GST Updates (20 Oct 2016)




No decision on GST rates–Key takeaways from Third Meeting of GST council

October 20, 2016
The GST Council headed by Union Finance Minister, Shri Arun Jaitley, has to recommend various issues related to GST, viz., GST rates, administrative control over assessee, compensation to States, etc., in its third Meeting scheduled on 18-20 October, 2016. However,the third meeting of GST council concluded abruptly on October 19, 2016, a day ahead of its schedule. Key takeaways from such meeting are given hereunder:

1.The Centre has proposed four-tiered rate structure, i.e., 6%, 12%, 18% and 26%.Such proposal also includes tax rate of 4% on gold. Maximum rate of 26% has been proposed on demerit or luxuries goods. However, the GST meeting was concluded without any final decision on GST rates. Decision on GST rates will be decided in next meeting of GST council to be held in November, 2016.

2.The Center and States approved the formula for giving compensation to loss-incurring States. They proposed cess over the GST rates to fund such compensation. Thus, the GST council has virtually agreed on such method of funding the compensation. However, a final announcement will be made after working out the details, said Union Finance Minister, Arun Jaitley.

3.Earlier the GST council has decided that States would have control over VAT assessees having an annual turnover of Rs 1.5 crores. For those above this threshold, a model of cross empowerment will be followed, wherein the control will be divided between the Centre and the States. The Center would have control over assessees in the services sector till the time States established a mechanism to monitor such assessees. However, that consensus broke down later on. Now the GST council revisited such issue of administrative control. However, such issue is wide open again as GST council had not taken any decision on this.


GST Council meet ends without any decision on rates

October 20, 2016
Industry and consumers would have to wait at least a fortnight to know the much-awaited goods and services tax (GST) rates, as the meeting of the Council to decide it ended abruptly on Wednesday, a day ahead of schedule. The Centre and the states failed to reach any consensus on it. Also, the issue of administrative control over tax assesses or dual control – claimed to have been settled earlier – cropped up again. It was decided the GST Council would meet again on November 3 and 4. The Centre and states, however, did manage to reach a broad agreement on the formula for compensation to loss-incurring states and a cess over the peak rate to fund the compensation. The details of these would be worked out at the next meeting, before tax rates can be fixed. The issue of tax rates, for which the Centre has suggested four slabs and a cess, would also be taken up in the November meeting. “On the issue of source of funds from which compensation to the states would be funded, the GST Council has virtually converged towards a consensus. But a formal announcement on that will be made after working out the details. Once that is decided, a decision on the rate structure will become easier,” Union Finance Minister Arun Jaitley told reporters after the meeting chaired by him. He said once the issue of whether or not the compensation was to be funded out of the rate structure itself or out of some cess is answered, the rate structure can be determined independently. “We cannot under-tax or over-tax to keep rate slabs minimum… the attempt was to fit zero-rated items while levying a six per cent tax on items that are currently charged three to nine per cent tax. We will finalise the tax structure at the next meeting,” he said. Revenue Secretary Hasmukh Adhia said first tax slabs have to be decided, then there would be decision on which goods and services go where. The GST Council will again on November 9 and 10, when it is slated to discuss draft model GST Bill. Differences between states and the Centre over dual administrative control cropped up again, forcing the council to look at it again. Jaitly said, “We started a discussion on the issue of dual control and division of authority with regards to assessments. The underlying principle, which has been agreed on, is that a single assessee will be assessed by a single authority. So who will the Centre assess and who will states assess, and how that division will take place depends on how the dual authority is managed.” Earlier, the council had decided that states would have sole administrative control over assessees having an annual turnover of Rs 1.5 crore. Above that, both the states and the Centre would have control. The Centre would have sole control over assessees in the services sector right from the beginning till the time states have a mechanism to monitor service tax assessees. However, that consensus broke down later as a few states said they also monitor some service taxes even now, such as entertainment tax and as such should have control over that. Some states also said there should be a similar mechanism between goods and services. Adhia said, “There was a view that assessment control over goods and services should not be different from each other.” This is especially in the case of businesses which provide both goods and services, he said, adding some people will be registered for VAT as well as service tax. “For instance restaurants register for both service tax and VAT. All this will be decided later. So, the whole issue of dual control is being revisited. Yes, the Rs 1.5-crore dual control issue is also being relooked at,” he said. However, consensus was reached on compensation to states by way of cess on ultra-luxuries or demerit items, but the rate of cess could not be decided upon. The Centre’s proposal of a four-tiered rate structure – 6, 12, 18 and 26 per cent – will again come up for discussion in the next meeting. The rate proposal also includes a four-per cent tax on gold. The entire requirement for compensation is broadly pegged at Rs 50000 crore per annum. Of this, Rs 26,000 crore is estimated to come by way of Clean Environment Cess, which will not be subsumed into GST unlike other cesses and surcharges. Then, the proposal is to have a cess over the peak rate on luxury and “sin” goods. “The compensation mechanism is almost finalised. The council is in favour of a cess as it is the simplest way of funding compensation,” said Haryana Finance Minister Abhimanyu. Adhia said cess will be same for all states for a particular item. “One challenge is how many slabs you can have,” he said. Experts warned of a cascading effect if cess was imposed on GST. “The maximum rate of 26 per cent for demerit or luxury goods may harbour more goods than initially envisaged, which will make them costlier. Also since cesses would be outside the GST, the present cascading may continue raising the tax burden,” said Bipin Sapra, tax partner, EY. Kerala Finance Minister Thomas Issac said the compensation issue was largely settled. Tamil Nadu, which had opposed the Constitution amendment Bill on GST, said it was not opposed to GST per se. Its School Education Minister K Pandiarajan, who attended the Council meeting, said, “We were opposed to loss of fiscal autonomy. We are happy with the transparency in discussions so far. However, we are concerned that there is no one tax rate but many slabs have been suggested. We are happy that the Centre has proposed a cess to fund compensation of producing states that would lose revenue.” Adhia said he was confident of meeting the April 1 deadline to rollout of the uniform indirect tax regime. The government was hopeful of deciding on key GST issues by November 24. The council is headed by Union Finance Minister Arun Jaitley and comprises finance ministers or other representatives of states. – http://www.business-standard.com[20-10-2016]

