GST Updates (27th Oct 2016)

Posted on 27th Oct 2016 by Business So Simple in Miscellaneous

GST rate speculation slows luxury car sales

October 27, 2016

The GST Council, a panel of Union and state finance ministers, has met three times till now. Though consensus has been the mode of decision-making, the process will not be smooth in the days to come. Very important decisions like tax rates, mobilising revenue to give compensation to states and division of tax administrative powers between the Union and the state governments will see tough negotiations and prolonged discussion.

The Centre has proposed a four-slab tax rate structure-two standard rates of 12% and 18% for items like consumer durables, 6% on essential items and 26% on luxury goods. It also proposes 40% sin tax on tobacco products like cigarettes and pan masala. Services under GST will be taxed at 18%. Fewer than 100 items have been exempted from GST. While proposing the GST rates, Union finance minister Arun Jaitley said, “The principles of fixing the rate would be that they should be inflation neutral, and states and Centre continue with their expenditures and taxpayers are not burdened.”

Now Tamil Nadu should compare the revenue generated from each commodity with the likely revenue from GST under the relevant tax slabs. Under GST, the states get the power to tax production, which is under excise duty till now, and also get the power to tax services, while substantially losing sales tax on commodities. Though the Union government claims to have proposed GST rates that will not increase inflation, the reduction in the number of goods to be exempted from tax, as well as the higher minimum rate may be inflationary. For instance, the 6% minimum rate may increase prices of food items.

Behavioural changes in consumers would be key since there is a psychological impact of GST. For example, gold jewellery is currently attracting 10% customs duty, 4% excise duty and 2% sales tax VAT. The cumulative effect of all these taxes is higher compared to the proposed GST rate of 6%, with the Union government proposing to reduce customs duty to 2%. In the existing system, the customers of the gold jewellery see a bill that shows 1% or 2% sales tax (1% in TN) and they are blissfully ignorant of the impact of customs duty and excise duty. If they see a 6% GST, it may impact their buying decision even though the price may not have changed. Will there be more unbilled transactions then?

For the purpose of compensating state’s revenue losses, it appears the states have agreed that the actual commercial tax revenue collected in 2016-17 will be the base and an annual increase of 14% will be assumed. Suppose ‘100 is the commercial tax revenue collected in 2016-17, then ‘116 ought to be the tax revenue collection in 2017-18 and any shortfall from `116 will be compensated by the Union government.

To compensate states like Tamil Nadu which are likely to see a fall in tax revenue due to GST, the Union government also proposes a cess on luxury and sin items to collect additional revenue for distribution to these states.But, given consumption patterns in Tamil Nadu, the state may see more consumption of luxury and sin items.This would mean customers within Tamil Nadu would be bearing the burden of the revenue loss of the state due to GST.

States like Tamil Nadu should therefore carefully calculate the incidence of luxury and sin taxes and the cess thereon, to take a decision in this regard. The ideal proposition, in this case, would be to argue that the Union government should give compensation from its general revenue and there should not be a specific cess on GST for this.

After the latest GST Council meeting held on October 17-19, Tamil Nadu has come back with lots of homework to be done. It should not only study the impact of the GST tax structure on revenue collection, but also the impact of cess. Further, we should also thrash out the division of tax administration powers between the Union and state governments so that the taxpayers are not harassed by two tax authorities at the same time. The Tamil Nadu government should get control over manufacturers and traders over whom it can exercise more effective supervision.

The final point is, it is impossible to a priori calculate the revenue loss or possible gain from the GST. It is only with real-time data analysis that we could estimate the revenue potential of GST and chalk out a strategy to improve revenue collection if needed. Having accepted that taxing ultimate consumption is the least market-distorting and fair system of commodity taxation, GST should come in. The Union and state governments have their work cut out so the system is rolled out on April 1, 2017. Source – timesofindia.indiatimes.com [27-10-2016]

The rationale for multiple rates in GST

October 27, 2016

Some critical issues are pending before the GST Council for a final decision. Comments have been made in the public space with regard to two of these issues. Even though the final decision with regard to these two issues is yet to be taken by the GST Council, the rationale behind the proposals placed before the Council needs to be explained.

