GST Updates (30 Dec 2016)


Looking at rolling out GST on July 1 if it doesn’t happen on April 1

December 29, 2016
Arjun Ram Meghwal, MoS Finance amd corporate affairs on Thursday told CNBC TV18 that the government is looking at rolling Goods and Services Tax (GST) on July 1, 2017, if it doesn’t happen on April 1. The GST Council will be meeting on January 3-4 with an agenda to vet the model GST and the compensation Bills for their legal correctness, and resolving the contentious issues of Integrated GST (IGST) administration and division of assessment powers between the Centre and states. In the last GST Council meeting, FM Arun Jaitley was asked whether he was still sticking to the self-imposed April 1, 2017 deadline for GST rollout, he said, “Our effort will be to do it as quickly as possible,” but added that he wouldn’t want to “hasten the process”, as discussions were underway.

Meanwhile, Speaking on demonetisation, Meghwal also told the business news channel that this decision is a radical reform and will help change the way of life. “The GDP will increase by 2% and consumption and investment will increase rapidly once the entire demonetisation proces is complete. It will also help increase the tax base.” He further added that the government doesn’t take any decision keeping political benefits in mind.

The Modi government is pitching hard for a cashless economy. Recently, the government decided that no service charge will now be levied for use of debit cards. Department of Economic Affairs Secretary Shaktikanta Das has said that till December 31, 2016, no service charges will be levied on debit cards and that the move is meant to ensure greater penetration of digital transaction. Meanwhile, to encourage digital transactions, the RBI has increased the doubled the limit on the balance that one can keep in e-wallets. The limit has been enhanced from Rs 10,000 to Rs 20,000.

The Narendra Modi government has come under severe criticism from the Opposition for its move to demonetise old Rs 500 and Rs 1000 notes. The reaction on the ground has, however, been mixed. While most people have lauded the move to check black money and corruption, many have said that the implementation, especially when it comes to availability of currency, should have been much better.  Source – http://www.financialexpress.com [29-12-2016]

How To Resolve The Issue Of Dual Control In GST


December 29, 2016

There is no doubt that so far as possible, the taxable person (earlier termed as dealer or assessee) should face only one authority. It will be difficult for him/her to face two masters, as it is very much possible that two authorities may take entirely different views on same issue.

At the same time, it is obvious that the revenue of both central and state governments should be protected. Both the Centre and states have their sovereign powers. Hence, some golden mean is required to be found.

It is envisaged that rates of CGST and SGST will be same. Thus, broadly 50 per cent of revenue will go to the central government and 50 per cent will go to the state government.

Though IGST will be collected by the central government, it is an intermediate tax. It is a pass-through transaction. The final tax will be in form of CGST and SGST only.

However, it has to be noted that central government has taken the responsibility of compensating states for any revenue loss for five years. Thus, the central government needs to be more diligent than states to ensure proper tax collection.

Considering these factors, it is suggested that broadly, 55 per cent of tax revenue should be under control of central government and 45 per cent of tax revenue should be under the control of state government.

To start with, as a rule of thumb, a taxable person having business activities predominantly in one state should be under control of the state government. Taxable persons having multi-state businesses and those predominantly in the export field should be under the control of central government.

Industries and businesses peculiar to one state should be under control of the state government, i.e., jute in West Bengal, sugar in Maharashtra and UP, etc. The reason is that state officers already have deep knowledge of these businesses.

Businesses having national-level activities like banking, insurance, national couriers, telecommunication should be under control of central government.

Once such bifurcation is made, further refinement can be made on other reasonable criteria to achieve broadly the ratio of 55:45.

Once a bifurcation of the taxable person is made, it should be reviewed every three years. Frequent changes should be avoided.

However, that does not mean that there should be watertight compartments. It is obvious that officers of central government will be biased towards IGST and CGST while state government officers will be biased towards SGST.

To ensure that interest of both central and states are protected, the following measures should be taken:
Model GST Law provides for audits of assessee. If the audit team is led by central government authorities, one officer of state should be part of the audit team. Similarly, if audit is conducted by state government authorities, one officer of Centre should be part of the audit team.

Same principle should be followed while carrying out inspection, searches and seizures. This will ensure that in every audit, inspection, search and seizure, a one-sided view is not taken. A balanced view will be ensured.

There should be a coordination committee at state level of senior central and state authorities. Such committees may also be formed at zonal levels, even at district levels, wherever possible.

There should be a mechanism to refer the issue to GST Council through state-level committees if there is disagreement among members of the committee.

If these steps are taken and implemented in proper spirit, interest of all stakeholders – i.e. taxable persons, central government and state governments – will be protected. Source – http://profit.ndtv.co  [28-12-2016]

Demonetisation should not be used as an excuse to delay GST


December 29, 2016

The latest GST council meetings have fallen short of expectation.

Lack of consensus on the issue of tax administration or ‘dual control’ means that the April 1, 2017 deadline for GST implementation looks unachievable. A few states also believe that GST should be deferred due to the ongoing demonetisation drive.

These states argue that they cannot absorb the impact of two ‘major disruptions’ demonetisation and GST simultaneously .This is interesting, because GST was hardly seen as a ‘disruption’ before the currency ban.

