GST Updates (05 Nov 2016)

1.Goa Govt. prescribes procedure for enrollment of VAT dealers on GST system portal.

2.Concern over securities transaction under GST

November 5, 2016

The proposed model of goods and services tax (GST), which has included ‘securities’ in the definition of goods, has raised serious concerns on whether transactions in securities would attract GST or would be subject to an additional tax. According to tax experts, the government needs to improve the proposed definition and exclude securities from the definition of ‘goods’. Currently, share transaction attracts securities transaction tax (STT) and Krishi Kalyan cess and Swachh Bharat cess, apart from exchange transaction charges, stamp duty, clearing member charges and Securities and Exchange Board of India turnover charges. While the current model gives no clarity that securities would come under the ambit of the GST, the government’s intent might not be to introduce yet another tax over and above STT of 0.1 per cent on delivery-based trades. “Technically, the government cannot tax transaction in securities as it falls under direct tax but if it does happen, the whole stock market will crash down. Meanwhile, if you see the range of proposed tax rate which is up to 28 per cent — it’s impossible to implement it on securities,” said Sumit Lunker, executive director (tax and regulatory services) at PwC. He added that in the indirect tax legislation scenario, securities being considered as activity of sale and purchase and has never been subjected to any service tax and value added tax. So, one cannot treat securities at par with normal goods and services used in the normal course. Another controversy that might rise is on central and state governments’ revenue. “Let us assume certain securities traded at the stock exchange in Mumbai. But, sellers and buyers are in different states while the servers are at various locations. Under such circumstance, which state will get revenue is an issue that needs to be addressed,” he added. Other section of experts, though, agree with the current interpretation of law. “From state governments’ perspective, they would want direct access to taxpayers’ data as opposed to waiting for the Centre to perform assessments and verifications and trust the Centre to allocate funds to the state. If securities are taxed as goods, it allows the government to track its trading more efficiently under GST. Else, they would have to build a complex place of supply rules for capturing all the various activities around trade in securities,” said Amit Kumar Sarkar, partner, Grant Thornton India. –[05-11-2016]

3.  Govt’s Next Task on GST: Training 18L Tax Officials

November 5, 2016

After finalising the goods and services tax (GST) rates with the consensus of all the states, the central government has taken on another equally challenging task: to train nearly two million officers to handle the new tax mechanism.

The Centre has roped in senior tax experts from the industry and from the government mechanism to train about 1.8 million tax officers across the country in four phases in line with their ranks, and training sessions are being carried out in various cities since September, a senior tax official said.

Besides familiarising tax officials -who until now were only familiar with several indirect taxes -with the new framework, the government has to train them on the nitty-gritty of implementing GST.This, industry insiders said, could pose some problems.

“GST is not just a tax, it’s a new framework where everything would change,“ said the tax official quoted earlier. “Officers, especially the junior ones, are used to dealing with current system. They have to be not just trained but also handheld for some time initially.“

Industry insiders said it is essential that tax officers, who would be responsible to not just understand but also implement GST, understand how the complex web of GST works.

“The new rules around GST would mean that tax officers have to not and taxpayer-friendly approach but also unlearn what they were practicing thus far to effectively implement GST and the adopt the concept of e-enabled tax administration,“ said Sachin Menon, head of indirect tax at KPMG.

“Also in some way GST would reorganise the structure of the tax department so that GST is implemented smoothly and the efforts of state and central GST officers are not duplicated in assessment, audit and adjudication proceedings,“ said Menon, a former IAS officer with the revenue department.

There are fears that there could be a turf war between the Centre and states over collection of GST although the government has alre ady said they are trying to iron out such problems. “More clarity is al so required as to which part of the GST would be handled by the tax officials in the state and what wo uld be looked after by the Centre,“ a tax officer said.
Another area where tax officials will need training is technology.“Not just the data would be collected online, tax officers would have to learn absolutely new concepts,“ said an industry expert.

India will start the new tax regime with four GST slabs -5%, 12%, 18% and 28%. While this multi-layered system drew flak from some tax experts, it was mainly done to overcome the fear of inflation. Experts said that wherever GST has been implemented, inflation has jumped for the first two to three years along with boost in growth.  –[05-11-2016]

4.  Edible oil tax slab may be revenue-neutral

November 5, 2016

The tax slab for the edible oil sector under the coming national goods and services tax (GST) is likely to be revenue-neutral. Besides checking tax evasion, this is likely to improve the overall efficiency in the sector, experts said. Edible oil is in the essential commodity category, which attracts the lowest GST rate of five per cent; the overall rate would be nearly 5.5 per cent. “Inflation on edible oil is not only managed by tax. The government has import duty as another tool, with a large part (of supply) imported. GST would improve efficiency in the supply chain,” said Siraj Chaudhry, chairman, Cargill India. India produces 7-7.5 million tonnes of edible oil annually, a third of its consumption. The rest is met through imports, primarily from Indonesia, Malaysia and Argentina. This year’s import is likely to be a record 15.5 mt. Operating at a one to two per cent, some small and medium size entities opt for tax evasion to avoid loss. GST is expected to help check this. “Keeping edible oil in the lowest slab category would encourage genuine business in the system,” said B V Mehta, executive director, Solvent Extractors’ Association of India. “We are analysing the impact; a lot of clarity is required on the GST structure announced recently. Including edible oil in the lowest category of taxation under GST will help enlarge the food security net,” said Dinesh Shahra, managing director, Ruchi Soya Industries. –[05-11-2016]