The multi rate structure

It has been proposed to the Council that there should be a four slab multi-rate tax structure. Items constituting nearly 50 per cent of the weightage in the Consumer Price Index basket (mainly food items), are proposed to be exempted from the levy of the GST. There will be a zero tax on such items. The object of this is to ensure that the GST structure is not regressive or burdensome on the common man.

Of the balance items, a tax rate of 6 per cent, 12 per cent, 18 per cent and 26 per cent has been suggested. The principal rationale behind this tax structure is that items which are presently taxed at rates closer to the range of each of the slabs will be fitted into the particular rate of the slab.

Those currently taxed below 3 per cent as the total tax of the Centre and the States will be taxed at a zero rate. Those between 3-9 per cent will be taxed at a 6 per cent rate, those between 9-15 per cent will be taxed at 12 per cent and there would be a standard rate of 18 per cent.

Some have suggested that multiple tax rate is disadvantageous to the GST and would neutralise some of the advantages of a uniform tax structure. The reality is that a multiple tax rate in India is inevitable for several reasons.

Different items used by different segments of society have to be taxed differently. Otherwise the GST would be regressive. Air conditioners and hawai chappals cannot be taxed at the same rate. Total tax eventually collected has to be revenue neutral. The Government should not lose money necessary for expenditure nor make a windfall gain. The tax on some products in a narrow slab regime will substantially increase.

This would be highly inflationary. A commodity being taxed by the Centre and the State at 11 per cent at present will be taxed at 12 per cent. If it’s taxation is suddenly raised on standard rate of 18 per cent, it would disrupt the market and would be highly inflationary.

There are presently several items mainly used by the more affluent which are currently taxed at a VAT of 14.5 per cent and an excise of 12.5 per cent. If the cascading effect of these taxes and octroi is added, then range of taxation of these products is between 27-31 per cent. It has been proposed to the Council to fix the rate of these items at 26 per cent. Some of the items which are now being used by the lower middle classes will eventually be proposed to be shifted to the 18 per cent bracket.

With regard to demerit and luxury goods which are taxed globally at a higher rate, no rebates are contemplated. Each good would be taxed on the basis of its own demerit.

Compensation payable through cess

The GST will result in the consuming States increasing their revenues from the very first year onwards. The GST Council has fixed a 14 per cent revenue growth as a uniform, secular growth rate for all States. The revenue loss, if any, of a State has to be calculated on this basis. Some producing States may lose marginally in the initial years. The Constitutional amendment guarantees a five year compensation to these States.

The moot question is as to how is this to be funded by the Central Government? If the Central Government has to borrow money to fund the compensation, it would add to its liability and increasing the cost of borrowing by the Centre, the State Governments and the private sector.

There is no rationale for increasing direct tax for this purpose. Theoretically it has been argued that the compensation be funded out of an additional tax in the GST rather than by cess.

Assuming that the compensation is Rs. 50,000 crore for the first year, the total tax impact of funding the compensation through a tax would be abnormally high. A rupees 1.72 lakh crore of tax would have to be imposed for the Central Government to get Rs. 50,000 crores in order to fund the compensation. 50 per cent of the tax collected would go to the States as their GST share and of the balance 50 per cent in the hands of the Centre and 42 per cent more would go to the States as devolution. So out of every 100 rupees collected in GST only 29 per cent remains with the centre. The tax impact of this levy would be exorbitantly high and almost unbearable.

The alternative proposal is to have a cess account and continue same existing levies as cess for a period of five years before subsuming them as tax. This would include clean energy cess and cesses on luxury items and tobacco products, which in any case, presently also pay levy higher than 26 per cent. This would ensure no additional burden on the tax payer and yet be able to compensate the losing States. It may further be noticed that benefiting States are not compensating the losing states. The Centre, as a non-beneficiary, has to compensate and the proposal for continuing existing cesses for five years to the extent of compensation required is the more benign way of compensating the losing States without burdening the tax payer.

These are only at the proposal stage and would be discussed at length in the meeting of the GST Council early next month. Source – http://www.thehindubusinessline.com [26-10-2016]

Panagariya defends 4 GST rates and cess

October 27, 2016

NITI Aayog Vice-Chairman Arvind Panagariya on Monday took on critics of the Centre’s proposals to levy a cess on top of the Goods and Services Tax (GST) with four tax slabs ranging from six per cent to 26 per cent apart from a zero-tax category.

