GST Updates (02 Dec 2016)

After Bengal’s Warning On GST, Finance Minister Arun Jaitley Gives Blunt Advice

December 2, 2016

For West Bengal, which has warned of cancelling its support to the huge tax reform of a national Goods and Services Tax or GST, Finance Minister Arun Jaitley offered this blunt advice: “If a state is seen as always being on the wrong side of every reform, then investors are going to be very wary of those states.” The allusion to Bengal was clear at a time when it is aggressively wooing industry.

Earlier this week, speaking to NDTV, Bengal’s Finance Minister, Amit Mitra, said that the centre’s shock ban of 500- and 1,000-rupee notes creates an unappetising “double whammy” to states already confronting a loss of revenue when GST replaces a pile of levies imposed by them.

When asked if the centre had calculated the impact on states of “two big-bang reforms”, the Finance Minister jested, “well, at least it is being acknowledged that we are bringing in a big bang reform…for two years, I have been asked where is the big bang reform?”

He also stressed, “The Constitution does not permit a delay with GST” which has been cleared by parliament as law. The existing tax system is valid only for another year, the minister said. The government hopes to clear supporting legislation for the reform in this session of parliament.
Mr Mitra, like his counterparts from other states, is a part of the decision-making body of the GST Council, which is finalising the rate and scope of the tax that will unify the country into a single market, making business much easier for manufacturers by removing taxes when goods move between states.
Mr Mitra said that Prime Minister Narendra Modi’s abrupt demonetisation drive has crunched the economy in states. This, he said, means states are losing money ahead of the introduction of GST, planned for April. Sates are to be compensated for the next five years by the centre for the money they will lose from their taxes being removed. But, Mr Mitra said, “The government needs to redo its arithmetic” now to factor in the hit states are taking on account of the notes ban.
He said he will talk to other finance ministers to request them to reconsider their backing of the GST, seen as a mega reform imperative for economic growth. Source – [2-12-2016]

Note ban shadow over GST Bill

December 2, 2016

Forecasts about the adverse impact of demonetisation on the economy have weakened the Narendra Modi government’s resolve to push the goods and services tax related Bills in the ongoing winter session of Parliament. The Finance Minister Arun Jaitley-chaired GST Council will meet on Friday, not just under the shadow of protests by the West Bengal and the Kerala governments — both of which are of the view that the time is not right for the GST rollout because of the brunt that state finances have suffered after demonetisation — but also a ‘wait and watch policy’ of the Congress-ruled state governments. While the government has the option of ensuring the passage of these Bills as money Bills, there are voices within the government as well advising discretion on the GST roll-out by April 1, 2017.

They have argued the new tax regime could prove to be a double whammy for trade, which is already looking at a slump in the near term because of the currency purge. Senior government strategists, however, were hopeful of officials reaching an agreement that would help the government convince Opposition parties. But if consensus eludes, the government could blame the Opposition for defeating, yet again, its fight against corruption and black money. Some in the government — if it is decided to defer introducing the GST-related Bills in this session — don’t rule out ending the session before its scheduled closure on December 16.
Parliament has been unable to transact any business, ever since the start of the session on November 16, and the Opposition parties showing little signs of relenting on their protests, the prospects of a smoother next week look dim. The Congress Parliamentary Party is slated to meet on Friday morning to decide its strategy in the two Houses for the next week. A last-minute rapprochement with the government aside, the party’s disruption of the proceedings on Thursday indicated it might persevere with its protests. In the Rajya Sabha, Prime Minister Modi made an appearance when the House convened at 2 pm, but Congress Members of Parliament continued to demand an apology from the PM for accusing the Opposition of supporting black money.
Congress Vice-President Rahul Gandhi is likely to chair the meeting of the party’s lawmakers, since party President Sonia Gandhi is unwell. In deciding its strategy, the Congress would factor the support of its Bihar allies, the Janata Dal-United and Rashtriya Janata Dal, to the note ban. The Congress will also discuss its strategy on the Taxation Laws (Second Amendment) Bill, which the Lok Sabha passed on Tuesday and the government introduced in the Rajya Sabha on Wednesday. Even if the House does not discuss the ‘money Bill,’ it will be deemed passed after 14 days.
The Congress would weigh on whether it should let the House function, discuss the Bill and reject it, along with a united Opposition, to embarrass the government. On GST, Congress insiders said they were awaiting the proceedings in the GST Council meeting on Friday. Congress-ruled state governments will oppose the four-tier tax structure and the highest upper limit of 28% tax, against the 18% it has demanded. The Congress vice-president is unmoved in his view of an 18% cap, having stated any percentage above this will adversely impact small traders and the aam aadmi. As for the government, proroguing the House early has the added advantage of not waiting for 14 days to lapse before the Taxation Laws (Amendment) Bill is notified. It can then issue an Ordinance the following day, and will get a wider window to collect unaccounted money for the Pradhan Mantri Garib Kalyan Yojana.  –[02-12-2016]