So, should demonetisation be a ground for delay in implementation of GST?

A closer look at facts suggest otherwise. At a conceptual level, one of the primary objectives of both demonetisation and GST is to check tax evasion. Demonetisation does it by bringing a larger part of economy under banking channels, GST is proposing to do it by tracking all business transactions through the GST Network (GSTN) system. So, GST should complement measures to curb black money.

Some economists make the point that small businesses are most impacted by demonetisation and they would not be able to align themselves with GST so quickly . There is hardly any merit in this argument. In GST, there is a proposal to exempt small businesses up to annual sales of Rs 20 lakh (10 lakh for northeastern states). Further, those in the range Rs 20-50 lakh would have the option to pay composition tax at a flat rate, without claiming credits and maintaining detailed paperwork. These small businesses will hardly be impacted by GST.

It’s relevant to point out that agricultural produce would be kept out of GST as well. Larger businesses were anyway expected to prepare for GST, with or without demonetisation. In fact they look forward to savings, which GST-led efficiencies are expected to bring about.

These businesses are used to making tax payment online, also mandatory under current excise and service tax laws. Further, they can make GST payment through debit and credit cards as well, which will further simplify the tax payment process.In any case GST is now likely to be delayed by at least 3 months or so, which gives businesses more time to prepare for it.

From state governments’ perspective, admittedly, demonetisation could lead to drop in tax revenues (primarily VAT) in the current year, due to lower sales that many companies are experiencing, particularly those dealing with FMCG or consumer products. However, such a revenue loss is fully protected by the Centre for a period of 5 years of GST implementation.

Further, the base year to be taken for arriving at the state tax revenues is 2015-16, before demonetisation. For every year thereafter, a minimum annual growth of 14% has been assumed. Therefore, even assuming that state revenues drop in 2016-17 due to demonetisation by say 20%, they would continue to get compensation on the basis of base year 2015-16 plus 14%.

It only means that the quantum of compensation might increase for the Centre due to less than normal revenue collection by states. Thus the Centre needs ways to collect additional revenue. In the last GST council meeting, a consensus has already been reached that alternative sources to fund the additional compensation should be explored by the Centre.

For the Centre, while excise and customs duty collections may drop initially (due to fall in demand after demonetisation), they could make up the shortfall by higher collection of income tax as a significant part of parallel economy is expected to come within the tax net, as we go forward.

For consumers, GST is decidedly a better system of taxation simple and transparent. There is an expectation that GST would bring down the prices of most products of general usage. The government’s proposal to introduce an ‘anti profiteering’ clause in the revised draft of GST laws would mean that businesses would be forced to pass on the benefit accruing to them on account of GST, even though implementation of such a provision could be a challenge. Drop in prices would spur demand, which is exactly what the doctor ordered to deal with demonetisation’s fallout.

So demonetisation should not delay GST, if anything it should expedite GST. Most definitely , it cannot be used as a scapegoat for derailing the GST bandwagon. Source – http://auto.economictimes.indiatimes.com [29-12-2016]

GST Council makes headway on bills, stuck on taxpayer control

December 24, 2016

The all-powerful GST Council today made a reasonable headway on supporting legislations for the new indirect tax regime but its rollout from April 1 looked virtually impossible as it postponed discussion on the critical issue of administration and control of tax payers. The panel, which met for the seventh time since the Constitutional Amendment to replace central and state taxes with a Goods and Service Tax was approved in mid-September, tweaked the periodicity of payment of compensation for loss of revenue to states for implementation of GST to bi-monthly instead of previously decided quarterly payment. Also, the Council decided to create the kitty for the compensation from any other tax besides the cess on luxury and sin goods it had previously approved, as states saw revenues being dented by slowdown in economic activity and resultant tax collections following demonetisation. The GST Council will meet again on January 3-4 and take up the issue of which part of tax payers should be controlled by the Centre and who should be governed by the states after a single tax will replace levies like central excise, service tax and VAT. The dual control is also part of the Integrated-GST legislation that Parliament needs to pass before the new regime is rolled out. But for this stumbling block, mirror legislations of Central-GST and State-GST, that have to be approved by Parliament and state assemblies respectively, neared finality with most clauses agreed upon. Finance Minister Arun Jaitley said the law to provide for compensation to the states for loss of revenue was also approved by the GST Council at its two-day meeting which ended today but a final draft with legal language would be approved at the next meeting. “I am trying my best,” he said, when asked about the April 1 rollout schedule. “I am not going to bind myself with anything. Our effort is to do it as quickly as possible and I think we are making a reasonable headway.” Three consecutive meetings of the GST Council have not been able to take up the issue of dual control. Some states like West Bengal and Kerala want a minimum turnover criteria be fixed to decide who control which assessee, a proposal the Centre is not agreeable to because states lack expertise on levies like service tax.

“If you ask me what are the principle residuary items left, the main item of course is the IGST and dual empowerment issue. The second is the legally vetted language which will be placed in the next meeting on January 3-4,” Jaitley said, adding that the Council will take up items in each tax bracket after that. Source – http://indiatoday.intoday.in [23-12-2016]

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