Draft GST law proposes compensation cess

E-commerce firms to deduct tax of 1% each for Centre and States while paying suppliers

New Delhi, November 27:  

The draft GST (Goods and Services Tax) law has suggested the levy of a compensation cess, which will be credited to the GST Compensation Fund.

After five years, the unutilised cess would be transferred to the Consolidated Fund of India and then devolve to States based on the formula of the Fourteenth Finance Commission.

To ensure that the lower tax incidence under the GST is passed on to consumers, the draft model Central GST law has also called for anti-profiteering measures. “It is a good move, but will open up a Pandora’s box and its implementation may not be easy… How this will be calculated is very subjective,” Bimal Jain, Chairman, Indirect Tax Committee, PHDCCI, said.

The draft law has suggested setting up an authority to examine whether input tax credits availed of, or the reduction in the price due to lower rate, have actually resulted in a commensurate reduction in the price of the goods or services supplied. It has also called for the authority to penalise defaulters.

E-commerce companies will also be expected to deduct a one per cent tax at source each from their suppliers for Central GST and State GST. The provision will, however, not apply to aggregators.

According to Pratik Jain, Partner and Leader Indirect Tax, PwC India, it will add to the compliance burden of e-commerce players as they will have to be registered in each State where the vendor is located.

The draft model law also proposes to cap the Central and State GST rates at 14 per cent each, while the Integrated GST is set to be limited at 28 per cent.

(This article was published on November 27, 2016)

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