GST Updates (24 Nov 2016)

GST Council meet postponed to December 2-3

November 24, 2016
GST Council meet postponed to December 2-3

The crucial meeting of the GST Council on November 25 to finalise the legislation for the new tax regime has been put off to December 2-3 after some states sought changes to the draft circulated by the Centre.

The meeting was to discuss the draft laws and also the contentious issue of administration of the regime. The committee of officials from the Centre and states will, however, meet on November 25 to finalise the three draft legislations for Central Goods and Services Tax (CGST), Integrated Goods and Services Tax (IGST) and compensation law.

“States desired some more time to internally deliberate on revised draft of the laws within their respective state(s),” a finance ministry statement said on Wednesday.

States have suggested certain changes to the procedure for returns in the model GST law and in the wordings of the compensation law, an official said.

The CGST, IGST and State Goods and Services Tax (SGST) laws deal with the process of returns, registration and refunds as well as jurisdiction. The compensation law will specify how states will be recompensed for revenue loss during the initial five years, on account of GST rollout. The Centre is, however, confident of introducing the legislations in the ongoing winter session of Parliament that ends on December 16.

The issue of division of tax administration would be decided politically by the members of GST Council. The states want administrative rights over both goods and services providers up to a turnover of Rs 1.5 crore. But the Centre is keen on a vertical division under which it will cover a certain percentage of assessees while rest will be assessed by states.

On November 16, the Centre had circulated the draft legislation among states. Subsequently, on November 21-22, the committee of central and state officers discussed the legislation and the changes suggested by states. The GST Council has already agreed on a four-slab structure — 5%, 12%, 18% and 28% — along with a cess on luxury and ‘sin’ goods such as tobacco. Source – [24-11-2016]

State tax officers’ strike disrupts work

November 24, 2016
Work was affected in some commercial tax offices across the country today due to a day-long pen-down strike by tax officers of various state governments.

The strike call was given by the All India Confederation of Commercial Taxes Association (AICCTA), which claims to represent over 36,000 gazetted officers and about 2 lakh Class-III and IV employees in support of their demand of having a fair share in the administration of taxes under the GST regime.

Uttarakhand Commercial Tax Service Association President Yashpal Singh, who is also head of the NCR chapter of AICCTA, said the strike was successful in most states and a considerable number of employees participated in the protest.

The confederation is seeking complete authority relating to monitoring, audit, assessment and enforcement activities provided either under the GST Act or the Integrated Goods and Services Tax — to be levied on all inter-state supplies of goods and services.

GST is a single tax to be levied on supply of goods and services, right from the manufacturer to the consumer. Source [24-11-2016]

WB Commercial Tax Dept to help MSMEs in migration from VAT to GST system

November 24, 2016
Kolkata, Nov 23 (KNN)The Goods & Services Tax Network (GSTN) has started migrating existing VAT payers into GST system to allot a provisional Identification Number.
The Directorate of Commercial Taxes, West Bengal, in a letter to the industry associations has said that the dealers registered under the West Bengal Value Added Tax Act, 2003, would be able to log into GST common web portal and furnish required information for GST enrolment from November 30, 2016 to December 15, 2016.

In this regard, the department has called upon the MSME entrepreneurs interested in knowing the procedure of enrolment to attend a presentation on November 25, 2016, at Conference Hall, Annex-III (new Building), 1st Floor, 14, Beliaghata Road, Kolkata-700015.

Several presentations have already been made by the department at several places outside Kolkata for different stake-holders. Source – [24-11-2016]

GST Council meeting cancelled, new date yet to be announced

November 23, 2016
The goods and services tax (GST) council meeting on Friday has been cancelled. The new dates are yet to be finalized.

“GST Council meeting on November 25 cancelled; new date yet to be finalised,” reported PTI on Wednesday.

The GST Council meeting has now been cancelled twice in November. It was initially scheduled on 9-10 November, which was later deferred to 24-25 November.

The centre and the states had struck a consensus on the rates and structure of the ambitious tax reform earlier this month. The GST council finalized a multi-tier GST rate structure.