Cess helps

Moving to just two rates or a single GST rate, instead of the four rates in the range proposed by the finance ministry to the GST Council, could trigger inflation in some products and services, Mr. Panagariya said. The cess on GST would help the Centre compensate states for revenue losses for five years and could be wound down after that, he pointed out, as opposed to the alternative of imposing higher GST rates to ensure that the central exchequer has enough in its own kitty to compensate loss-making States.

“Two issues have been raised about the rates’ structure and the cess proposal on GST, with some people having said there are too many rates,” Mr. Panagariya said. He added that analysts who felt the gains expected to accrue from the new indirect tax regime would be lost with multiple tax rates, have ‘overstated’ the problem without understanding the historical context of India’s indirect tax reforms.

“Till 1999, there were about 11 rates of excise duty – which Yashwant Sinha as Finance Minister modified to three rates – 8 per cent, 16 per cent and 24 per cent. Since then, the rates have changed a lot and we again have multiple tax rates,” he pointed out.

Inflation impact

“A lot of people have identified GST as a single tax rate across commodities, when the larger part of the gain is having a single rate on any given product across the nation. If we do a single tax rate of say, 16 or 18 per cent, some rates will have to be raised very far up,” Mr. Panagariya said, highlighting the ‘inflation implications for those commodities that go from low rates to 16 per cent in one go.’ On the contrary, moving some goods from four per cent and others from eight per cent to a standard six per cent rate would not only moderate the inflation impact but also reduce the prospects of revenue loss.

“It’s more predictable. These are things that haven’t been picked up properly and most analysts haven’t thought through the historical background or the problems of adopting a single rate in one go,” Mr. Panagariya said. If the government were to opt for a straightforward GST regime without a cess, the tax rate would have to be much higher as 42 per cent of revenue is devolved to the states, to whom the Centre has committed to compensate for revenue losses in the first five years of GST implementation.

“100 per cent of the cess proceeds will go to the Centre and the advantage of cess is it’s supposed to be temporary. If it is imposed for the specific purpose of compensating the states, then it will be dropped after five years and you will get a lower rate,” he said. Source – http://www.thehindu.com [27-10-2016]