GST Council meet ends without any decision on rates

October 20, 2016
Industry and consumers would have to wait at least a fortnight to know the much-awaited goods and services tax (GST) rates, as the meeting of the Council to decide it ended abruptly on Wednesday, a day ahead of schedule. The Centre and the states failed to reach any consensus on it. Also, the issue of administrative control over tax assesses or dual control – claimed to have been settled earlier – cropped up again. It was decided the GST Council would meet again on November 3 and 4. The Centre and states, however, did manage to reach a broad agreement on the formula for compensation to loss-incurring states and a cess over the peak rate to fund the compensation. The details of these would be worked out at the next meeting, before tax rates can be fixed. The issue of tax rates, for which the Centre has suggested four slabs and a cess, would also be taken up in the November meeting. “On the issue of source of funds from which compensation to the states would be funded, the GST Council has virtually converged towards a consensus. But a formal announcement on that will be made after working out the details. Once that is decided, a decision on the rate structure will become easier,” Union Finance Minister Arun Jaitley told reporters after the meeting chaired by him. He said once the issue of whether or not the compensation was to be funded out of the rate structure itself or out of some cess is answered, the rate structure can be determined independently. “We cannot under-tax or over-tax to keep rate slabs minimum… the attempt was to fit zero-rated items while levying a six per cent tax on items that are currently charged three to nine per cent tax. We will finalise the tax structure at the next meeting,” he said. Revenue Secretary Hasmukh Adhia said first tax slabs have to be decided, then there would be decision on which goods and services go where. The GST Council will again on November 9 and 10, when it is slated to discuss draft model GST Bill. Differences between states and the Centre over dual administrative control cropped up again, forcing the council to look at it again. Jaitly said, “We started a discussion on the issue of dual control and division of authority with regards to assessments. The underlying principle, which has been agreed on, is that a single assessee will be assessed by a single authority. So who will the Centre assess and who will states assess, and how that division will take place depends on how the dual authority is managed.” Earlier, the council had decided that states would have sole administrative control over assessees having an annual turnover of Rs 1.5 crore. Above that, both the states and the Centre would have control. The Centre would have sole control over assessees in the services sector right from the beginning till the time states have a mechanism to monitor service tax assessees. However, that consensus broke down later as a few states said they also monitor some service taxes even now, such as entertainment tax and as such should have control over that. Some states also said there should be a similar mechanism between goods and services. Adhia said, “There was a view that assessment control over goods and services should not be different from each other.” This is especially in the case of businesses which provide both goods and services, he said, adding some people will be registered for VAT as well as service tax. “For instance restaurants register for both service tax and VAT. All this will be decided later. So, the whole issue of dual control is being revisited. Yes, the Rs 1.5-crore dual control issue is also being relooked at,” he said. However, consensus was reached on compensation to states by way of cess on ultra-luxuries or demerit items, but the rate of cess could not be decided upon. The Centre’s proposal of a four-tiered rate structure – 6, 12, 18 and 26 per cent – will again come up for discussion in the next meeting. The rate proposal also includes a four-per cent tax on gold. The entire requirement for compensation is broadly pegged at Rs 50000 crore per annum. Of this, Rs 26,000 crore is estimated to come by way of Clean Environment Cess, which will not be subsumed into GST unlike other cesses and surcharges. Then, the proposal is to have a cess over the peak rate on luxury and “sin” goods. “The compensation mechanism is almost finalised. The council is in favour of a cess as it is the simplest way of funding compensation,” said Haryana Finance Minister Abhimanyu. Adhia said cess will be same for all states for a particular