One Nation-One Tax: What is GST?
At midnight on June 30, 2017,
India was ushered into a new regime of indirect taxation: the GST, or Goods and
Services Tax. It is touted as the biggest fiscal reform the country has ever
witnessed since Independence, and it has been claimed that it will lead to
decreased inflation, rise in GDP, and more transparent accountability of
parties. The immediate and noticeable effect is, of course, change in prices.
By introducing GST, the government has subsumed Central and State taxes, such
as VAT, service tax and Excise Duties, into a unified tax regime applicable
across the board in all states and territories. Under the GST, there are now
four slabs of applicable tax: a low rate of 5%, standard rate of 12 or 18%, and
a high rate of 28%. There are about 1200 goods and 600 services on which GST is
applicable, and while there are many items on which the tax is now reduced,
thanks to GST, thereby decreasing their final market price, some items have
become costlier. The government has claimed that all essential commodities have
been exempted from tax under GST, or been left out of the ambit of
applicability for GST altogether. The aim is to ultimate reduce the burden laid
upon the consumers by the earlier tax infrastructure which resulted in a
“cascading tax” effect. The “cascading tax” effect is in essence the principle
of the end-consumer having to bear the load of all the taxes paid by dealers,
wholesalers, retailers, stockists etc. as middle-men between the source of the
goods to their final point of sale.[1]
As it turns out, the
implementation of GST may have a profound impact on the Indian intellectual
property regime, primarily, trademark rights.
Provisions affecting trademark rights
The GST rate lists for goods and
services provide different rates of tax for the branded and unbranded versions
of a number of products, essentially common foodstuffs, such as cereals, pulses,
paneer and natural honey. These goods, if sold loose, i.e., unbranded and
without being packaged in unit containers, will be exempt from GST. However,
the moment they are packaged and bear a registered brand name, they will
attract GST of 5%.
Notifications 1/2017 and 2/2017
issued by the Central Board for Excise and Customs[2]
define a brand name as follows:
The phrase “registered brand name” means
brand name or trade name, that is to say, a name or a mark, such as symbol,
monogram, label, signature or invented word or writing which is used in
relation to such specified goods for the purpose of indicating, or so as to
indicate a connection in the course of trade between such specified goods and
some person using such name or mark with or without any indication of the
identity of that person, and which is registered under the Trade Marks Act,
1999.
The Press Information Bureau
further issued a clarificatory notification on July 5[3]
after confusion arose regarding the meaning of “registered brand name” in the
GST rate list for goods stating that:
“…unless the brand name or trade name is
actually on the Register of Trade Marks and is in force under the Trade Marks
Act, 1999, CGST rate of 5% will not be applicable on the supply of such goods.”
While the tax rate of 5% may seem
nominal, it is relevant to consider that earlier, food grains, whether packaged
or not were exempt from taxes altogether in most States, even though they were
allowed to be charged at a rate of 4%. Understandably, this new and compulsory
tax imposition has resulted in an outcry among traders in food grains and
pulses, staples in any person’s diet.
Impact of GST on Trademark Law
As reported in Livemint[4] on July 7, KRBL
Ltd. which owns India’s largest rice brand, ‘India Gate’, is crowing all the
way to the bank as its rice now comes exempt from GST, for the simple reason
that it has not been able to get its trademark registered with the Indian
Trademarks Registry under the relevant class, i.e., Class 30 due to oppositions
filed against its marks by third parties.
In fact, in about the 10 days
since GST came into effect, there are already reports of small, local traders
resorting to various innovative means to avoid higher rates of taxation on
their products.[5] Rice traders have appealed
to the Finance Minister to find a solution to their problem, of increased
prices, as well as those who are unfair beneficiaries in a competitive
marketplace of what appears to be a significant loophole.[6]
The Government has also begun to
take note of the problems arising in implementation of the new tax regime and
its long-term implications, especially in the area of essential commodities
such as foodstuffs and pharmaceuticals.[7]
Trademark owners are approaching the Trademark Registry to withdraw their
trademarks, or considering inventive ways to keep their marks from attaining
registration.[8] If trademark owners would
rather surrender trademark protection than pay taxes for them, it could strike
a crucial blow to the intellectual property regime in the country.
GST, Trademarks and the Economy: An Impact Analysis
Intellectual Property plays an
important part in the growth of any economy and India is well aware of its
importance as one of the premier emerging economies in the world. Any fiscal
plan that hits intellectual property rights, especially in a deterrent fashion,
is likely to impact economic growth and development negatively in the long run.
A trademark, by its very
definition, is an indication of source and a guarantee of quality of goods or
services. A fiscal regime that deters traders from using or registering
trademarks, simply to avoid tax liability, sets a dangerous precedent. With GST
consolidating the national market, the role of trademarks as such becomes even
more important. If trademark rights are not enforced properly, it will result
in widespread counterfeiting and infringement, indicating an influx of goods of
compromised quality. If this is allowed to happen, the reputation and goodwill
of established brands will inevitably be diluted and the resultant consumer
confusion will diminish the reputation of the market as a whole. This is likely
to discourage investment and new start-up enterprises which will negatively
impact market indices and thereby, national economic growth.
GST is likely to impact other
forms of intellectual property as well. Temporary or permanent transfer or
permitting the use or enjoyment of Intellectual Property (IP) right in respect
of goods other than Information Technology software (eg. Media streaming
services) is being taxed at 12%, while software services, falling under the
residual category of services, is liable for 18% tax.[9]
Thus, computer software and associated services, at least, are likely to see an
increase in prices.
The new GST tax regime is
expected to unify the country’s market, introduce greater transparency,
encourage export and investment and reduce inflation. While it is no doubt a
revolutionary step to take, unless its implementational drawbacks are dealt
with quickly and effectively, its intended boost to the Indian economy might
end up backfiring.
Additional References:
The Constitution 101st
Amendment Act, 2017.
Tobacco Products (Prohibition of
Advertisement and Regulation of Trade and Commerce Production, Supply and
Distribution) Act, 2003
Cigarettes and Other Tobacco
Products Rules, 2008
Cigarettes and Other Tobacco
Products (Packaging and Labelling) Amendment Rules, 2014
[1] See https://www.quora.com/What-is-your-review-of-Goods-and-Services-Tax-GST, accessed on July 12, 2017. See also Rate of GST on Goods, Rate of GST on Services, Notifications 1/2017 and 2/2017, dated June 28, 2017, all available at www.cbec.gov.in.
[2]
See Notifications 1/2017 and 2/2017, dated June 28, 2017, both available at www.cbec.gov.in.
[3]
See http://pib.nic.in/newsite/PrintRelease.aspx?relid=167146,
accessed on July 12, 2017.
[4] See http://www.livemint.com/Industry/1fs5AXOkT6RuGb7ASeUn0I/Indias-largest-selling-rice-brand-is-now-a-zerotax-product.html,
accessed on July 12, 2017.
[5]
See http://www.financialexpress.com/economy/here-is-how-traders-are-avoiding-tax-post-gst-in-india/755321/,
accessed on July 12, 2017.
[6]
See http://www.livemint.com/Politics/lbltRpjF6Ev0dnxFlD62TO/Rice-exporters-write-to-Arun-Jaitley-seeking-change-in-GST-n.html,
accessed on July 12, 2017.
[8]
Supra, 5.
[9]
See Rate of GST on Services, supra 1.
