly
points toward perception of lack of preparedness on
the part of trade & industry and of the Government. It is
also interesting to note that
Easier compliance
Efficient administration and
Increased tax collection
are ranked in that order as critical success factors.
Clearly there is a message to the Government where the
implementation efforts should be aimed at. The results
of the Survey reveal the expectations, apprehensions
and concerns of the trade & industry and provide an
insight to the policymakers to address the same for a
successful implementation of the GST.
The pre GST Survey 2009 5
Methodology & respondents
profile

The Survey is designed to capture the views of tax &
finance executives of leading corporate houses having
a pan India presence. The participants of the Survey
represented different sectors namely, manufacturing,
trading and services. Within each of these sectors, care
was taken to cover multiple industry segments such as
auto, retail and telecom. Geographical distribution of
participants was also considered in order to elicit view
from all over the country. The Survey was administered
to businesses, both small and large, to ensure that
the sample was truly representative. Thus, the Survey
comprehensively covers the views of the trade &
industry across sectors, geography and size.
This web based Survey contained multiple sections
with questionnaires covering all aspects from design to
implementation and industry expectations. The Survey
remained open for around two weeks. The Survey
received an extremely encouraging response.

Respondents Profile:

Industry Sectors Turnover

50%
44%
38%
26% 40%
30%
30%

18%
20%
11%

10%
33%

0%

Manufacturing Trading Below Rs 500 crore to More than

Rs 500 crore Rs 1000 crore Rs 1000 crore
Providing of services Combination of above

Industry segments

20%
18%
18%

16%

14%
12% 12%
12% 11%
10% 10%
10%
9%
8%
8%

6% 5% 5%

4%

2%

0%
Auto Consumer goods Energy Infrastructure IT & ITES Pharma & Telecom & Transport & Other Others
including retail health care media logistics manufacturing including
hospitality

6 The pre GST Survey 2009

Analysis: The complete picture

4.1 GST Design

The current indirect tax structure in India consists of
Federal and State levies on goods and services which 97% of the respondents
are administered by the Central and State Governments
respectively. The present structure has its own draw-
agree that GST will
backs in the nature of multiple taxes of cascading
nature, higher administration cost, complex compliance,
benefit Indian economy
fragmentation of pan-India market etc.
The Survey results reveal an overwhelming response
The standard model adopted globally is a national / that the GST will benefit Indian economy. Industry
unified GST wherein a single / common tax is levied on expects that the GST will bring transparency, simplicity,
all supplies of goods and services across the territory. harmonisation of tax base, reduction in cascading effect
However, some countries (e.g. Canada and Brazil) and improved international competitiveness.
representing Federal and State structure have opted for
dual GST. 4.1.2 Suitability of Dual GST to India

In India, while presenting the budget for the year

2009-10, the Finance Minister indicated that the Dual
GST structure will be implemented on April 1, 2010.
25%
However, the design of the dual GST, for discussions
37%
or otherwise, is yet to be released in public domain.
Nevertheless, it has been observed that in a typical Dual
GST structure, the Central and the State Governments 8%

concurrently levy tax on a common base for supply of

goods and services. The respondents views were sought 30%
whether such a structure will be beneficial to the Indian
economy.

Agree Somewhat disagree

4.1.1 GST will be beneficial to Indian economy
Strongly agree Strongly Disagree
1% 2%

Notwithstanding their belief about the benefits of GST

to the Indian economy, the trade & industry seems
uncertain about the suitability of the Dual GST model.
This could be because of the apprehension that division
of power to legislate, levy and administer the GST could
42% result in a lack of common framework of law and the
resultant complexities.
55%

About 75% of respondents for telecom, transport and

logistics segments are not in favour of Dual GST whereas
there is a split of opinion in other industry segments.

