India Inc may prefer a higher rate at the top end of the goods and services tax (GST) bracket, rather than have a cess that is non-creditable by nature, with a cascading effect on the indirect tax system.

"Industry is not going to welcome the idea of a cess. In fact, industry may prefer a higher tax rate so that the input tax credit chain is not broken, and the whole indirect system remains less complicated," said Harishanker Subramaniam, national leader, indirect tax, EY India.

Tax experts say imposing a cess is a bad idea as it complicates the structure of GST. Pratik Jain, leader indirect tax, PwC India, agrees that cesses, if imposed, will lead to cascading of taxes and complicate the overall GST structure. "Increasing the rate of GST slightly might be a better solution," he adds.

Tax experts and corporate lawyers say the government in all its communications on GST highlighted that all cesses and surcharges would be subsumed under the new indirect tax regime. This was also reflected in all official documents till date.

A cess will increase the compliance hurdle for businesses, say experts. "It will add to challenges for companies when it comes to record keeping and making changes in their IT system," said Sachin Menon, partner and head of indirect tax, KPMG.

Another school of thought among tax experts feels the impact and scope of the proposed cess should be limited, if it has to be imposed. According to Rajeev Dimri, leader, indirect tax, BMR & Associate, the cess is workable only if it is limited to only two or three items in the business-to-consumer space. "It will still be a distraction, but could be overlooked," he adds. The quantum of the cess and the stages of transaction where it is imposed will be a key determinant of their impact on the indirect tax system, say experts.

Over the next two weeks, tax experts and industry players are expected to intensify lobbying to do away with the proposed cess. "One hopes that government will reconsider the decision on cess," said an expert.