Items of mass consumption will be levied 5% and luxury and sin goods will be charged 28% plus cess. In between are two standard rates of 12% and 18% Source – [23-11-2016]

GST progress held up by inter-state sales issue

November 24, 2016
A provision in the draft integrated goods and services tax (GST) law that says only the central government will have administrative power over all traders engaged in inter-state sales may disrupt the government’s plan to bring supporting GST legislation in the winter session of Parliament.

States such as West Bengal and Tamil Nadu have sought to change this provision to empower the states to control traders engaged in inter-state sales.

The GST council’s approval for supporting legislation may hinge on the acceptance of this demand by the centre, said people familiar with the discussions on GST.

So far, the centre and the states have not arrived at a consensus on the sharing of administrative powers under the proposed GST regime.

Pending a solution, the central GST (CGST) and the state GST (SGST) draft laws propose to bring in a generic clause allowing cross empowerment. The SGST law has a provision empowering central authorities and the CGST law has one empowering state authorities to administer taxpayers.

However, the Integrated GST (IGST) law, which deals with inter-state sales, only empowers the centre to preside over IGST proceedings.

States fear that the clause in IGST will lead to dual control as around 30-35% of the estimated 80 million plus traders who are expected to come under GST’s ambit carry out inter-state sales. This percentage increases to 80% if one takes into account both purchases and sales.

“Since IGST deals with movement of goods through various states and no one state will have jurisdiction on the entire supply chain, the centre argues that IGST traders should be under its domain. It has also cited the fact that states may have an incentive to influence a dealer to register his supplies as local supplies rather than inter-state supplies,” said a person familiar with the development. “But the states are countering these arguments (by) arguing that the use of technology negates the centre’s arguments,” the person added, asking not to be identified.

The GST council meeting, scheduled for 25 November, has been postponed till the first week of December as the final changes to the three draft laws—CGST , IGST and SGST—and the compensation law are being put together. The compensation law allows states to be compensated for any loss of revenue in the first five years of GST.

A senior government official, who asked not to be identified, expressed confidence that the government will be able to get the supporting legislation passed in the ongoing session of Parliament.

The centre may bring the CGST and the IGST bills as money bills to ensure their smooth passage in both Houses of Parliament, the official said, adding that a final decision will be taken after the GST council vets both the bills.

The government aims to implement GST from 1 April 2017, but for achieving this deadline, these bills need to be passed in the ongoing winter session.

A finance ministry statement said the GST council meeting has been rescheduled to 2-3 December after states sought some more time to “internally deliberate on revised draft of the laws”.

State and central government officials will meet on 25 November to finalize the draft GST bills and the compensation bill, following which it will be presented to the GST council next week, the statement added.

“Ideally, the industry would want that there is no dual control following the passage of the GST bill. But if it cannot be wished away, then a clear mechanism needs to be created so that for the same case or issue, a scenario does not occur where there are multiple inquiries, audits and investigations,” said Bipin Sapra, tax partner at advisory. auditing and business consulting firm Ernst and Young (EY). Source – [24-11-2016]

GST to help developers shift focus to affordable housing

November 23, 2016
The Goods and Services Tax (GST) is likely to make real estate developers shift focus to high volume, low to medium housing. Affordable housing costs could fall and those for the premium segment could rise, says a white paper titled Decoding GST and Real Estate Regulation by RICS, , a self-regulatory professional body for qualifications and standards in land, property, construction and associated environment issues.

The Real Estate (Regulation and Development) Act (RERA), 2016, will help ensure that real estate projects get completed on time. Provisions in the Act such as imposition of similar penal interest for developers and homebuyers will incentivise timely delivery of projects, it says.

“GST will lower real estate costs for the affordable segment of housing while increasing costs for the premium segment. A large part of the real estate market – almost 70% is skewed towards middle to high income segment of housing. We might see developers (especially smaller ones) shift focus to low income housing to gain from GST,” says Sachin Sandhir, global managing director – Emerging Business, RICS.

