The senior officials of the central excise department have prepared a report on some major loopholes in the Goods and Services Tax (GST) as sought by the Union government to fine tune and improve the law. The report would be submitted to the concerned ministry in a week.
“We have raised some key points and specific areas of concerns which need to be looked into,” said a senior tax official of the central excise department.
In its draft report, tax officials have expressed apprehension on the definition of ‘supply’ which is believed to be extremely wide and intends to cover almost all kind of transactions. “In the current draft, there is no clarity on such transactions and about its administration which could lead to a dispute and lot of litigations,” said the official cited above.
He further explained that Section 3 of model GST Law (model law) specifies the meaning and scope of term ‘supply’ which includes all forms of supply of goods/services such as sale, transfer, barter, exchange, license, rental, lease etc. This means anything an assessee changes whether it’s ownership, custody of any kind of goods and services would attract GST.
Another troubling provision relates to ‘valuation’ of taxablesupply ofgoods and services, which may again create room for confusion and disputes, said another tax official. Under the GST regime, specificadditions have been made to the price charged. Such additions include value of goods/services supplied free or at concessional rates by the recipient to the supplier. For instance, if a doctor or a lawyer offers services free of cost or a company offers a ‘buy one-get one free’ kind schemes would be under the tax net.
If the values of these supplies are to be included in the taxable supplies by the service provider, an amount that is already taxed would once again attract taxation, added official.
The report also highlighted the lacuna on the part of ‘input tax credit’, another important area which needs to be revisited, noted the official. The GST law provides for credit of GST paid on all the inputs, except on some items. The exceptions or ineligible credit criteria is quite subjective in nature. For example, services in relation to food/drink, outdoor catering and membership of clubs are restricted when used mainly for personal use of employees. The officials fears that if the loophole remains it could lead to massive tax evasion.
According to tax experts, the administration of GST has to be sorted out, and if it is not resolved, it may significantly dent the ease of doing business. “It is giving dual responsibility to both central and state as far as adjudication and assessment are concerned. The GST Council was unable to reach a consensus on who would administer and who would assess the transactions as it is going to be dual control. Now if each of the authorities comes up with its own assessment then it is going to be lots of harassment on the assessee,” said Prajakta Menezes, principal associate (indirect tax), Khaitan & Co Source –http://www.business-standard.com [12-10-2016]
CBEC warns of small traders exploiting loophole
The debate on administrative control over small traders in the goods and services tax (GST) regime is far from over.
States last month announced that the centre has agreed to their demand that only they will have administrative control over small traders whose annual revenue is less than Rs.1.5 crore, but the indirect tax arm of the Union government fears this could lead to massive tax evasion.
With a majority of the traders expected to go out of the central government’s supervision if there is no dual control over traders generating revenue less than Rs.1.5 crore, the central board of excise and customs (CBEC) fears that traders may deliberately form smaller enterprises to stay out of the centre’s radar.
Besides, unlike the centre, the states may not be able to check the creation of multiple enterprises specifically designed for tax evasion.
It is also worried that states may not be equipped to deal with service tax since they have no expertise in that area.
“What if a trader sets up three units showing different proprietorships to ensure they remain below the Rs.1.5 crore threshold and out of centre’s supervision? The states will also not have access to data across other states like what will be available with the centre. They also have no expertise in administering service tax,” said a senior official of CBEC, who did not want to be identified.
“Even if we identify tax evasion by some small trader through technology, we won’t have any power to do anything about it,” the official added.
India is implementing a dual GST model wherein both the states and the centre will levy GST separately in the form of state GST (SGST) and central GST (CGST), unlike some other countries wherein only centre levies GST and then proceeds to divide it among states.
States, arguing that small traders will have to face the hassle of dealing with officials from both the centre and the states, had demanded that for those traders whose annual revenue is less than Rs.1.5 crore, the states should collect both central GST and state GST.
This will effectively take these traders completely outside the centre’s purview.
“On the issue of dual control, it has been agreed by the centre that up to Rs.1.5 crore, states will administer the taxes and after that threshold, a seamless process will have to be worked out,” West Bengal finance minister Amit Mitra said in Kolkata last month after a meeting of the empowered committee of state finance ministers.
To be sure, the upcoming meeting of the state finance ministers in New Delhi on Tuesday will try to sort out the sticking points.
“If it is a clean transaction, taxmen and taxpayer will never meet since the entire registration, payment and return process is online on the GST network. Only when there is an alleged infraction, there will be an interaction between the tax payer and the taxmen. So, small traders will not be inconvenienced,” said Sumit Dutt Majumder, former chairman of CBEC.
He pointed out that the centre, having administered service tax since 1994, is much more experienced to collect this tax. “States have no idea of dealing with service tax, which is an intangible thing. States have only dealt with goods,” Majumder said.
He also dismissed the notion that the centre doesn’t deal with small taxpayers.
He pointed out that though excise duty exemption limit is Rs.1.5 crore, it is only Rs.10 lakh for service tax.
“The question is whether the centre will feel comfortable in outsourcing its revenue collection function to states,” Majumder said. Source – http://www.livemint.com [12-10-2016]
Units availing tax holiday get jittery about GST
The industrialists who had set up units here from 2003 to 2010 are wary about the implementation of GST. Under the industrial package, the units that came up in Himachal during the period were exempted from Central Excise for 10 years. Many units that started production in 201 0 were exempt from Central Excise Tax till 2020. However, now with the GST coming into force from April 2017 , the industrialists are fearing that their package is being cut short.
Sarwal, who had set up a pharma unit in Golthai, said the government should continue the package till 2020. They had set up units following package given by the government. Under a new legislation, the government could not withdraw the benefit given to them by the previous government.
Rajneesh Vohra, a CA in Una district, said the Centre had proposed that industrialists would initially have to deposit the GST and it be reimbursed to them later. Since the time of reimbursement was not clear, the industrialists are wary. The industrial associations were planning to meet Finance Minister Arun Jaitley , he said.
Sources said many industrialists were contemplating to move court against the decision to bring them under the am bit of GST that would make them liable to pay waived taxes.
The package to Himachal was given by the NDA government led by Atal Behari Vajpayee. The package was given for 10 years ranging from 2003 to 2013. However, owing to pressure from neighbouring Punjab and Haryana, the package was curtailed by the previous UPA government in 2010. However, the industrial units that started production till March 2010 were entitled to tax benefits for 10 y ears.
Since GST was being imposed after the merger of all taxes such as Central Excise, sales tax, entry taxes of states, it would be hard for the units to escape it, sources said. Source – http://www.tribuneindia.com [11-10-2016]