Agree Somewhat disagree

More than two third of
Strongly agree Strongly Disagree
respondents are not in
favour of a Dual GST
The pre GST Survey 2009 7
 4.1.3 Preferred method for complete roll out of GST
Despite the Finance Ministers announcement on the roll
out of GST by April 2010, a lack of consensus between
the Central & State Governments on revenue allocations
still persists. This could delay complete roll out of GST in
all the States by April 2010.
Considering this, the participants were given three
options i.e. (i) Dual GST roll out in all the States, (ii) Dual
GST roll out in the States who are willing for transition
to GST or (iii) Central GST followed by State GST. The
industry seems to be divided on the methodology
of GST rollout, as the Survey results provide a mixed
feedback from all the participants due to non-clarity
on this matter. About half of the respondents favour
Central GST being implemented first followed by State
GST whereas about one-third respondents favour
simultaneous implementation of Dual GST in all States.
47%
50%
45%
40%
35% 32%
30%
25% 21%
20%
15%
10%
There is a split verdict
over the manner of
implementation of GST
The Deloitte take
There is a clear mandate for GST seen as
beneficial to Indian economy. However, to
get the stakeholders buy in for the Dual GST
model, the Government needs to come out
with a clear roadmap setting the apprehen-
sions about Dual GST at rest or addressing
the same in the design. Perhaps a white
paper giving clear framework is the need of
the hour.
India being a federal country, Dual GST may
strike a good balance between Centre and
State fiscal autonomy, along with eliminating
tax cascading. However, harmonization and
uniformity in State GST will be key challenge.
The introduction of Dual GST with a few
States not coming on board on April 1, 2010
is a distinct possibility that is not fancied by
many as the results indicate. Any plans to go
ahead in this manner should be attempted
only after assuaging the qualms towards this
approach.

5%

0%

Central GST followed Dual GST in all States Dual GST in majority States
by State GST willing to transition to GST

8 The pre GST Survey 2009

4.2 Coverage of GST 4.2.2 Multiple levies to be subsumed in GST
Import of goods is subject to Customs Duties, which
include additional duty of Customs levied @ 4% in lieu of 100%
VAT. However, no VAT is levied on import of goods. Import 90%
90%
of taxable services attracts Service Tax under reverse charge
80%
mechanism under certain conditions. Internationally, it is a 66% 67%
70%
common practice to levy VAT/ GST on import of goods.
56%
60%

The coverage of the present indirect tax regime in India 50% 44%

is very complex involving multiple taxes and different 40% 34% 33%
threshold limits. Besides, certain products (e.g. textile, 30%
sugar and tobacco products) are subject to Excise Duties
20%
and cesses under miscellaneous Acts and certain products 10%
10%
(e.g. petroleum products and liquor) have been kept out
0%
of the VAT regime. Thus, the present structure leads to
Entry-Tax/Octroi Luxury Tax Entertainment Tax Stamp duty
cascading effect of multiple taxes, absence of a seamless
tax credit system, difficult compliances, inefficient tax Agree Disagree
administration which yield lower tax collections for the
Government but a higher tax burden for tax payers.
The Survey results reveal the fact that industry is
The proposed GST regime ought to subsume multiple looking to get rid of local multiple levies, especially
taxes into two levies i.e. Central GST and State GST. non creditable levies on entry of goods such as octroi,
which causes bottlenecks in smooth flow of movement
4.2.1 GST should be levied on imports of goods. Industry may be relieved from various
cumbersome compliance processes if multiple levies are
subsumed in the State GST.
7%
7%

49%

37%
A majority of the respondents want GST
to subsume multiple contemporary levies
like Stamp Duty, Luxury Tax,
Agree

Strongly agree
Somewhat disagree

Strongly Disagree
Entertainment Tax and Municipal levies
The Survey results indicate that a vast majority of
the respondents are in favour of introducing GST on An overwhelming 90% of respondents
imports. Respondents from all industry sectors i.e.
manufacturing, service and trading are in favour of the want the Entry Tax / Octroi levy to be
GST being levied on imports. The industry feels that a
GST on imports will be in line with international practice.
subsumed in GST

86% of respondents are in

favour of GST on imports
The pre GST Survey 2009 9
 4.2.3 GST on Petroleum products, Liquor & Tobacco
Additional Duty on Petroleum products, Liquor & Tobacco
100%
90%
82%
80%
70% 21%

60%
50% 50% 53% 47% 44%
50%
40%
19%
30%
20% 18%
16%
10%
0%
Liquor Tobacco Petrol
Agree Somewhat disagree