Will states get 14% returns after GST rollout?

November 29, 2016

Note war: Will states get 14% returns after GST rollout?
Addressing fears that an “anti-profiteering” clause in the draft goods and services tax (GST) law may spell the return of inspector raj, the Centre stressed that the provision is an enabling element and will be invoked only in the event of significant violations.
“The clause is an enabling provision in case it is noticed that intended benefits of a GST law are not being passed on to consumers. The government has no plans to set up an inspection machinery and no punishment has been prescribed,” revenue secretary Hasmukh Adhia told TOI.
The provision was made a part of the draft GST laws released on Saturday to ensure that the Centre has an option in dealing with traders who do not pass onto consumers any reductions under the tax reform measures. This is seen as a step to protect consumers against any price spike. The view in the government that there was a need for a redressal option was strengthened by the experience of demonetisation as individuals and business entities hunted for inventive means to beat the ban on old currency.
The Centre is, however, keen to assure investors that it does not intend to set up any authority to inspect transactions and the job, if need be, can be done by empowered consumer forums or similar bodies.
The GST is intended as a “one nation, one tax” solution and this objective as well as the government’s credibility will be hurt if refunds are suppressed and an additional charge is levied on consumers. As politics over demonetisation rocks the Centre’s plans to pass two GST related bills, the government feels that states -particularly those like West Bengal which stand to benefit -should consider whether they can turn down an assured bonanza of 14 per cent return once the ambitious tax reform measure is rolled out.
Trinamool chief Mamata Banerjee has demanded an outright rollback of demonetisation with West Bengal finance minister Amit Mitra warning that scrapping of Rs 500 and Rs 1,000 notes was a “double whammy” for the poor along with GST.
Government sources feel states like West Bengal stand to lose a great deal if the tax reform is delayed, all the more as Banerjee had persistently complained of high debt burdens inherited from the Left which she wants to be mitigated.
Implementation of GST is seen to be benefitting both the Centre and the states. States will also be compensated for any revenue loss.” In these daunting time, where will you get a 14 per cent assured return,” said a source.
It would be unfortunate if the ongoing negotiations on administrative control over goods and services below Rs 1.5 crore are derailed due to the political feuding over demonetisation, the government feels. “A call has to betaken by states like West Bengal, Odisha and Uttar Pradesh if they want to miss out on a potent revenue stream due to the politics over demonetisation which in any case cannot be rolled back now,” the source said.
PM Narendra Modi had said criticism of demonetisation was really rooted in anguish over no one being given a warning of the impending decision. Despite opposition parties reacting sharply to the statement, the ruling side remains hopeful of normalcy in Parliament after the ‘Aakrosh Divas’ is over on Monday.
Congress leaders are not so certain as they feel the substantial opposition unity can be used to keep up the pressure on the government and perhaps ensure that the winter session does not transact important business like GST bills.
The plans have worked so far despite faultlines in the opposition that have seen Congress and Left keep a distance from Trinamool and AAP while others like BJD and TRS have not joined protests. The announcement of Janata Dal (U) that it will not take part in the protest on Monday is another indication that political alignments remain fluid. Source - [29-11-2016]

Tracking GST: Tax Rate Structure Too Complex

November 29, 2016
The Goods and Services Tax (GST) Council, comprising the Union finance minister, the minister of state in charge of revenue and the state finance ministers, has fixed a four-tier rate structure for the reform that many believe to be the biggest in India since the watershed economic liberalisation of 1991.