Time for Tamil Nadu government to pore over proposed GST rates

October 27, 2016

India’s tax reforms running a ground

October 27, 2016

Is the tax reform agenda running aground? That is the impression one gathers from the Centre’s proposals on the goods and services tax (GST) presented at the mid-October meeting of the GST Council. These proposals would have undermined the logic of the GST reform. Fortunately, they were not endorsed. The Centre proposed a four-rate structure — six, 12, 18 and 26 per cent. But it added a rider about a higher rate for some demerit goods and a four per cent rate for gold (against which bullion and jewellery trades are already lobbying). Add the zero rate which will apply to many basic goods and services and, in effect, we have a seven-rate structure proposal. In addition, there is some back-tracking on cesses which were supposed to be absorbed. It appears that a couple of them will continue. There is also a peculiar proposal for cesses on demerit goods to raise their rate well above the top 26-per cent rate and help raise the amount the Centre needs to compensate the states for any shortfall. One defence given is that the principle of a uniform rate for each item across the country has been preserved. But if that had not been done we would not have a General Sales Tax! The important goal of rate structure simplification has been sacrificed. There are clear signs of a takeover by the tax bureaucrats who probably designed a structure which would allow each taxable item to be placed in a bracket that would mean minimal change relative to the present applicable rate. This is also implicit in NITI Aayog Vice-Chairman Arvind Panagariya’s defence that the multiple rates would make the revenue collection and inflation impact more predictable. One can guess the tenor of the internal arguments. To drop the simpler 12-18-40 per cent proposal, someone would have pointed out that an 18-per cent rate on durables would lower the tax incidence too much and a 40-per cent rate would raise it too high. Other “anomalies” would have been identified. Such an attitude must rest on the belief that the present rate structure is right. But if that is the case why have the GST? Does not the key goal of simplification imply that the rates on some items will rise and on some will fall? Trying to preserve tax incidence on each item is a very clumsy way of implementing the revenue-neutrality requirement. Revenue neutrality has to apply to the total collection, not to how much is realised from each taxable item. The potential differential impact of this on states is mitigated by the commitment to protect this level for five years. One reason for the GST reform was to reduce the lobbying for changing the rates applicable on individual items. The structure proposed by the Union finance ministry and the stated theology of categorising items as essential, standard low, standard high, durables or luxury/demerit is an open invitation to producers’ and traders’ associations to put forward suitable arguments to be shifted to a lower rate category. The theology should be that there is a default standard rate and a limited number of departures from this in both directions. A simple GST structure will reduce the demands on the tax bureaucracy, contain corruption and competitive policy leveraging and allow savings in tax administration. The predictability concerns leading to the multiplerates proposal apply to the taxes on goods. The service tax is already a uniform and is meant to remain so in the new GST structure. But can this distinction between the G and S part of the new structure be maintained? Will we get lobbying for lower rate categories for services which can advance suitable theological arguments for this? The GST reform was to be a game-changer. What we got from the finance ministry was just a name-changer, with the old rates left more or less unchanged but given a different name. Implementing the GST by April 1, 2017 looks like a very big ask. The first year or so of GST implementation will generate a backlash as the hitches in the system surface and the in-built pressures for compliance drag former tax avoiders into the net. The key benefit of setoffs for taxes paid will kick in only after old input stocks are used up. Competition is expected to lead traders to pass on the set-offs but that too may take time to take effect. If implementation gets pushed forward to 2018 then electoral compulsions may dictate a postponement of implementation to 2019 after the election. Mr Jaitley, time is running out. With regard to direct taxes, the reform agenda seems to have gone into some sort of limbo. The Direct Tax Code has been put in cold storage and the finance ministers Budget speech focussed on a phased change in corporation tax with the removal of exemptions and a corresponding reduction in the corporation tax rate to 25 per cent over four years. But unlike the GST debate, there is no process of consultation or discussion to identify a road map which investors can use for their decisions. There is no indication of any rationalisation of personal taxation and the impression one gathers from the Budget speech is that the plethora of concessions will continue. The case for simplification is as great for direct taxes and is easier to pursue as it is within the central government’s competence. We need a public discussion on the need for additions and deletions to the armoury of direct taxes, applicability, and rate structure — a new Kaldor Report in effect. Let me here throw in one suggestion applicable to the GST and to direct taxes. The overall tax incidence sometimes has to be adjusted up or down for macroeconomic management. Once a rational rate structure is set up it is irrational to fiddle around with rates to secure a macroeconomic effect. Instead, tax reformers could consider the feasibility of Level Regulators for the GST and direct taxes that would adjust rates proportionately up or down by the amount required to secure the desired macroeconomic stimulus or restraint while preserving the structure. A similar inflation regulator could also be used to adjust direct tax slabs for inflation. If this could be done, the second part of the budget speech dealing with tax proposals could be reduced to one paragraph! – http://www.business-standard.com[27-10-2016]

Certificates of Appreciation to tax payers & SMS alert to salaried persons for TDS deductions

Posted on 26th Oct 2016 by Business So Simple in Miscellaneous

1. CBDT issues second round of Certificates of Appreciation to tax payers for their contribution towards Nation building

Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

25th October, 2016
Press Release

Sub: CBDT issues second round of Certificates of Appreciation to tax payers for their contribution towards Nation building.

The Honourable Finance Minister Shri Arun Jaitley, had personally handed over certificates to a few individuals at North Block to commence the program of taxpayer appreciation on 19th September, 2016. The Central Board of Direct Taxes has sent out such certificates of appreciation to 8.43 Lakh individual tax payers by e-mail in the following categories on the basis of the taxes paid by them for the Assessment Year 2016-17 :

i. Platinum : Tax contributed Rs. 1 Crore and above

ii. Gold : Tax contributed Rs. 50 Lakh to Rs. 1 Crore

iii. Silver : Tax contributed Rs. 10 Lakh to Rs.50 Lakh

iv. Bronze : Tax contributed Rs. 1 Lakh to Rs.10 Lakh

Taxpayers have lauded this new initiative and have reacted with pride and satisfaction that their contribution towards spending on various infrastructure development, social sector & welfare schemes out of revenues mobilized through tax payments have been acknowledged.