Agree Disagree Strongly agree Strongly Disagree

The Survey indicates that industry expects broader

GST coverage whereby petroleum products, liquor and
tobacco should also form part of the GST framework.
It is interesting to note that all respondents from Oil
& Gas sector desire to be part of the GST. To address More than 80% of
the revenue concerns of the State Governments, the
respondents are in favour of introduction of additional
respondents are in favour
levies such as Excise Duty on these products. of petroleum products
becoming part of GST
The Deloitte take
and about 50% want GST
In Dual GST regime, State GST on imports will bring uniformity in taxation
of domestic and imported goods and could expand the revenue base for
to be extended to tobacco
States. GST on imports where input tax credit to be available will be benefi- and liqour
cial for service providers instead of presently non-creditable additional duties
of customs.
The inclusion of multiple State taxes would result in a broad tax base for
GST which is very essential for its success. It will also ensure that tax parity is
About 60% of respondents
achieved among all the States. agree for higher duty on
Petroleum products, Liquor and Tobacco contribute significantly to the
revenue of States. In the GST regime, to protect the revenue of State
petrol products, liquor and
Governments, an additional non-vatable levy may be introduced on these
products.
tobacco to address revenue
concerns

10 The pre GST Survey 2009

4.3 GST Rates & Threshold
As Federal and State taxes co-exist in India, one of the key
challenges before the Government is to determine the tax More than 60% of respondents opt for
base and the tax rates of Central and State GST.
8% rate for both Central GST and State
Empirical studies have indicated that the present rate
of indirect taxes, on a consolidated basis, works out to
GST
more than 20% after considering the cascading effect
of multiple taxes. Besides, if the present tax exemptions 4.3.2 Preferable Central & State GST rates
/ concessions are proposed to be continued under the
GST regime, it would lead to an upward pressure on the 80%
71%
tax rate to ensure that tax collections are not adversely 70%
61%
affected. As these two aspects i.e. tax base and tax rates 60%
are inversely related, the determination of an appropriate 50%
threshold assumes importance.
40%
30% 25% 22%
4.3.1 Uniformity in Rates
20% 14%
1% 7%
10%
0%
Central GST State GST

8 Percent 10 Percent 12 Percent

41%
Aggregate rate of CGST and SGST (in %)
53%

60% 56%
50%
40%
5% 30% 28%

20%
10% 9%
Agree Somewhat disagree 5%
2%
0%
Strongly agree Strongly Disagree
16 18 20 22 24
Aggregate rate of CGST and SGST (in %)
94% respondents agree that there should be a uniform
rate for all the goods and services except essential
goods and services. Different rates could create admin- Considering the current overall tax impact, more
istrative and compliance hassles and therefore it seems than 93% of the respondents have indicated that the
that respondents do not prefer multiple GST rates. aggregate GST rate should not be more than 20%.
It is interesting to note that 100% of the respondents
from Auto, Telecom and Media industry believe that the
aggregate rate of GST should not be more than 20%

The consensus is for a uniform GST rate except for

essential goods and services
The pre GST Survey 2009 11
 4.3.3 Threshold & Presumptive Taxation in GST

Threshold Presumptive Taxation

8%

26% 11%

34%

57%

24%

40%

Less than 50 lacs Agree Somewhat disagree

50 lacs to 100 lacs Strongly agree Strongly disagree
more than 100 lacs

The respondents felt the need to have threshold limit &

The Deloitte take
presumptive tax mechanism for the small scale sectors.
Industry would prefer uniformity in rates as it
A reasonably high threshold with a presumptive tax
would lead to simplification of the tax regime
scheme benefits small business in terms of saving on tax
and minimize tax-induced shifts in trade.
compliance & other administrative costs.
States and the Centre will have to work out a
rate structure that would be revenue-neutral and
not cause any loss to the exchequer.
It is imperative to have a reasonable and possibly
About two-thirds of the common threshold limit to achieve uniformity

respondents are of the in taxation of services & goods. A majority of

countries in the world have one combined
view that the threshold for threshold for goods and services which is most
convenient and simpler to implement.
GST should be less than Although, the presumptive tax mechanism is not

100 Lacs and three fourths preferable from indirect tax perspective since
the same breaks the value chain and increases
are in favour of the cost on account of cascading effect, yet
the benefits of simplified tax administration
presumptive scheme of and convenience of small businesses cannot be

taxation overlooked.