The four bands of tax rates have been fixed at five per cent, 12 per cent, 18 per cent and 28 per cent. Beyond this, in order to compensate states for their loss of revenue due to a host of state and Central level taxes being subsumed by GST, luxury cars, aerated drinks and tobacco, will be levied an additional cess over and above the highest tax rate.

This cess, which is intended to supplant a potential loss of about Rs 50,000 crore, will lapse after a period of five years. In the event there is any excess left over, the same will be shared between the Centre and the states.
White And Sin Goods
In a move appreciated widely, foodgrain will be zero rated to insulate people against inflationary pressures. Common use items of mass consumption will be charged at the rate of five per cent and the standard rates of 12 per cent and 18 per cent will accommodate most of the goods and services. White goods will be taxed at 28 per cent (for the most part, with riders — to accommodate goods being used by the lower middle class).
Demerit goods or sin goods such as luxury cars, pan masala, aerated drinks, and tobacco and tobacco products, will invite a tax of 28 per cent plus cess. Accordingly, the overall incidence of cess, could vary between 40 per cent and 65 per cent. There has been no consensus on the tax rate for gold, as yet, with finance minister Arun Jaitley putting on hold the Centre’s initial proposal to charge 4 per cent GST.
Overly Complex
We feel that the multi-tier tax system, coupled with multiple registrations in each state for supply of goods and services makes this procedure overly complex. Reform at this stage should have resulted in one or possibly two rates / slabs to ensure simplicity. As the multi-tiered rate structure is still in a very nascent stage and it is as yet not known what items will fall in each tax bracket, it is too early to comment on whether or not the new rate structure will lead to inflation.
We are of the view that the powers that be should ensure that the majority of manufactured products be kept in the 18 per cent slab and not be pushed into the more cumbersome 28 per cent slab.
Defining Luxury
The GST Council ought to consider present usage trends, along with past historical data, leading up to the current market scenario while determining which products fall in which slab; as items viewed as luxuries a few years ago have fast become a way of life and necessities in today’s day and age.
The GST Council has so far only fixed slab rates for goods. A decision is yet to be taken in terms of services. The current sentiment in the market is a need/demand for a single rate structure applicable to services.
All in all, it is a reform which tries to simplify tax structure and eliminate multi-level tax incidences and burdens in the name of unity and simplicity, but only ends up delivering a confusing tax structure.  Source- [29-11-2016]

GST to spur double-digit growth in hiring across sectors

November 29, 2016
The implementation of the Goods and Services Tax (GST) will lead to 11 per cent growth in hiring activities, says a report released today.

HR services provider TeamLease said that GST would not only have a positive impact on the ease of doing business but also propel formal job creation.

“Adoption of GST will lead to an 11 per cent growth in hiring across sectors. Further, from a region perspective though marginally South Indiawill top the job generation chart,” it said.
Automobiles, logistics, home decor, e-commerce, media and entertainment, and cement sectors are projected to create 11-18 per cent additional jobs annually after implementation of GST.
In the case of IT/ITeS and BFSI segments, the growth rate has been pegged between 10 and 12.5 per cent.
According to TeamLease, around 10 to 13 per cent additional jobs are expected to be created every year by consumer durables, pharmaceuticals and telecommunications sectors.
“The uniformity and the reduction in the average tax burden offered by GST will provide a great impetus to employment creation,” TeamLease Services Co-Founder and Executive Vice President Rituparna Chakraborty said.
The report noted that the predictability of cost of products manufactured or services rendered across the country would improve enterprise productivity.
This would also trigger expansion of services, capacity and product ranges, resulting in a subsequent increase in manpower requirement, it added.
With GST, TeamLease said revenue collection from general sales tax would grow from the current level of 6.3 per cent to 11.49 per cent.
“Service tax, central excise and customs will also witness growth leading to greater funding towards workforce welfare and sustained job creation initiatives,” the report said.
The study, aimed at understanding the impact of GST on job creation, covers 11 industry verticals including BFSI (Banking, Financial Services and Insurance), automobile, telecommunication, pharma, IT/ITes and e-commerce. Source - [29-11-2016]

To sustain revenue collection, a smooth transition is critical

November 29, 2016

The first interface with a new fiscal legislation that public has, while transiting from the old, is always through the transitional provision in a new enactment. If the changes are major, the transit provisions are required to be more elaborate. Since the draft GST law is the outcome of convergence of various fiscal legislations at the state and central levels, therefore provisions relating to transit are explained in an elaborate manner. These provisions figure in Sections 141 to 162E of the law. There are 27 sections devoted to transition only.

