GST updates 13 Oct 2016

Big changes for small units under GST

October 13, 2016
Under-reporting transactions will result in blocked credits and fragmentation will not pay

Traditionally, indirect tax policymakers have accorded the small and medium industry favourable tax treatment. This favourable treatment was provided on the premise that small-scale units use less amounts of capital per unit of output and also provide more employment per unit of output.

There is, however, not much evidence to establish that small-scale excise exemptions in the past have really helped in the growth of the small-scale sector.

Notwithstanding all this, the new Goods and Services Tax law does protect the small-scale duty benefits. The GST Council, which is the joint policy formulating group consisting of both the Centre and the States, has accepted an annual threshold limit of Rs. 20 lakh turnover up to which GST will not be payable.

Beyond Rs. 20 lakh, for another additional Rs. 30 lakh annual turnover, the GST rates would be a flat 1-2 per cent based on self-certification of the turnover, or on the basis of the turnover declared in the financial accounts of the company.

Hardly an incentive

While the very small units are provided duty benefits or duty concessions, the GST does bring the small and medium units under a tight regulatory regime which would be IT-driven. Every unit paying GST must have a GSTN number after registration. Smaller units that are under the compounding scheme with a turnover between Rs. 20 lakh and Rs. 50 lakh would require to be registered with a GSTN number. There is now growing evidence that the small-scale exemptions in the past did not really incentivise the small-scale units to grow. On the other hand, they encouraged fragmentation in order to remain below the threshold level of exemption.
The big difference in GST is that the entire value chain, from raw material to retail, has become integrated for the purpose of taxation. The Constitutional Amendment Bill empowers the Centre to tax trading, and the States to tax services. The Constitutional Amendment really ushers in the dual VAT.
In the GST scenario, the decision to remain small would become counter-productive as units underreporting transactions would suffer from blocked credits. Today, with the integration of the value chain for taxation, units would be eligible for credit for input goods, input services and imported capital goods. Many of them carry Central duties, which the State VAT-paying traders hitherto could not utilise.
We can, therefore, see in the GST scenario, more and more units in the informal sector pretending to be small, forced to enter the formal duty-paying segment. This would have significant revenue consequences, as it would also result in smaller units having to report higher incomes to the Direct Tax department in view of the synergy between Direct Tax and the Indirect Tax department established by the common PAN registration number.
It is also important to make a distinction between the small and medium industries in the goods sector and their counterparts in the services sector. The exemption threshold in the service sector was only Rs. 10 lakh compared to a turnover threshold of Rs. 1.5 crore on the goods side. Therefore, there has been less incentive to fragment and remain small in the services sector compared with the goods sector.

Compliance and after

The GST scheme announced by the Government spells out a clear design of the dual control regime. This really covers the whole area of compliance verification.

Compliance verification has broadly three prongs, namely return scrutiny, audit and anti-evasion. It is now agreed that small units manufacturing goods beyond Rs. 1.50 crore annual turnover will have to deal locally with the State government. Small service providers, on the other hand, will have to deal with the Centre, whom hitherto they have been dealing with. The small and medium units have, therefore, been protected from the vagaries of dealing with both the Central and the State Indirect Tax departments. This is undoubtedly a big relief.

Finally, where does all this leave the small and medium industry in the GST era?

The self-policing mechanism provided by the design of GST and the tracking of every transaction by the GSTN system will ensure a more level playing field for all units, whether big or small. The GST philosophy represents a shift in tax thinking, which is that tax incentives must be relied upon less and less to encourage particular segments of the industry. The tax rates must be low with fewer exemptions covering a larger tax base.

Recent studies by the International Monetary Fund and the World Bank have shown that tax incentives do not confer any real benefit but merely distort the resource allocation. Small and medium units would be better off if there is greater ease of doing business which would require easing of the regulatory mechanisms, loosening of the labour laws, and greater access to bank credits. Expenditure switching from tax incentives to infrastructure spending could benefit small and medium units more than tax incentives. Perhaps this new thinking in the GST may end up helping the small and medium units even more. Source – [13-10-2016]

GST Network to launch registration portal

October 13, 2016
Goods and Services Tax Network (GSTN), the company tasked with setting up the information technology backbone for the ambitious indirect tax reform, will open a website for the registration of taxpayers such as traders, manufactures and service providers in November.

Taxpayers will be able to access the website and submit the necessary information for registering with the tax network to ensure seamless tax payment, returns and refunds under GST.

“Beginning November, we will be opening a portal for existing taxpayers. Login IDs and passwords will be given to the taxpayers. They can log in and fill in details like their place of business and other such information,” said Navin Kumar, chairman of GSTN. “Even new taxpayers will be able to enrol at a later date through this portal.”