12 The pre GST Survey 2009

4.4 Tax exemptions and concessions
The proposed GST regime aims to minimise the tax
exemptions so that the tax credit mechanism operates
seamlessly through the supply chain of goods and
services. Tax benefits in the form of incentives or conces-
sions have been an integral part of the indirect tax
regime in India. The rationale for tax concessions is to
improve the competitiveness of products and services
of Indian businesses in the international markets or to
promote geographically balanced industrial develop-
ment across India.
There is more than a significant need for infrastructural
developments and services (in terms of power plants,
dams, sea ports, air-ports, road-networks etc.) which
remain one of the biggest stumbling blocks of industrial
progress in the country. By their very nature, infrastruc-
ture projects involve huge capital, long gestation periods
Continuation of tax incentives (while protecting the
tax credit chain) under proposed GST regime elicited a
favourable response from a majority of the participants.
However, on the incentive continuation mechanism,
mixed response emerged with least (i.e. around 19%)
favouring conversion into remission and highest (i.e.
around 33%) favouring refund mechanism. Around
one-fourth favoured conversion into deferment.
It is interesting to note that in line with the over-all
trend, around 75% of the respondents who are
engaged exclusively into trading and/or services i.e. non-
manufacturing favoured continuation.
Manufacturing
Existing incentives
to continue
No

and higher risk. Hence, to attract necessary invest-

25%
ments including foreign investment, it may be argued 47% Non-Manufacturing
that these fiscal incentives including tax benefits are 53%

necessary for all round infrastructural developments in 75%

India. Yes

Therefore, it would be imperative for the Government to

design the GST frame-work in such a way that both the
objectives are correctly balanced.

4.4.1 The treatment for existing tax concessions

under proposed GST regime More than 75% want that
35% 33% existing tax incentives
30% should continue
23% 25%
25%

20% 19%

15%

10%

5%

0%
Abolished Available as Conversion Conversion into
refund into deferment remission

The pre GST Survey 2009 13

4.4.2 Fresh tax incentives under proposed GST On fresh tax incentives to thrust areas of growth under
regime for thrust areas of growth like SEZ, the proposed GST regime, the Survey result reflects a
infrastructure, etc. favourable response from a majority of the participants.

It is interesting to note that around two-thirds of those

respondents who favour abolishment of existing tax
11%
incentives are of the opinion that GST should provide for
fresh tax incentives to thrust areas. Similarly, around two
14%
thirds of those respondents who are against fresh incen-
38% tives under GST regime are of the opinion that existing
tax incentives should continue.

37%
On an overall basis, more than 60% favour both;
continuation of existing incentives and granting of fresh
tax incentives and less than 10% of the respondents
envisaged a GST regime with no tax incentives i.e.
Agree Somewhat disagree abolishing existing incentives and no provision for any
Strongly agree Strongly disagree fresh incentives.

74% Yes Yes to both; existing incentives as well as fresh incentives 74% Yes

60%

26% No Yes to existing incentives Yes to fresh incentives 26% No

but No to fresh incentives No to existing incentives

Continuation Fresh Incentives

More than 75% favoured fresh tax incentives to thrust

areas under GST regime
The Deloitte take
Though ideal GST model does not accommodate tax incentives, major part of trade & industry favours tax incentives under GST regime.
The possible reason could be that business is witnessing extreme volatility and turbulence which, for survival, warrants high level of
competitiveness that can be derived from tax incentives. From the Governments perspective, tax incentives could probably help acceler-
ating the growth of Indian economy.
Given this, GST does not appear to signal curtain for tax incentives.

14 The pre GST Survey 2009

 4.5 Tax credits 4.5.2 Tax credit on capital goods in installments
In the present indirect tax system, there are several
instances where there is break in the tax credit chain
e.g. service taxes paid by retail sector or VAT paid by
service provider. Further, there are several restrictions
on tax credit availment due to restrictive definitions of 29%

capital goods, end-use of input/input-services, negative 40%

list of inputs in VAT, etc. One of the objectives of the
GST should be to simplify the credit availment and
eliminate existing cascading effect of several indirect
taxes. 19%

12%
4.5.1 The tax credit mechanism would be simpler in
GST regime

2%
Agree Somewhat disagree

Strongly agree Strongly disagree

9%

The response in terms of appropriateness of installment

mechanism for tax credit on capital goods is clearly
45% directionless. Around half of the respondents across
sectors, size and geography favour credit in installment
44%
and the rest go against this mechanism.

Agree Somewhat disagree

Trade is divided on
Strongly agree Strongly disagree
installment mechanism for
Trade and industry across the sectors, geography and
tax credit on capital goods
size is fairly optimistic about simplicity of tax credit
mechanism notwithstanding a lack of clarity on
treatment of inter-State supplies.

