GST Updates (10 Nov 2016)

Govt lists GST Bills for passage in Parliament

November 10, 2016

The Centre today formally listed three Bills to complete the Goods and Services Tax reforms for consideration and passage of Parliament in the winter session starting next week.

These Bills—The Central Goods and Service Tax Bill, the Integrated GST and GST (Compensation for Loss of Revenue)— are among the nine new Bills to be moved.

The Central GST Bill will facilitate levy of tax on intra-state supply for goods or services; the Integrated GST will enable levy of tax on inter-state supply of goods or services; and the third Bill is to facilitate payment of compensation to states for loss of revenue arising on account of implementation of GST for a period of five years. Last week, the GST Council finalised a four-tier tax structure of 5 per cent, 12,18 and 28 per cent with lower rates for essential items.

Among the other Bills on the anvil are the Surrogacy (Regulation), to constitute National and State Surrogacy Boards, and appointment of appropriate authorities for regulation of the practice and process. Another Bill includes amending the 1869 Divorce Act and empowering courts to make decrees of dissolution of marriage when either party to a marriage is domiciled in India, enable the Christian wife to present a petition to the district court and reduce mandatory period for separate residence from two to one year.

The winter session is scheduled between November 16 and December 16.  Source – [10-11-2016]

GST rates announced: well begun is half done

November 9, 2016

Last week, the goods and services tax (GST) council, in which the states and the central government participated, announced the GST rate structure. The rates are in four slabs: 5%, 12%, 18% and 28%. The luxury and sin goods, will be taxed above 28% plus additional cess. And essential goods like foodgrains will be in the 0% slab, if we can call it a slab.

This is a major step towards meeting the April 2017 deadline for implementing GST, but by itself this announcement means very little. The GST council will meet a few more times in November, and then more laws will have to be passed in the winter session of Parliament. Post that, state legislatures will have to pass their own laws, and only then will there will be a workable framework for implementing the GST nationwide.

For now, we know the GST rates. What we do not know—among many other things—is the rate at which specific items will be taxed, in different parts of the country. If you want to know how much more or less you will have to pay to buy a house, a car, some mutual funds or that annual holiday next year, you will have to wait a bit more. But there are some broad indications out there and Mint Money looks at how the implication of GST will affect you.

Banking and insurance

All financial products will be impacted by the GST. Banking products are already in the service tax net. Banks typically pass this tax burden to their customers in the form of charges and fees. The same is likely to happen with the GST.

The current service tax rate is 15%, and with GST, banking and insurance services are likely to be in the 18% slab. “Also, if the free banking services get taxed, again it will impact the customers. Right now, there is no clarity if the government is looking to tax interest also,” said Nihal Kothari, executive director, Khaitan and Co., a Mumbai-based law firm. We have to wait for the final rates. “The Rajya Sabha had pointed out that banking services should have lower rates. We will have more clarity on it by mid-November. You will see the maximum impact on financial services,” said Kothari.

The insurance industry is proposing that at least the life insurance services should be taxed at a lower rate of 10-12%, and more importantly, the GST rate for it should be uniform across the states. “Though our proposal is 10-12%, I think government will be more likely to keep it at 18%,” said Prashant Tripathy, senior director and chief financial officer, Max Life Insurance.

The demand for lower rates is easily understandable. But why does the industry want a single rate across states?

Insurance and banking companies are large organisations, with offices all over the country. For reasons of efficiency and economy of scale, many of these offices perform specialised functions for an entire region, or even the whole country. For instance, a customer may pay for a life insurance policy in a Mumbai branch, have her know-your-customer (KYC) process done by an office in Delhi, her policy prepared by a branch in Gurgaon, and have it mailed from a centralised dispatch office in Chennai. The company’s centralised data warehouse may be in Hyderabad and the call centre in Kolkata. Taxing these services currently is not a problem, as the service tax is at a uniform rate of 15% across the country. “Though the impact is yet to be fleshed out, there will be administrative issues for the insurance sector. Taxation is determined by where the business originates. We assume it could be state-wise, which will become more complex for insurance,” said Sanjay Datta, chief-underwriting and claims, ICICI Lombard General Insurance Co. Ltd.

Banking and insurance industries are, therefore, seeking a centralised registration system instead of having to register different offices in different states separately.

Non-financial products

The stated aim of the GST was to have a single indirect tax regime across the country, however, the current structure “is against the very essence of a simplified tax regime, even as it scores high on progressivity and inflation neutrality,” said Jay Shankar, chief India economist, Religare Institutional Research.

Analysts believe that the effective tax rate under GST will keep the prices for consumers at the same level as at present. For instance: aerated drinks are taxed at 40% and luxury cars at 40-45%. In both the cases, similar rates are being proposed to be retained in the form of 28% tax plus cess.