Reportedly, another version of draft legislation has been circulated to the states, but the same has not been put in the public domain, as yet. Therefore, at this moment, we can only analyse the version that is available to us. Transition provisions serve a restricted purpose of envisaging various situations that may arise while moving to a new legislation and gradually become of historical importance with the passage of time. In the draft GST Bill, they broadly, and inter alia, provide for continuity of officers with their previous designations, both under the central and state legislation pertaining to tax on goods and services, automatic migration of existing taxpayers to GST, etc. It also provides that the Cenvat credit, as indicated in the last VAT, central excise or service tax returns shall be eligible to be carried forward, if it is otherwise permissible under both the old and the new law. Therefore, for the business, last return under the old law has to be prepared and the credit has to be properly documented. This is of paramount importance, as claims later may become difficult to sustain. Since there will be quite a few assessees who will come in the tax net for the first time due to lowering of SSI excise limit from Rs 1.5 crore to Rs 25 lakh (as approved by the GST Council), it has been provided that such units shall be entitled to take credit of inputs/goods in stock as on the last day of operation of old law, provided they are in possession of invoice which is not earlier than 12 months from the appointed day.

Similar provisions exist for persons opting out of composition scheme under the new law; they can also claim Cenvat credit after the appointed day (i.e. the date on which new GST law comes into force), provided they possess the relevant invoices which are not more than 12 months’ old.

To the contrary, a person who is switching over to ‘composition scheme’ from the normal tax regime shall be required to reverse credit to the extent of existing stock/inputs. Similarly, there are other transit provisions dealing with stock position, supplementary invoice, debit or credit note, pending refund claims, etc, during transition, which answer most doubts, if not all. Since there can be various situations, the Central Board of Indirect Taxes can issue clarifications, which hopefully it will be promptly doing based on difficulties experienced and feedback received.

Efficiency in issuing clarifications and advice to field officers to put the issues on hold till clarifications are issued in order to avoid litigation will be a welcome move. However, in the ultimate analysis, a smooth transition is always achieved through a taxpayer-friendly approach and thorough understanding of tax authorities. Implementation of Finance Act, 1994, is an example in this regard. The service tax was popularised through the ‘voluntary compliance’ approach and, in the beginning, internal instructions of least searches/summons were issued, and thereafter, stringency in and around 2012 was brought in and arrest provisions introduced. The introduction of the Finance Act, 1994, was smooth enough and ultimately service tax has become a big revenue earner for the central exchequer. The draft GST law has strong enforcement provisions. It is understandable also because this is a switch over of the old taxes to the new, rather than a new one being introduced. The pressure of earning enough revenue, on central/state officials from the initial stage itself, will be phenomenal. As legislation is not meant to generate additional source of revenue like fresh Finance Act in 1994 was. It is incumbent upon authorities to maintain and augment the revenue, which was being generated till the cut-off year both by central and state governments. This can bring in a tendency to use enforcement stick extensively right from the beginning, which may make the whole tax regime unpopular.

Therefore, officers have to be properly trained for a balanced approach, striking a middle path between voluntary compliance and enforcement which is just appropriate to sustain normal buoyancy in revenue collection, in the transition stage. Again, in transition, there are various procedural lapses that happen from the side of the assessee due to lack of knowledge. These are generally liberally viewed even by courts. The normal tendency of revenue officials is to litigate at every point of procedural lapse and allow it to be decided by courts, who with near unanimity deal with such procedural lapses with disdain if they seek to deny substantive benefits, otherwise permissible. But all this results in avoidable litigation swelling up in numbers. The best way forward is to appoint chief commissioner/commissioner-level officers as the authority for condoning such procedural lapses, with or without imposing a nominal fine up to Rs 20,000, so that litigation and resultant compliance cost do not swell for small business enterprises. By resorting to such matters, both central and state governments can considerably reduce the fear factor of new tax regime and can transition smoothly   Source – [29-11-2016]

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