Around 90% of the respondents believe

that tax credit mechanism would be
simpler in GST regime

The pre GST Survey 2009 15

 4.5.3 GST to provide for option to claim refund of
excess tax credit The Deloitte take
High expectations on simplicity of
4% tax-credit mechanism pre-supposes stricter
5% administration of common directives for
States on various matters like negative list for
tax credits, meaning of capital goods, tenure
28% for tax credit instalment on capital goods.
Possible restriction on inter-sectoral credit
(between CGST and SGST) could all the more
advocate justification for tax refund option
in the event of excess tax-credit situations.
63%
Though the current CENVAT scheme does
not envisage a refund other than in export
situations, the CGST design may do well to
build the refund mechanism in a situation of
unadjustable excess credit.
Agree Somewhat disagree

Strongly agree Strongly disagree

It is obvious to expect that in situations of 100% zero

rated supplies like exports, GST would provide for refund
of tax suffered on input. However, in specific business More than 90% favour
models where a reasonable, if not significant, part of the
aggregate supplies is zero rated or is subject to preferred
refund option in the event
tax rate, the situation of excess tax credit could prevail.
In such a scenario, the need would be felt to have a
of excess tax credit
refund provision rather than a carry forward of excess
credit which, due to the typical nature of business
model, may not get adjusted / off-set against the output
tax liability in the foreseeable future.

16 The pre GST Survey 2009

4.6 Tax on inter-state transactions Currently, different categories of services are being
Inter-State supplies of goods and services are subject to taxed on different principles say location of immovable
CST and Service Tax respectively. Service Tax is admin- property, location of service recipient and place of
istered by the Central Government and therefore the performance of service. The Survey results indicate that
question of place of consumption of such services in the proposed GST regime, majority of the respond-
does not pose significant challenge under Central GST ents favour continuation of present system of different
so far such services are provided within India. Inter-State principles of taxation for different types of services.
supply of goods is and will continue to be administered
by the States. Significantly, over 90% of the respondents who are
exclusively engaged in provision of services would like
GST regime envisages destination based consump- to continue with the concept of multiple principles for
tion tax system. Hence, taxation of services which are determining taxability of inter-State supply of services.
provided in one State but consumed in another State Besides, the respondents who are not sure on their view
could impose a challenge in defining and administering about single principle or multiple principles for levying
the taxability. With regard to goods, tax on inter-State tax on services represent only one-fifth of the total
transactions should reach the treasury of the State Survey respondents.
where the goods are consumed so as to protect the tax-
credit mechanism throughout supply chain of products
and services. This, however, envisages a significant shift
from the present system of origin based taxation (of
CST) to destination based taxation. Whichever method
Around 60% of the respondents believe
is adopted to migrate to the destination based system, basis of taxation of inter-State supply of
it will be imperative for the Government to design the
tax collection mechanism so that movement of goods services should, depending on nature of
can be monitored and there is no revenue leakage or
diversion of the goods.
services, be different
4.6.1 Inter-State supply of services Basis for levy
of GST:
Criteria which are relevant for taxation of inter-State
supply of services could be following:
Location of property
Where the service provider is located
Where the service recipient is located
Place of performance of service 41%
Place of use
59%
70%
59%
60%
50%
40%
30% 23%
18%
20%
10%
0%
Cant say No Yes

The pre GST Survey 2009 17

4.6.2 Pre-paid GST or GST in destination State
Levy of GST by destination state on entry or receipt of goods
Pre-paid GST (origin State would collect the tax and pay it to the
destination state)
Currently, inter-State supply of goods is subject to levy of
non-creditable CST, collected by the originating States.
However, destination based taxation system under
proposed GST regime ideally would not have any place
for non-creditable tax on inter-State supplies.
In this regard, on mechanism to recover the tax on
inter-State supplies, the Survey results indicate that
majority of the respondents seem to be agreeable to
pre-paid VAT mechanism, which in terms of collection
& administration of tax, would not appear different from
the present system of collection of tax by the originating
State.
Though on an overall basis, 60% of the respondents
favour pre-paid VAT mechanism, among respondents
who are engaged into trading business, around 80%
favour pre-paid VAT mechanism.
Around 60% of the
respondents favour a
pre-paid GST mechanism
on inter-State supplies
18 The pre GST Survey 2009
4.6.3 Exchange of declaration forms to track stock
transfers
22%
38%
11%
29%
Agree Somewhat disagree
Strongly agree Strongly disagree
Currently, the incidence of tax is on sale of goods and
hence the stock transfer movement requires exchange
of declaration forms. In the GST regime, in its ideal
and commonly accepted international practice, the
taxable event is the supply of goods (including stock
transfers) and hence, the mechanism of declaration
forms for claiming non-taxability does not have any
place. In the absence of any draft legislation or white
paper on proposed GST regime in India, the fate of the
stock transfer is not yet known. Given this, the Survey
results indicate that a majority of the respondents favour
continuation of non-taxability of stock transfer and
support the declaration form mechanism to track its
movement.
More than two-thirds of the respondents
supported declaration form mechanism
to track stock transfer without payment
of tax
4.6.4 Simplify and integrate all check-posts across
the country
Whopping 98% of the
respondents felt need for
1% 1%