The white paper explores the nuances of the impact of GST and RERA on the real estate sector and examines specifically if there are any issues that could cause ambiguities or discrepancies in the sector.

“An attempt has been made in the real estate act to balance the requirements of all the key stakeholders, namely consumers, developers as well as real estate agents. We expect much more professionalism… as we start progressing on the implementation of this act and ultimately, we may have a situation where projects are delivered as per the timelines. Two of the states, Gujarat and UP, also notified the rules before October 31 and many states are also in the advanced stage. We expect that the implementation of the act will start at the field level at the earliest and the benefits will start accruing to the sector, consumers, developers, everyone,” says Rajiv Ranjan, joint secretary, (housing), ministry of housing and urban alleviation, government of India while releasing the white paper.

The white paper concludes that GST by itself cannot be treated as a panacea for real estate market woes – both for the buyer as well as for the seller or developer. Broader policies in land and housing/ commercial stock management, ensuring availability of appropriate financing resources etc will be just as important to leverage the opportunity posed by GST, it says. Source [23-11-2016]

Not only demonetisation, GST to also hit unorganised players

November 23, 2016
Not only demonetisation, GST to also hit unorganised players: Girish Pai, Nirmal Bang

In a chat wth ET NowGirish Pai, Head of Research, Nirmal Bang Institutional Equities says over the last week or probably 10 days, IT index has outperformed the domestic plays and I think that wll continue for some time. Edited excerpts

ET Now: What is the sense, what have been you telling clients to do this fall”? Invest selectively? I know you have been bearish on certain pockets but I do not quite know what your market view was, what have you told your clients to do in the recent fall?

Girish Pai: I think it is going to be painful in the near term but obviously in the long term, it is positive. The question is when does a long term really start? Does it start two quarters down the road, does it start four quarters down the road or even beyond that because I think few things need to be taken into consideration. It is not just demonetisation, GST is also going to come in 1st of April 2017 and there is a Real Estate Regulation Act which is going to be coming through around the same time. So I would think that three-four things coming together which will going to lead to some kind of tumult in the business, in the economy once and which is going to lead to some kind of slowdown beyond just demonetisation that could be a bit unsettling.

On top of it, we have been basically talking about cash related black money. Now the government is saying that they are going to go after gold and jewellery and real estate and stuff like that. There could be a negative wealth impact also coming from those particular aspects which I do not think the market has taken into consideration. This could probably set back the big discretionary consumption or big ticket discretionary consumption play coming back quickly.

So I would probably think that earnings recovery is going to be a little bit more delayed than what the market is currently anticipating.

But having said that, we continue to believe in some of the same stories that we have pushed in the past. We still think that some of the NBFC plays which have got massive cuts of 25, 30, 35% in recent times still look good. Especially, the gold financiers, the microfmance institutions because they address customers, consumers who are low ticket value consumers in one sense and SKS or a Bharat Financial inclusion probably finances consumers or players out there who run businesses which are very essential to the needs of a particular area so I would be focussed on those kind of stocks.

ET Now: What about consumer durables that is a basket that has gotten hit albeit for the right reasons? Any channel checks which suggest some pick up or otherwise and are the price cuts pricing in the earnings cuts that will come in?

Girish Pai: I cannot speak specifically of consumer durables. We had a call with I would say a semi-urban retailer V-Mart yesterday and we had some very interesting insights out there because that the semi-urban retail is fairly unorganised at this point in time. So there seems to be a massive hit out there in the semi-urban retail sector which is almost like unorganised sector and forms almost 90% of the space. But what we have seen is organised players like V-Mart for instance seems to be gaining a lot of market share/. The overarching theme that one would probably play going forward in the economy where there is a fairly large unorganised sector – be it retail, be it plywood, be it in ceramics, be it in NBFCs. There are various pockets of economy where there is very large share of unorganised players which will get hit not only because of demonetisation but also because of GST.
These are the spaces that I would probably look at for investing.

ET Now: Are you excited about some of the capital good and engineering businesses related to infrastructure? Do you think that investment linked businesses are picking up?