5. Insurance may fall under 12% tax slab in new tax regime

November 5, 2016

Insurance might come under the 12 per cent tax slab in the goods and services tax (GST) regime to be implemented from April 1, 2017, sources said. The sector had sought a slab of five per cent less. Sachin Menon, partner and head of indirect tax at KPMG, said while there was no clarity on the rates, there wouldn’t be any additional cess applicable on these services. Here, he said insurance will be classified as a service. At present, apart from the 14 per cent service tax, Krishi Kalyan cess and Swachh Bharat cess are also applicable, taking the total service tax applicable on insurance products to 15 per cent. The service tax rate for other products such as annuity in case of single premium policies is 1.5 per cent approximately. Insurers, however, do not have any clarity on how the new GST tax structure will be implemented. “Different products attract different rates of service tax. If there is one rate proposed for insurance, the question is whether the lower tax structures for products like annuity will continue,” said the chief executive officer of aprivate life insurance company. Another area of concern is whether the same rates of service tax will be applicable for government-sponsored programmes such as the Pradhan Mantri Jan Suraksha insurance scheme. “If it is a one-nation, onerate system, all insurance products including those with focus on financial inclusion will have to be clubbed under one tax slab. We do not know how this will be done,” said the appointed actuary at a mid-size private life insurer. In 2014, service tax was made applicable on insurance premiums. Later, in 2015, Finance Minister Arun Jaitley raised the rate of service tax from 12.36 per cent to 14 per cent. Insurance premiums had come under the service tax ambit from 2014 when the government had made changes to the Finance Bill. After this, the service tax impositions were passed on to customers in the form of increased premiums. This will provide relief to policyholders who pay almost 15 per cent for insurance policies as premium. So, if tax is reduced to 12 per cent, it will mean insurance premiums will also go down. Earlier, major players such as the Life Insurance Corporation of India had expressed reservations about service tax being imposed on insurance premiums. They wanted insurance premiums to be excluded from the purview of service tax. However, their demands were not considered. –[05-11-2016]

6. Draft law for states’ compensation to be ready by November 15

November 5, 2016

The Centre is set to draft the goods and services tax (GST) compensation law by November 15 for discussion in the next meeting of the GST Council, slated for November 24-25. States had demanded such a law to fully compensate them for a period of five years for the likely revenue loss they might incur. The law is likely to be approved in the next Council meeting. “The Compensation Bill will include a range of clauses clearly defining each term, leaving no scope for ambiguity. That a separate account will be created for income for cess solely for compensating states will also be a part of the law,” said an official. The GST Council is chaired by Finance Minister Arun Jaitley with state finance ministers or their representatives as members. The base year for calculating the revenue of a state has been decided to be 2015-16. Besides, a secular growth rate of 14 per cent would be taken for calculating the likely revenue of each state in the first five years of implementation of GST. States getting lower revenue than this would be compensated by the Centre. A cess on demerit goods at 28 per cent GST rate will also be a part of the proposed Compensation Act. The additional cess will be imposed on luxury cars, pan masala, tobacco and aerated drinks. According to the finalised proposal, the incidence of tax on these items will remain at the current levels even under GST. The Centre is expecting Rs 50,000 crore revenue from cess, including Rs 26,000 crore by way of clean environment cess to compensate states. –[05-11-2016]

7. Centre, states divided on who will control GST

November 5, 2016

A day after reaching a consensus on tax rates, the GST Council on Friday failed to arrive at an agreement over the crucial issue of administrative control over assessees under the new indirect tax regime. “No decision was taken,” Finance Minister Arun Jaitley told reporters after the meeting. He said clear guidelines on complex and contentious issue will be required. Therefore, further discussion is required on the matter. The finance ministers will have an informal meeting on November 20 to discuss it and have a political solution on the matter. The November 20 meeting will not be of the GST Council and will be held without officials. Jaitley said, “We can’t have two competing assessing authorities for the same assessees.” He said two models were discussed to divide the administrative control between the Union and state governments. One of these was horizontal model, whereby states will have sole control over entities earning up to Rs 1.5 crore a year and dual control of the Centre and states over this level. The other was vertical model whereby both the Centre and states will have control over assessees right from the beginning. This model is called “cross empowerment” too. The assessees for scrutiny and audit will be divided in a pre-decided ratio between the Centre and states, be it a 50:50 or some other ratio, 75:25. The earlier agreement reached between the Centre and states over horizontal model had fallen apart after states expressed keenness to have control over service tax assessees in certain areas such as entertainment tax. According to an earlier proposal, states were to assess businesses with an annual turnover Rs 1.5 crore, while both the Centre and states were to do so for businesses with higher turnover. The Centre and states had earlier agreed that the Centre will have exclusive power over assessees in the services sector, till the state officials were trained to do so. But some states raised objection to this. The GST Council meetings, which were supposed to happen on November 9 and 10, have been put off till November 24 and 25. Those meetings will discuss model GST Bills. When asked whether the government will be able to meet the April one, 2017 target to roll out GST under this scenario, Jaitley said,”We hope so. We will try and approve the GST drafts on November 25.” He said efforts are on to pass IGST, CGST Bills in the winter session of the parliament.The draft GST legislation and the compensation Bill will be decided by November 15 and states could consider it, he said. – [05-11-2016]


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