item. “One challenge is how many slabs you can have,” he said. Experts warned of a cascading effect if cess was imposed on GST. “The maximum rate of 26 per cent for demerit or luxury goods may harbour more goods than initially envisaged, which will make them costlier. Also since cesses would be outside the GST, the present cascading may continue raising the tax burden,” said Bipin Sapra, tax partner, EY. Kerala Finance Minister Thomas Issac said the compensation issue was largely settled. Tamil Nadu, which had opposed the Constitution amendment Bill on GST, said it was not opposed to GST per se. Its School Education Minister K Pandiarajan, who attended the Council meeting, said, “We were opposed to loss of fiscal autonomy. We are happy with the transparency in discussions so far. However, we are concerned that there is no one tax rate but many slabs have been suggested. We are happy that the Centre has proposed a cess to fund compensation of producing states that would lose revenue.” Adhia said he was confident of meeting the April 1 deadline to rollout of the uniform indirect tax regime. The government was hopeful of deciding on key GST issues by November 24. The council is headed by Union Finance Minister Arun Jaitley and comprises finance ministers or other representatives of states. – http://www.business-standard.com[20-10-2016]


A compromised GST

October 20, 2016
The Goods and Services Tax (GST) was expected to provide for moderate rates of tax, with only a couple of tax slabs — so designed to improve compliance, avoid classification disputes and keep matters simple. It was also intended to provide for comprehensive coverage and, therefore, an efficiency dividend in terms of better tax collection. Unfortunately, as things seem to be turning out, none of these objectives may be realised. Compromises along the way to getting approval for the new tax regime have meant that this long-awaited legislative reform will end up as a lost opportunity. There are too many tax slabs — as many as four main ones, and a total of seven categories, ranging from zero to an undefined level beyond 26 per cent. The estimates made in the past by expert committees and by government officials had led the country to believe that the main tax rates would stop short of 20 per cent; the figure mentioned during the Parliament debate was 18 per cent, which was also the broad level indicated in a report by the chief economic advisor in the finance ministry. Instead, it now turns out, the two most important rates of tax will be 18 and 26 per cent, with almost all items of middle-class consumption attracting the higher of these rates. The 12 per cent rate will be mainly for intermediate products, added to which is a concessional slab of 6 per cent. The introduction of this last slab is the direct result of a desire to not tax items of mass consumption in any way that might push up their prices. It bears pointing out, therefore, that food, education, health care and other key items of common expenditure are to be completely exempt from the GST. The result of the multiple rates is that what is a flat tax in other economies has morphed in India into a progressive tax system, with the top rate being hiked to 26 per cent in order to neutralise the revenue loss from the six per cent slab. The result is precisely what a GST should not be. As Vijay Kelkar and others have argued, in an article inMint newspaper, any negative impact of a properly constructed GST on the poorer sections is better taken care of through a direct benefit transfer scheme, so that the GST system does not lay itself open to evasion, classification disputes and other complications — all of these are the hallmark of the existing indirect tax system, which GST was supposed to change. There is more. What is one rate of service tax today is to give way to three rates! While most existing cesses will cease to exist, one or more will continue to be charged. Finally, there is the aggravation of ~50,000 crore to be collected as a contingency to compensate states for any revenue loss. First, it should be obvious that no state is going to lose revenue at the proposed rates of tax; the sum to be collected as insurance against revenue losses will probably add a percentage point to the overall tax rate. Second, GST was supposed to deliver efficiency gains through better coverage; the proposed rates of tax seem to make no assumptions at all on this point, and it is pertinent to ask why. It is not too late to adopt reasonable rates as the GST Council will meet again in early-November. – http://www.business-standard.com[20-10-2016]

