GST Updates (18th October 2016)

GST Council seen debating on two standard rates for goods, services

October 18, 2016
The Goods and Services Tax regime is likely to have two standard rates — one for goods and the other for services. A discussion to this effect is expected at the third meeting of the GST Council, which begins on Tuesday.

According to the proposal under consideration, the rate structure under GST would mirror that under the State value-added tax regime.

“The rates will be finalised after discussions with the States. A multiple rate structure will give flexibility to States as well as assuage their revenue concerns while keeping away inflationary pressures,” said a person close to the development.

The Centre hopes to roll out GST from April 1, 2017. Finance Minister Arun Jaitley, who chairs the GST Council, expects to finish all deliberations and finalise the modalities of the tax regime by November 22 so that the GST laws — Centre, State and integrated — can be passed in Parliament in the Winter Session, and by State Assemblies.
While the idea of varied tax rates has been floating around, consensus seems to be building around a standard rate of 16-18 per cent for services and about 20 per cent for goods. There could be one rate, of 4-6 per cent, for essential commodities, and a higher rate for demerit or ‘sin’ goods.
Last week, the Finance Minister had said the tax on environment-unfriendly products will be “distinct” from others.

Better option

“Two standard rates seem to be a better option. If the rate for services is more than 18 per cent, it will have an adverse impact on consumers. However, a uniform standard rate is most desirable,” said Bimal Jain, Chairman, Indirect Tax Committee, PHDCCI.

Also, this would be in line with Chief Economic Advisor Arvind Subramanian’s report to the Finance Ministry on revenue-neutral rates for GST, which had pitched for a standard rate between 16.9 per cent and 18.9 per cent.

Sources indicated that the government may also continue with the current list of exempted commodities under GST, and give States the leeway to prune it. At present, 300 items are exempt from tax at the Central and another 80 at the State level.

According to Bimal Jain, there is a possibility of a uniform exemption list rather than the current State-specific arrangement. “The objective will be to ensure that exemptions continue for socially relevant items,” said the source.

Apart from the tax rates, the GST Council will take up two issues pending from its last two meetings. One, whether the Centre should retain administrative control over the 11 lakh service tax assessees or share it with the States.

And, two, finalise the formula for the Centre’s compensation to the States after choosing from three-four models for projecting an increase in revenue. Source – [17-10-2016]

Too Many Tax Slabs will Distort GST: CAIT

October 18, 2016
A day ahead of the crucial three-day meeting of the Goods and Services Tax (GST) Council to decide on rates, a key traders’ body has pitched for minimal tax slabs under the proposed tax regime.
“Too many tax slabs will distort GST,“ the Confederation of All India Traders (CAIT) said a statement on Monday.
GST Council, a body of Centre and states, will meet on Tuesday to decide on rate of tax.
The CAIT said that too many tax rate slabs under the GST regime will not only distort the single tax fabric but will also lead to complications, making voluntary compliance a difficult task.
The traders’ body urged the GST Council to keep the standard rate tax slab at not more than 18% and hoped that such a tax slab will augment more than sufficient revenue for the Centre and the states. The single GST rate should not be more than 35%, else it will prove to be counterproductive, CAIT cautioned. The body wants stakeholders to be consulted before finalising items falling under the exempted category and the zero rate category as zero rate tax slab would allow for input credit. CAIT also asked the GST Council to decide on a definite roadmap to educate and train the traders with compliance formalities of GST to empower them to deal with the new framework.
The CAIT has already launched a nationwide campaign in association with Tally Solutions, a software product company, to train the traders about required technology but support of the government is all the more important to reach out to people within a short time.
The finance minister-headed GST Council will decide on the rates, the remaining issue of over sight of service tax assesses and issue of compensation to states.
The finance ministry has set itself November 22 as the deadline for building consensus on all the issues related to GST regime.
The government is keen to keep the rate low so that it does not stoke inflation.
A panel headed by Chief Economic Advisor Arvind Subramanian had suggested 17-18% as the standard GST rate, one that would apply to most goods. It suggested 2-6% rate for precious metals, 12% rate for select ones and 40% rate for demerit ones like aerated beverages, pan masala and tobacco. Once the details are finalised, the government will move a GST law for the consideration of parliament. The government has already put out GST rules for stakeholder feedback. – [18-10-2016]