Girish Pai: I think they are picking up in pockets, I do not think it is a broad-based investment recovery as yet. It is picking in the road side, in the railways side. I would not get too excited about it. I do not think it is a broad-based recovery as things stand right now. I think what we will probably have to happen is I think the government will have to probably pitch in a little bit more than what it has done thus far. I think the investment growth that was kind of pencilled in into the budget for FY17 has not been too great.
Going forward into FY18, the spending has to be lot larger than what is going to happen in FY17 because I think there is going to be a down draft from consumption which has to be negated. The government will probably spend a lot more on the infrastructure side which could lead to higher orders coming through for some of these companies.

ET Now: What is it that you like if not at this time and if not at these levels then may be at a later time at better entry points? What is it that you would look out for to buy if the opportunity arose?

Girish Pai: We would like to look at auto. The demand in the near term is going to get hit quite a bit but I think unlike some of the other areas of consumption where it is perishable consumption, here we have a situation where you can at best put off consumption by a few quarters. So I would bet on both two-wheelers especially Hero Honda as a stock that we like. Maruti is another stock that we like though I would probably play Maruti a little later than Hero Honda. Probably Maruti will recover later than Hero Honda. So auto is a space we like, we also like tractor companies out there.
In the financial space we like consumer facing banks I think they have a fairly diversified portfolio yes there will be some pain coming through from a possibly the LAP portfolio because I think the secondary market in real estate is going to take a fairly good hit and good result in some issues in terms of asset quality.
In the NBFC space, we like the MFIs and we like the gold financiers. So we continue to like Bharat Financial inclusion as well as Manappuram and Muthoot. These have taken fairly sharp hits if anywhere between 25 and 35% ever since the demonetisation was announced. So these are the kind of stocks we would look at in terms of buying into with a two plus year time frame. I do not think one should if one has to get into these with a slightly shorter time frame I would look at a better price point may be if market is going to go down by another 5-10% that would probably be giving me a lot more margin of safety for buying into some of these stocks. We could probably get a fairly swift bounce in some of the stocks but if you are buying now I think one would have a two plus year kind of time frame for some decent returns to come through.

ET Now: You would still be bearish on IT that view would not have changed?

Girish Pai: On IT, my sense is that while we have seen pressure on or we will see pressure on earnings in the domestic oriented sectors. So what has kind of played out over the last nine, eleven months is basically a situation where people have played for domestic revival, people have played for the Seventh Pay Commission, a good monsoon, lower interest rates and stuff like that.
Basically a lot of the stocks which were domestic oriented did very well under the expectation that earnings are going to pick up where as with demonetisation we have situation where earnings will have to pegged back quite a bit and one really does not know to what extent. Under such a scenario, we have IT which has been an underperformer for a while now and people have been paring earnings for quite some time is not facing an incremental pressure as things stand, right.
So we have seen over the last week or probably 10 days, IT index has outperformed the domestic plays and I think that will continue for some time. So if you want to play a tactical game in the very near term which could be maybe three, six month timeframe to hide from the probably pressures on earnings that are going to come through on the domestic front, yes I think IT could be an area to get into but I do not think that that is a sector I would bet on from a structural perspective.
I think there are a lot of structural pressures that the industry– I have highlighted this in past many times, I think it will continue to face even going forward. And on the cyclical while there is some buzz about economy picking up in the US on the back of infrastructure spending by Trump and stuff like that. I have my serious doubts about that because I think Republican Party has been fiscal hawk, it has not allowed Obama to spend too much in the last five, six years. So unless you see a completely different Republican Party I doubt whether a lot of the proposals in terms of very steep tax cuts and higher spending that Trump is indicating will go through. And my other big worry is with protectionist measures that Trump is planning to take up going forward.
I would probably think that some of the multinational, the American multinationals will probably have to rejig their operations and will probably have to spend a lot more, their margins could potentially come under pressure if they have to shift operations from China and India and elsewhere back to the US and there could be some kind of rethink in terms of the spending that they have to do in IT services. Source – [23-11-2016]

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