well integrated check-

29%
posts across the country

69%

The Deloitte take

Agree Somewhat disagree
Strongly agree Strongly disagree
The prevailing check-post framework at multiple levels
of States and local area has always been viewed as
inefficient administration. In addition, the complex
compliance level has invariably affected the supply
chain adversely. This has led to building high expecta-
tions among trade and industry on the role of the
Government in integrating check-posts with appropriate
IT systems.
Tax on inter-State transactions is an area
of differing viewpoints. The Government
should frame the rules very specifically so that
revenue interest of each state is protected.
For Inter-state transactions, central GST could
be levied on pre-paid basis and state GST
could be levied at destination basis.
Continuation of stock transfers without
payment of tax needs to be looked into.
IT Infrastructure at check posts to be
enhanced for efficient tracking of goods
movement.

The pre GST Survey 2009 19

4.7 Administrative framework
As announced, the Central GST and State GST would
be levied, legislated and administered by the respective Unanimous view of the trade at
Governments. To obviate the difficulties faced in the
current regime, there would be a need for a uniformity large suggests ensuring
in administration of the two taxes. In addition, the
absence of unanimity in VAT laws of all the States uniformity in the GST laws and
promotes unhealthy trade arbitrage among the neigh-
bouring States. procedures
In the GST regime, multiple taxes are expected to be 4.7.2 Usage of Harmonised System of Nomenclature
subsumed into two taxes which undoubtedly would for the proposed GST Tariff:
lead to a reduction in the complexity of managing tax 2% 2%
compliances. However, under the GST regime, multi-
location service providers could be required to obtain
registrations and undertake compliances of filing tax
returns, submissions etc in each of the States. Thus, it
26%
remains to be seen whether the tax management and
compliance process will be simpler or the industry will
have an additional compliance burden due to the intro-
duction of the State GST.

4.7.1 Binding common directives to ensure 70%

uniformity

Agree Somewhat disagree

Strongly agree Strongly disagree

22%

Trade has emphatically preferred to have the interna-

tionally recognised Harmonised System of Nomenclature
(HSN) in place existing model of classification. 96% of
the respondents feel that the GST Model Tariff should be
based on the HSN. A majority of the respondents who
78% have disagreed to the proposal of HSN classification
belong to the non manufacturing sector. Participants
from Auto and Pharma Industry who manufacture
different types of goods have unanimously agreed
to the proposition that the present HSN classifica-
Agree Strongly agree
tion adopted for Customs and Excise purposes should
continue even in Dual GST model.
All the respondents desire that when the GST is imple-
mented, there should be common directives which are

Common base for classification is

binding on the State Governments. The trade expects
that there should be uniformity of the GST laws and

necessary for uniformity of GST

procedures possibly because Dual GST is sought to be
implemented.

20 The pre GST Survey 2009

 4.7.3 Administrative burden on account of 4.7.4 Independent audit by professionals in the self
introduction of GST: assessment driven GST regime:

3%
7%

20%
27%

34% 56%

6%

47%

Agree Somewhat disagree Agree Somewhat disagree

Strongly agree Strongly disagree Strongly agree Strongly disagree

More than two thirds of the respondents feel that the
GST would not impose any administrative burden. While
the percentages across industries showed a similar mix
of views, all of the respondents from the Energy sector,
more than 75% of the respondents from the Consumer
Goods sector and more than 85% of the respondents
from Transport & Logistics sector have not expressed any
concerns regarding increase of administrative burden
arising out of introduction of GST.
More than 90% of the respondents favour an inde-
pendent audit by professionals. Surprisingly, much of
the resistance from carrying out an independent audit
by professionals came only from the companies having a
turnover of more than INR 1,000 crores. This resistance
seems to have stemmed from the fact that undertaking
an additional audit under GST would increase the
burden on the assessees.