200 Applications on GSTN Table

October 20, 2016
Goods and Services Tax Network (GSTN), the agency in charge of building the technological infrastructure for the implementation of GST, has received over 200 applications from IT and fintech companies who seek to become GST Suvidha Providers, but there are very few startups among them.
The GST Suvidha Provider (GSP) will offer products and services to help tax payers and businesses in compliance. While leading tech companies such as SAP India, Tally Solutions, Vayam Technologies and Mastek Holdings have sought to become GSPs, ClearTax seems to be among the few startups to have applied. The problem is the stringent criteria related to paid-up capital and turnover.
An ITITeS or financial company looking to become a GSP must have paid-up (raised) capital of at least Rs. 5 crore and an average turnover of at least Rs. 10 crore during the last three financial years.
“We kept the criteria stringent because, at the beginning, we want companies who are tested and whom we can rely on, since we are also building our own infrastructure. Also, we cannot handle a large number of GSPs right in the beginning,“ GSTN chairman Navin Kumar told ET. “However, we are not barring startups from applying, and we have given a notification that even companies that don’t fit the criteria can apply and we will consider them in the next phase of selecting GSPs,“ he added.
Software think tank iSPIRT said it was pushing to relax the GSP criteria to help startups. “iSPIRT is looking for an open policy that allows any startup or a small company to become a GSP. Instead of turnover, the GSTN could use other instruments like surety bonds or bank guarantees of Rs. 5-10 lakh for a period of 12 to 18 months,“ said Sudhir Singh, a policy expert at the iSPIRT.
“The real concern of GSTN should be the product that the GSP develops. To ascertain the application security and ICT infrastructure of GSPs, they can use third parties to verify that the technical criteria is met,“ Singh said. Becoming a GSP can also open a business opportunity as the selected companies are allowed to turn their services and products into a revenue model.
ClearTax’s B2B business of providing software products to businesses brings 60% of the company’s revenue, and is expected to grow to 65% after integration with the GST ecosystem, said CEO Archit Gupta.“Startups have an important role to play in the GST ecosystem for their speed of innovation and the quality of the products. They should be encouraged to become GSPs,“ he said. – http://www.economictimes.indiatimes.com [20-10-2016]


India Inc to lobby against imposition of cess

October 20, 2016
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. – http://www.business-standard.com[20-10-2016]

Clear refunds, drawback before GST roll-out

October 20, 2016
CBEC on Wednesday asked its officials to chalk out action plan for clearing pending refunds and drawback payment for smooth transaction to GST — the new indirect taxation regime that is to be rolled out from April.
In a communication to top officials, Chairman of Central Board of Excise and Customs Najib Shah said preparations for introducing GST from the beginning of the next financial year are in full swing with the present focus on timely finalisation of its legal and administrative framework.
“At the same time, it is necessary to continue to focus on reducing the pendency of current items of work as this would have an important bearing on the successful implementation of GST,” Shah said.
The pending work relates to adjudication, and payment of refunds, rebates and drawbacks.
“You would agree that too heavy a burden of legacy work regime would hamper us in giving our undivided attention to GUST. The solution, therefore, is to immediately chalk out an action plan to reduce the pendencies to the maximum possible extent in the balance months of the current financial year,” Shah said.
The all powerful GST Council is currently meeting here to decide host of issues, including the GST rates. This the third meeting of the council headed by Union Finance Minister Arun Jatiley. Finance ministers of all states are members of the Council.
Government intends to implement the Goods and Services Tax (GST) from April 1, 2017. GST will subsume most of the indirect taxes and make India a common market.
“I am confident that with the suggested focused approach on reducing pendencies, come April 1, 2017 the CBECwould be in an ideal position to ensure the success of GST in the national interest,” Shah added.  Source – www.business-standard.com[20-10-2016]






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