Setback for GST: Permit Raj Ends, Long Live E-permits
23 February 2017
The revolution the proposed goods and services tax (GST) promised might not be all that rosy because it would be hobbled by the need for an e-permit to be flashed at inter-state borders as the states insisted the old analogue practises continue.
The states seem to have gotten their way and will continue with the old ‘permit raj’ system, undermining one the biggest gains of GST. Though the paper permit may become an e-permit, those transporting goods within or outside states will still have to queue up at border checkposts where their e-permits will be checked.
The centre resisted the move as its indirect tax administration moved away from the inspector raj era, but yielded to states' insistence on inclusion of this clause in the final GST law in order to build consensus and get the reform bill rolling.
State tax authorities wanted this provision to keep a tab on quantum of supply of goods and pushed for its inclusion. Experts fear this would not help in cutting long queues of trucks at check posts as also breed corruption.
GST is from July 1
The GST Council, the apex decision body for GST that has state finance ministers as members and union finance minister as chairman, will take up the GST Law at its next meeting in March.
"The central or a state government may require the person in charge of a conveyance carrying any consignment of goods of value exceeding .`50,000 to carry with him such documents as may be prescribed in this behalf…," says the draft model GST law.
"Where any vehicle referred to in sub-section (1) is intercepted by the proper officer at any place, he may require the person in charge of the said vehicle to produce such documents for verification and the said person shall be liable to produce the documents."
States have such a provision in their value added tax laws where various forms are prescribed. This condition had dissuaded ecommerce players and they restricted delivery of goods exceeding.`5000 to a number of states.
Experts say any document checking at state borders does not go with the spirit of GST.
"The law provides for ample monitoring through the credit matching and compliance requirements under GST…. Any document checking at state borders is archaic and defeats the purpose of GST and the free market it purports to be," said Bipin Sapra, partner, EY
"An e-permit system, if considered under GST, would significantly dilute the fundamental principles of GST relating to seamless movement of goods across states. It would adversely affect businesses who are preparing for GST on the understanding that trade barriers erected by states under the present VAT laws would be demolished under GST," said M.S. Mani, Senior Director, Deloitte Haskins & Sells LLP
The centre was against the provision as it goes against the spirit of ease of doing business and encourages inspector raj.
"One of the stated promises of GST was to reduce associated documentation and related hassles. E-permits for movement of goods is therefore a retrograde step in the short term," said Smita Roy, partner – Indirect Tax, BDO India, adding that it should be removed.