The current tax incidence on cars is around 26% and under GST they would be in the 28% tax slab, which is in line with the current tax incidence, said Sachin Menon, partner and head, indirect tax at KPMG in India. The auto sector was expecting cars to be taxed at 18% under the GST regime.

“The broad principle…seems to be that goods (will not) attract more tax than they are currently attracting. So, the goods or services will be categorised in the nearest lower slab,” Menon said. “For most goods, there will be a reduction in total tax,” he said. Taxes, and hence prices, may not go up. White goods present a tricky situation. While washing machines, refrigerators and televisions can be called luxury goods, it may not be proper to call them sin goods. “(The government) should take care that these do not come under the 28% slab. It is not yet clear what tax bracket these will fall under. Most probably it should fall under 18%,” Menon said.

More clarity is needed on telecom services too. Many believe that the common man could in fact end up gaining to some extent. The current level of taxes on services is 15% and it can go up to 18%. But “if you look at the service basket, the only item that is used by every common person is a mobile phone. The government will not bring a rate that will pinch the common man,” Menon said, adding that telecommunication and transportation services could fall under 5% or 12% tax slabs. The excitement around GST will give way to more informed discussions once the different goods and services are allocated to the GST slabs. “Without these specifics, it is not possible to assess the exact impact on the final prices of individual goods and services,” Shankar said.

Final rates for goods and services could take some time, but we can expect more clarity by end of November, when the GST council would have met a few more times. But we can already expect that GST will have only a small impact on the price of your banking and insurance products. And while the tax impact on most goods would remain the same, it could come down for some. Source – [09-11-2016]

GST positive for India; Trump may bring in oil gains

November 10, 2016

GST positive for India; Trump may bring in oil gains:Julius Baer

The introduction of Goods and Services Tax (GST) is a very positive move for India feels Mark Matthews of Bank Julius Baer & Co., who believes it will restructure the economy.

The introduction of Goods and Services Tax (GST) is a very positive move for India feels Mark Matthews of Bank Julius Baer & Co., who believes it will restructure the economy.

Sharing his views on the US elections outcome, Matthews says market is increasingly looking at Donald Trump as a pro-growth President and although his world view is through a narrow prism of business and economics and he is not so much in geopolitics of things, “he is more of a deal-maker than deal-breaker” which might prove beneficial.

Factoring in Trump’s plan of trimming corporate tax rates to 15 percent from 35 percent, earnings per share of companies in US should expand by 20 percent over next few years and that itself could help markets rally, he adds.

For India, he believes Trump might bring benefits in oil prices as he might allow a lot more US oil production leading to price decline.

He expects the US Federal Reserve to increase rates in December followed by two more hikes in March and August next year.

Below is the transcript of Mark Matthews’ interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Anuj: Event is out of the way and the markets have rallied a lot from the low point. Do you think this market can rally or do you see more volatility going forward?

A: It will continue to rally and the market is rapidly looking at Trump at being pro-growth president and less through the prism of his geo-politics. And therefore, if we factor in especially his plans to cut corporate taxes from 35 percent to 15 percent, that alone could add almost 20 percent to earnings per share (EPS) growth in the United States over the next few years. I do not see why the market cannot go higher.

Sonia: And is that your view about the Indian market as well because now it seems like our own markets will focus on domestic cues and we have many positive domestic cues going for us. The biggest one was what happened yesterday with the whole black money probe and the clamp down. Is that something that you have read into and is that something that would make you a bit more positive from our markets?

A: What made me most positive on India was the goods and services tax (GST) and I continue to think that that will restructure the economy in a very positive way. These things are all linked in a strange way. I do not know if it is the alignment of the planets and the moons or what, but it seems that around the world, governments are changing broadly in a way which is beneficial to economies and markets. And it started with Mr Modi and also in Indonesia and a few other countries in the world and now it has progressed to the United States and so, I do not know where it goes next, but many places in the world are becoming better run. Let us put it that way.

Latha: What is it from an India investor point of view that we should take away from Donald Trump’s speech and the economic philosophy he stands for? One part of the philosophy which is why stocks like Caterpillar went up looks like he is going to spend his way into growth, probably higher fiscal deficits, higher debt ceilings. Should we therefore see that as emerging market positive?

A: Broadly if we have the major risk assets of the world going up like the Standard and Poor (S&P), barometers of them, then the riskier spectrum which has historically been considered emerging markets should go up as well. I do not see any problems in the emerging markets on an individual basis to hold them back in most of them. And then, with India specifically, the oil price will be interesting, because although most commodities have risen, what Mr Trump will probably do is allow a lot more US oil production. So, there should be more supply of oil. That could keep the oil price down which would be good for India. And also, he said that he likes Indians. I do not know why. I guess the ones he has met, he has liked them. So, I do not see why we could not expect good relations between the two countries as well which never hurts.