GST is viewed as Self assessment coupled

a welcome measure with independent audit
and not as an seems largely acceptable
administrative burden
The Deloitte take
Trade seems to feel that GST is a welcome measure with less administrative burden if the administrative framework functions as expected
without resulting in a multiplicity of rules and regulations different across the states. The success of implementation of Dual GST also
hinges on the uniformity in the directives and procedures followed by various states across the country.
A harmonised system of nomenclature based on the international system or on the basis of Indian Trade Classification would be
necessary for uniformity in treatment to tax goods in different states. The objective of self assessment mechanism can best be achieved
with the introduction of independent audits by professionals.

The pre GST Survey 2009 21

4.8 Preparedness and Timing Around 70% of the respondents believe that there is
The introduction of the GST in India is perceived as the not adequate time to prepare for introduction of GST in
biggest tax reform in India since independence. Hence, April 2010. This response is mixed across all the indus-
trade and industry need sufficient opportunity to offer tries. However, none of the respondents having turnover
their views on the basic frame-work and draft legisla- more than 1,000 crores strongly believe that there is
tions of GST. Besides, the state of preparedness at both adequate time to prepare for the introduction of GST
ends i.e. Government and the trade & industry, is key to in April 2010. The main factor that contributed to this
the survival and success of this important tax reform. For trend seems to be the absence of any draft legislation to
adhering to the date of April 2010 for implementation understand how GST would be implemented.
of GST, interalia, timely amendments to the constitution
for re-allocating the power to levy taxes among Central
and State Governments and consensus of all the State
Governments appears critical.
The proposal to introduce GST on
Ideally, every entity would like to assess in advance,
the impact of GST on its business; more specifically the April 1, 2010 leaves less time to
competitiveness of its product and services. This impact
assessment study is also necessary for evaluating GST prepare for the transition
implications on operations, supply chain as well as
up-gradation of IT system and registering changes in the
tax compliance procedures. 4.8.2 Government will mobilise necessary
infrastructure for GST roll out in April 2010
The GST implementation envisages significant
re-organization of tax administrating authorities of
State and Central Governments, providing technical and
administrative training to staff and building technically 17%
sound IT infrastructure for effective and efficient tax
administration.
36%
7%
4.8.1 April 2010 leaves inadequate time for trade
and industry to prepare for GST

40%

26%
33% Agree Somewhat disagree

Strongly agree Strongly disagree

5%

36%
Few respondents are confident of
Government mobilising the
Agree Somewhat disagree necessary infrastructure to roll
Strongly agree Strongly disagree
out the GST by 2010
22 The pre GST Survey 2009
The GST roll out would require a realignment of
resources in Central and State Governments besides
investment in IT infrastructure which would be the
backbone for a successful implementation of the
reform process. The staff needs to be trained, business
process and audit manuals need to be in place and a
stakeholder awareness campaign needs to be run for
garnering support to the GST model. It is not surprising
therefore to note that more than 75% of the respond-
ents believe that the Government does not appear to be
in a position to mobilise the necessary infrastructure to
roll out GST by April 2010.
4.8.3 Appropriate date for introduction of GST
16%
67%
17%
April 12 April 10
April 11
The Survey results suggest that around 85% of the
respondents are not sure that April 1, 2010 is the
appropriate date for GST implementation. Respondents
from Pharma (100%) and Auto (91%) industry have
expressed their concerns about implementation of GST
by 2010. It appears that there should be adequate time
for preparing for the transition to GST as more than two
thirds of the respondents believe that April 2011 would
be the appropriate date for introduction of GST in India.
Respondents seem to
welcome the transition to
GST, but in April 2011
4.8.4 Manner of preparation for the transition to GST
26%
48%
26%
Forming a core team internally
Seeking assistance of external consultants
Both
The Survey results seem to indicate that though many
respondents intend to form a core team within the
organisation, seeking external assistance seems to be at
the top of the mind for around 75% of the respondents.
Only one fourth of the respondents feel that an in house
core team would be sufficient for preparation of this
transition to GST.
Knowledge on the proposed GST
regime is very minimal indicating
the necessity of external assistance to
assist in the transition
The Deloitte take
While GST would be beneficial to the Indian Economy as a whole, the
industry may not be well prepared for the introduction of the same in April
2010 itself. It seems that with the efforts that the Government is taking
during the last quarter or so, majority of the trade believes that April 2011
would be the ideal date for introduction of GST.
The concerns expressed by many regarding the Governments ability to
mobilise the necessary infrastructure can be negated through an awareness
campaign following the publication of GST design. Also, a draft legislation
will enable companies to form the internal core teams or seek necessary
external assistance to make necessary changes in operations and systems to
successfully implement the GST.
The pre GST Survey 2009 23
 4.9 Impact
Since indirect taxes pervade every area of a companys
business, it is possible that even within an industry
segment, the impact could be positive or negative to
different businesses depending on the supply chain in
the prevailing business model. Besides, the GST would
bring relief to various sectors by eliminating ambiguity
on matters of double taxations (VAT and service tax)
e.g. software development, financial lease, Intellectual
Property Rights, telecom products, to name a few.
4.9.2 Impact of GST on the cost / price of product /
services:
More than one third of the respondents are not clear on
the pricing implications arising from the GST implemen-
tation. It is quite interesting to note that more than 55%
of the people who stated that they are unclear on the
impact of GST on pricing aspects are non manufacturing
entities, who are either trading in goods or engaged in
provision of services.