With the GST council finalizing the threshold levels for GST’s applicability as well as the contours of the compounding scheme, taxpayers now have more clarity on the operational aspects of this tax reform, which is expected to be implemented from 1 April 2017.

“Industry needs time to prepare its information technology systems for a transition to GST. The faster the draft laws and rules are finalized, the easier it will be for the industry to make the transition to GST smoothly,” said Vipul Jhaveri, managing partner, tax and regulatory, at Deloitte Haskins and Sells Llp.

Last month, the GST council finalized the revenue threshold levels below which traders will be exempted from levy of GST.

It was decided that all assessees with annual revenue below Rs20 lakh will be exempted from GST. The threshold is Rs10 lakh for 11 special category states—the north-eastern and the hill states.

Further, the council also finalized the revenue levels for a taxpayer to opt for the compounding scheme. Small traders with revenues of Rs20-50 lakh can pay a flat tax and do away with unnecessary paperwork.

GST is expected to remove barriers across states and integrate the country into a common market. It will subsume most of the indirect taxes levied by the centre and the states, including excise duty, service tax, value added tax, entertainment tax and luxury tax. It will put the entire tax process online—right from registration, tax payment and tax return filing to refunds, audits and assessments.

GSTN has already launched a developer portal for IT firms that want to develop GST-based applications for various kinds services like preparing taxpayers for tax payment and filing of returns. Source – [13-10-2016]

Union Budget will be announced on Feb 1, Economic Survey to be out on Jan 31

October 13, 2016
The time table for the Union Budget has been advanced by one month and is being scheduled for February 01, 2017. Arvind Subramanian, the Chief Economic Adviser, said the Economic Survey will be out on Jan31.
“The time-table is fixed. It is going to be the day before the budget and since the budget is going to be on 1st of February, we have to table it on the last day of January. So, it has been advanced by exactly one month. It means that we have to compress our work schedule and we have started working on that and we are going to hopefully meet the deadline but we have some very exciting ideas to explore,” Subramanian told ET.
Speaking on the Goods and Services Tax (GST), Subramanian said the GST rate should be below 20%.
“The GST is really a game changing reform but I do not think one should ascribe anything to one reform measure. But GST is of such a magnitude that it seems to have impressed foreign investors. We had actually suggested a range between 17 and 19%. Taking into account the Indian situation, the margin should err on the side of lower rates rather than higher rates,” he told ET.
Meanwhile, Subramanian said Non-Performing Assets (NPAs) are one of the biggest challenges Indian economy has to face, adding the government has introduced a slew of measures to grapple with it.
“It is one of the major challenges for the economy in the short run because credit to industry is relatively weak and corporate balance sheets is also not very strong. So we have to work our way through this problem before we can see private investment and growth pick up further,” said Subramanian. Source – [13-10-2016]

Handicraft export council draws strategy to address GST issues

October 13, 2016
Apex exporters body, Export Promotion Council for Handicrafts (EPCH) has said that Goods and Services Tax (GST) is one of the biggest taxation reforms in India and is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a National level. GST is all set to integrate the state economies and boost overall Growth.

EPCH has organized a stakeholders consultation meet in EPCH House, New Delhi recently, wherein representatives of Industry Associations and exporters gathered to discuss the implications of Goods and Services Tax (GST) on handicrafts sector.

EPCH has engaged the services leading Tax Consultant of national repute having expertise on GST matters to prepare a petition on behalf of handicrafts exporters to be submitted the GST Council, Ministry of Finance, Govt. of India. A similar petition is also being forwarded through various state Govts to the Ministry of Finance, Govt. of India so that the interests of handicrafts sector can be safeguarded. A meeting with Hon’ble Union Finance Minister and other senior Govt. officials is likely to be held shortly wherein the petition will be submitted.

Members of EPCH have also decided to approach the finance minister of their respective state governments as they are members of the GST council. It would be an additional help to highlight the issues concerning GST with respect Handicrafts sector.

Major issues of handicrafts sector which the exporter apprehend will have adverse impact on their business are as under:-

  •  Handicrafts sector to be exempt from the purview of GST
  •  Blocking of Working capital to be addressed, in case handicrafts sector not exempted, will result in high cost of capital
  •  Merchant exporter to be allowed procure goods without paying taxes
  •  Job workers procedure to be clarified
  •  Refund procedure to be simplified
  •  Utilization of duty credit scrip not to be restricted only to payment of customs duty
  •  Duty Drawback rate to factor increased tax cost on procurements of input material

The exports of handicrafts during the first six months of 2016-17 are Rs. 13005.35 crores registering a growth of 18.28% over the same period last year. The Handicrafts exports during the year 2015-16 were Rs. 21457.91 crores with overall 6.85% increase in comparison to last year Source – [13-10-2016]

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