Sonia: There were a bit of concerns that people had that Trump would follow through on some of those threatened punitive tariffs against China, against Mexico, etc. Do you think all those concerns are unwarranted now?

A: They are still warranted, definitely. I think that his world view is through a very narrow prism of business and economics and so, he is not so much into the geo-politics of things. So, what he wants to do is make deals and he is more of a deal maker than a deal breaker. So, when he comes in to negotiate, he will probably come in with a much more tough tone, but maybe Asians will appreciate that because maybe Asians are used to negotiating that way anyway. It is too early to say. But I do think that we will see trade deals re-negotiated. Will it be so punitive that at the end of the day, China cannot make any money selling anything to the United States? I doubt it.

Latha: What next from the Fed? That is the next big event to watch out for.

A: If you look at the futures, the implied probability of a rate hike is about 80 percent in December which is down from 84 percent before the election. So, people are still really expecting the Fed to go ahead and of course, we saw the reaction with the 10-year treasury bond above 2 percent yesterday and various measures of inflation have shot up dramatically. And of course, the move in stocks like Caterpillar speaks for itself. So, I would expect a rate hike in December. Probably another one in March and then in August of next year. Now, people are worried about Janet Yellen and Trump spokespeople have said that he does not intend to fire her, but when her chair comes up for renewal in February of 2018 that he will get somebody else which is an entirely normal thing for presidents to do. Presidents like to have Fed chairs who are from their party. Source – [10-11-2016]

Developers pitch for increased benefits for affordable housing; reasonable GST rate

November 9, 2016

Real estate developers have pitched for increased benefits to boost affordable housing. They want infrastructure status for affordable housing and suggest that the rate of goods and services tax (GST) should not be more than 5%.

A delegation of the Confederation of Real Estate Developers Associations of India (Credai) held a pre-budget meeting with finance ministry officials on Tuesday and submitted a wish list that included increased benefits for affordable housing, increased income tax rebate for homebuyers and suggested that the rate of GST should not be more than 5%.

“We have asked for infrastructure status for affordable housing. We have also pitched for a higher interest subvention for affordable housing, which was 1% on housing loans of up to Rs 35 lakh. This should be enhanced to 2% for housing loans of Rs 50 lakh at least. We have also asked for income tax rebate to be increased from Rs 2.5 lakh to Rs 4 lakh,” said Getamber Anand, president, Credai.

Homebuyers in India are entitled to claim interest and principal components of home loan repayments for tax benefits. Currently interest payable on a self-occupied house is subject to a maximum deduction of Rs 2.5 lakh under the head Income from House Property.

To enable more supply in the affordable housing segment, “we have also pitched that the size of houses be increased from 30 to 60 sq m to 60 to 90 sq m as aspirationally people want bigger houses so that they can live comfortably, Anand said.

Union Budget 2016 had announced a zero service tax policy for developers constructing flats of less than 30 sq m in tier-I cities and less than 60 sq m in tier-II cities, with the intention of incentivising developers to create affordable housing.

The GST tax rate should not be over 5%, otherwise the home buyer will be doubly hit as they will have to pay both the stamp duty and the GST, he said.

While the goods and services tax (GST) tax structure has been announced, the real estate industry is waiting with bated breath to see which tax rate is applied to the real estate and construction industry. The finance minister has clarified that the highest tax slab will be applicable to ‘sin’ items and other categories that are currently taxed at around 30%.

Ministry sources confirmed that the delegation was given a patient hearing. “We have not made any commitment but will look into their request,” they said. Source – [09-11-2016]

GST enrolment programme to begin in Puducherry today

November 9, 2016

PUDUCHERRY: The enrolment of VAT assessees to Goods and Services Tax (GST) Portal will begin in Puducherry, the first in the country (along with Sikkim), from November 8. On the same day, the GST Portal will be launched by the Government of India, as part of rolling out the GST from April 1, 2017. Puducherry and Sikkim were selected as pilot States to be migrated to the new GST System.

Around 16,000 VAT assessees in Puducherry will begin the enrolment from November 8 and continue up to November 23. With the provisional user ID and password provided by the Puducherry Commercial Department, after validation of e-mail id, mobile number and PAN, the enrolment can be done to GST, though the portal Already PAN validation has been completed for the existing 15,900 VAT assessees by the Puducherry Commercial Department and email-id and mobile number verification has been done for 70 per cent of the VAT assessees. Those who have enrolled will get a provisional GST certificate once the GST is rolled out on April1, 2017.

“The enrolment of other States will be done subsequently and the entire process completed by January 15, 2017,” said Navin Kumar, Chairman of GST network.