4.9.1 GST implementation to impact Business Model

/ Supply Chain
17%

70%
57% 36%
60%
50% 15%
40%
30% 26%

20% 17%
32%
10%
0%
Yes No Cant say

Cant say Increase

While a majority of the respondents feel that the GST
implementation would warrant a change in the Business Decrease Neutral
Model / Supply Chain, around one third of the people
are still not clear as to how the GST would impact the
Business Model / Supply Chain. Also, almost all the
Pharma respondents do believe that the GST implemen-
tation would impact the existing Business Model and
Supply Chain. Around two thirds of the respondents
Lack of clarity on
who believe that the GST implementation would impact
the Business Model / Supply Chain are respondents
impact of GST on
having turnover more than 500 Crores. costs
The Deloitte take
GST implementation GST, being a transaction tax, will affect all kinds of business, be it a manu-
facturing entity or service providing entity. The complete structure of GST
would warrant which lays down the principles and procedures of GST seems absolutely
necessary for the trade and industry to assess the impact on costs or prices
re-engineering of of products and services.
Introduction of the GST regime will provide an opportunity to trade and
business model and industry to re-engineer supply-chain (e.g. consolidation of stocking points,
make-buy decisions etc), to align pricing strategy for their goods and
supply chain services, to improve efficiency of capital employed and ultimately enhance
shareholder value and achieve higher competitiveness.

24 The pre GST Survey 2009

The road ahead
In less than six months, India is set to embrace the most
significant reform in the indirect tax space. Concurrent
taxation of goods and services by both Centre and
States call for path breaking changes in the structure
of indirect taxes existing hitherto. Preparatory steps
include constitutional amendments and consensus
building. A design that is acceptable to all, a framework
that ensures smooth flow of goods & services and
provisions that guard against revenue losses & leakages
is a challenging task. Fortunately, there is a will to
implement and there will be a way.
The direction that the Government is providing and the
efforts that the empowered committee of State Finance
Ministers is taking are laudable. Slowly but surely the
consensus seems to be building and the GST structure
including rates seem to have been agreed amongst
the states. A joint working group from the centre and
the states is expected to make recommendations on
the model tax law and statutory changes. Indeed, a
fine balance has to be achieved to maintain the fiscal
autonomy of the states and yet provide uniformity that
such a reform calls for.
Adhering to the April 2010 deadline would require
the Government to mobilise its infrastructure
in an unprecedented way to undertake internal
re-organisation of roles & responsibilities, develop
business processes & Audit manuals, train its resources
and most importantly to achieve a degree of IT enabled
environment that the checks and balances in GST
require. A daunting task but not impossible given the
resources at its command or the external assistance that
it can seek.
For the trade & industry, the screen seems to be finally
lifting on the GST mystery. The implications that the new
tax will have has not yet been understood but there is
a growing awareness of the challenges. A white paper
on the GST framework from authoritative sources will
enable understanding and a draft legislation will help
stimulate projections and implications on costs and
prices. But the wait cannot be endless given that GST
is at the doorstep. The time has now come for the
business to assess impact, define strategies, form core
teams and develop technical solutions to meet the
challenges.
The pre GST Survey 2009 25
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26 The pre GST Survey 2009

The pre GST Survey 2009 27
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