Centre proposes 26% peak rate for GST

October 18, 2016
The Centre is likely to propose a four-tier tax structure under the goods and services tax (GST), with a peak slab of 26 per cent. Almost 20-25 per cent of all taxable goods, including those consumed by the middle class, could come under the peak rate. The idea is to arrive at a common ground with the states that are concerned over revenue loss. A discussion paper to be presented at the three-day GST Council meet that begins on Tuesday is believed to have proposed a standard rate of 18 per cent. “We are currently looking at four tax slabs, with the highest incidence of tax at 26 per cent. It is lower than the 40-per cent rate proposed for very limited demerit items (by a committee led by the Chief Economic Adviser, Arvind Subramanian). A lower rate of 26 per cent can be imposed on more items. This will address concerns of the states, too,” said a government official. The states are pitching for a standard rate of 22 per cent, while the Centre has pressed for one of 18 per cent. The lowering of the top slab by incorporating more items may act as a middle-ground for the Centre and the states. This will be the third GST Council meeting since its incorporation in September. The Council is chaired by Finance Minister Arun Jaitley, with state finance ministers or other representatives as members. The GST panel, chaired by Subramanian, had proposed a “sin tax” of 40 per cent on limited demerit items such as aerated drinks, luxury cars, pan masala, tobacco and tobacco products. This sparked protest from the aerated drinks sector with Coca-Cola arguing that the 40 per cent tax would leave the company with no option but to shut down certain factories. Currently, aerated drinks with added sugar draws a central excise duty of 18 per cent and a state value added tax of 12.5 per cent, making the total indirect tax 30.5 per cent. The Subramanian panel recommended a low rate of 12 per cent for certain items, a standard rate of 17-18 per cent for a majority of items. According to official sources, the 26-per cent rate might be imposed on big cars, besides other premium or luxury items. Sources also did not rule out the possibility of another slab over 26 per cent for luxury cars. Discussions were still on whether the 40-per cent rate should remain for luxury cars as proposed by the Subramanian panel. “The multiple tax slabs will open a Pandora’s box under the GST regime. More the tax rates, more the classification issue. There will be confusion in terms of how these will work,” said Bipin Sapra of EY. Praveen Khandelwal, secretary general, Confederation of All India Traders, said too many tax slabs would not only distort the single-tax GST fabric but will also lead to complications, making voluntary compliance a difficult task. Besides GST rates, the three-day GST meeting would likely discuss service tax administration and central registration issues. Although states had agreed to the dual control mechanism initially, which involved the Centre administering all 11 lakh service tax assesses till the time states develop competence, in the last meeting they raised concerns about the agreed mechanism. The states did not want to lose administrative control over service tax imposed by them on restaurants and entertainment. They also said it was hard to distinguish between goods and services in sectors such as construction. The Centre is also likely to pitch for central registration for telecommunication and the banking sector in the meeting, as opposed to multiple registrations in each state. –[18-10-2016]

3-Day GST Council Meet Begins Today, Decision On Tax Rates Likely

October 18, 2016
The central government’s efforts to implement the Goods and Services Tax or GST law from April 1 next year is about to enter a critical phase. Starting today, the three-day meeting of the GST Council will take a decision on the tax bands and iron out issues like compensation formula for the new indirect tax regime.

The government is keen to use the meet to make a deal with states so it can push the bill in the winter session of parliament, starting November 16.

The tax rate is a crucial point that will have a bearing on the common man. A senior finance ministry official said at the meet, the rate bands for essential and luxury goods is likely to be worked out.

Last year, a panel headed by Chief Economic Advisor Arvind Subramanian had suggested 17-18 per cent as the standard rate for the bulk of goods and services. It had recommended 12 per cent for low rate goods and 40 per cent for items like luxury cars, aerated beverages, pan masala and tobacco. For precious metal, it recommended a range of 2-6 per cent.

The meeting will also deliberate on the contentious issue of the Centre retaining power to assess 11 lakh entities who file service tax under the new tax law.

While a decision on this was taken at the first meeting of the GST Council, at least two states disagreed, claiming they were against losing the power of assessment.

The finance minister is also trying to work out a consensus on the key issues so the subsequent Central GST and Integrated GST legislations can be introduced in the Winter Session.

At its meeting last month, the state finance ministers, who are members of the GST Council, had finalised the area-based exemptions and the mechanism for treatment to 11 states, mostly in the northeast and the hilly regions.

Several alternatives were discussed regarding the formula of Central compensation to states for loss of revenue, but a decision could not be reached.

A top finance ministry source told NDTV that the government can push its agenda in the Council as the BJP and its allies rule 13 states and have the number but Finance Minister Arun Jaitley is against a vote in the council.
Voices against the new tax regime from states, meanwhile, seem to be growing.

The All India Confederation of Commercial Taxes Associations held a demonstration at Delhi’s Jantar Mantar today against what they called Centre’s attempts to take away the state’s powers of taxation. The association which handles the tax filing by 67 lakh entities is threatening to block the data on the tax filers and not share it with the centre if their demands are not met.

Claiming the one tax system has basic faults, the national president of AICCTA, KR
Suryanarayana, said the Centre is “trying to divide tax collection rights — goods with states and services with Centre”.

This, he said, will foster multiplicity. “Plus, the states will not get a single existing service tax dealer.”
The association’s general secretary Rajnikanth Sharia, a tax officer from BJP-ruled Rajasthan, said, “The government in the GST Council is not working to help out the states. In fact the proposals have been anti-states.”
With the Centre proposing to keep its control over the service tax component and fixing the threshold for GST filing at R 20 lakh, the tax department employees of the states fear that reduced jurisdiction may mean reduction in jobs in states.

The association spokesperson D Gautam said, “Since 2013, without GST anywhere on the horizon, the Centre strengthened and restructured its tax cadre. At this rate, state tax employees may have no work and may lose jobs.” Source –[18-10-2016]

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