Giving a presentation at the GST Portal Curtain Raiser, organised by the Confederation of Indian Industries, Puducherry, Navin Kumar said that under GST, dealers need to have a separate registration in every State where they are operational. However for the same dealer who is paying VAT, service tax of central excise, separate registration is not required. Source – [09-11-2016]

GST rates: India Inc eagerly awaits finer details

November 10, 2016

e countdown has begun! The announcement of GST rates is again showcasing the steady approach and determination of the government of India towards introducing the much-awaited GST regime. A four-tier GST rate structure ranging from 5 percent to 28 percent, plus a cess on certain commodities has been recommended by the GST Council. A comprehensive list of commodities falling under each rate slab is yet to be notified. However, this rate structure is enough to create a buzz in the industry to speed up the preparations for the new regime. India Inc is eagerly waiting for the finer details to become public.

The four GST rates are 5 (lower rate), 12, 18 (standard rates) and 28 percent (higher rate). Besides the 4-tier tax structure, the GST Council has announced zero rating of items of basic necessities such as food grains. Further, approximately 50 percent of items forming part of the CPI basket have been proposed to be kept in the no tax basket. Some of the hitherto untaxed items (such as agri products) and sectors (such as education and health care) should hopefully feature in the list of zero rated supplies. Keeping essential items in the zero rate or exempt basket would regulate inflation and be consumer pocket friendly at the same time.

The Centre’s initial proposal of 6 percent as the threshold rate has been tweaked and reduced to 5 percent instead. Lower rate of 5 percent for items of mass consumption would make GST less regressive. For industry, tax costs might even go down due to commodities taxable at the lower rate provided the credits on procurements are fully allowed. While the lists are yet to be rolled out by the GST Council, sectors like transportation, logistics, storage & warehousing, financial services, etc, merit coverage in the list.

Furthermore, a standard rate of 12 and 18 percent for most of the items and services should keep the overall tax incidence below or around the existing tax costs. The inflationary impact on standard rated commodities should be minimal but services may cost more due to a push to the 18 percent slab.

As per the statement of the Union finance minister, a 28 percent tax slab has been proposed for the items which presently face a 30 to 31 percent tax incidence (including excise and VAT). The industry is most concerned about the items to be covered in this list. Ostensibly, the commodities falling under this rate slab would cause lesser tax outflow under GST regime versus the present regime (from 30/31 to 28 percent). However, on closer analysis, it emerges that the GST rate of 28 percent on currently standard rated goods would lead to a higher tax incidence as it applies on final stage of consumption in comparison to excise duty which applies at the stage of manufacturing. Thus, keeping the current standard rated goods in this list will enhance the tax burden on such goods. This will, clearly be, contrary to the assurance given by the Union government time and again that the overall tax incidence on most commodities will go down with the advent of GST. Putting a very restricted range of commodities in this tax slab is quintessential to keeping the inflationary impact of GST on common man at check.

From the perspective of overall tax incidence, levy of cess along with tax at 28 percent on luxury items, sin and demerit goods viz; luxury cars, tobacco, etc, ensures that these goods face a similar tax burden as is faced presently. Levy of compensation cess on certain luxury and sin goods in addition to tax is, however, likely to add complexities to the indirect tax administration and compliance environment for such product lines. Though the cess has been proposed to be levied for initial five years only, this would transit the complexities of existing tax regime to GST which could have been easily avoided by keeping a higher GST tax rate for these products. Thus, dealing with another tier of tax would pose administrative challenges before the industry. Accordingly, modalities around levy of cess, point of levy, credit eligibility, etc, will be critical aspects to watch out for. Also, the GST council needs to build in enough safeguards in the fine-prints of its recommendations such that the industries liable to pay cess are not left grappling with uncertainties around jurisdiction, differences in rates of cess across different states and possibility of increase in rate of cess at the whims and fancies of the central or the state governments.

Historically, it has been witnessed that multiple tax rates have led to classification issues and disputes. A micro level impact analysis of the rate structure across all sectors and products will however be ascertainable only when the complete schedules are made available. The country continues to hope that final lists of GST rates will be in sync with the overall stated intent of the government behind introducing GST and hence the total indirect tax incidence on the common people would come down. Also, it is hoped that there would be seamless input tax credit to businesses leading to a reduced effective tax on goods and services.

With a headline message that the GST rates would not vary significantly from the rates under the existing indirect tax enactments, the GST Council has successfully marked a crucial milestone towards the timely rollout of GST. These indicators are acting as catalysts in keeping the industry exhilaration for GST alive. This proactive approach also reassures India that the policymakers will put in their best efforts for a timely rollout of GST.  Source – [10-112016]

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