In continuation of the initiative, CBDT has started issuing the second round of Certificates to another 10.15 Lakh tax payers. While the earlier set of certificates had mostly included individuals who e-verified their returns, the second phase will cover those individuals who have filed their returns within the due date and their ITR-V has been received well before the 120 day period for submission provided under the Income Tax Act.

The CBDT urges taxpayers to e-file their returns in time and verify their return by submitting the Electronic Verification Code online or sending their ITR-V within the 120 day period so that they can also be acknowledged for their contribution. The Department is committed to continuous improvement of taxpayer services and seeks the cooperation of all taxpayers in contributing their fair share of taxes voluntarily.

(Meenakshi Goswami)
Commissioner of Income Tax
(Media & Technical Policy)
Official Spokesperson, CBDT.

2. Quarterly SMS Service for salaried persons about their TDS deductions

Dear Taxpayer,

Our Government is happy to launch Quartely SMS service for salaried persons about their TDS deductions.

Arun Jaitley
Finance Minister

GST Updates (26th Oct 2016)

Posted on 26th Oct 2016 by Business So Simple in Miscellaneous

Govt Firm on Multiple Rates and Cess on Luxury Goods

October 26, 2016

Notwithstanding criticism, the government is of the view that the proposed cess on luxury and sin goods under the goods and services tax (GST) regime is the best way of creating a corpus to compensate states for any revenue loss, as consumers will have to pay significantly more if the fund is financed from regular taxes.

The government is also firmly backing its four slab-GST structure as it feels it’s the most appropriate system for a country where indirect taxes contribute a big percentage of the exchequer’s revenue and where tax rates on mass consumption items should remain low.

The proposed tax structure has been criticised for being complicated and one that defeats the purpose of a single neat GST while the cess is seen as distortionary and one that would lead to cascading of taxes.

The GST Council, the apex body on the new tax regime, will meet again on November 3-4 to freeze the tax rate. The government is confident that consensus on the cess and the slabs will be arrived at in this meeting.

CHEAPEST OPTION

The government is targeting a Rs 50,000-crore corpus to fund states for any loss of revenue under GST and has proposed a cess on luxury and sin goods for this purpose.

The benefit of the cess is that it would entirely accrue to the Centre and could then be distributed to states.

The other option, backed by some states and experts, is to raise the highest tax rate instead as cess would cause cascading of taxes and would distort the GST. But, under this route, to create . 50,000-crore fund, the government estimated it would have to raise revenues of over Rs 1.7 lakh crore from tax paying consumers.

This is because of two reasons -42% devolution out of Centre’s taxes to states under the Fourteenth Finance Commission and sharing of GST.

In order to retain Rs 50,000 crore in the compensation fund, the centre would need about . 86,000 crore in additional tax before 42% devolution to states.

The NITI Aayog has also defended the cess despite its shortcomings in that there would not be input tax credit and said that it would anyway be temporary , as it would compensate the states for loss of revenue in the first five years of GST.

FOUR SLABS

Former finance minister P Chidambaram has criticised the proposed multiple rates. roposed multiple rates.

“A well designed GST is expected to have standard rate, plus and minus standard rate.

That latitude interpreted to me as multiple rate -zero to 100 that’s not GST. That is simply existing VAT rates in a new shape, old wine in a new bottle,“ he had said.

But the government is keen to press ahead with the four slab structure for GST, as it believes this is the best way of ensuring against revenue loss, while at the same time protecting consumers.

Under the proposed structure, some goods will be exempted from GST while others will be levied 6%, 12%, 18% and 26% rate.

The government expects goods taxed at 6% to account for 7.08% of tax base, the 12% slab to account for 28.3%, the 18% slab to account for 31.04% and the highest 26% rate to account for 24.8% of total revenue. Gold taxed at 4% will get the balance 8.7%.

European countries too have multiple levies and if one takes into account the differential VAT rates for tobacco and alcohol, most of these countries effectively have four rates. – http://www.economictimes.indiatimes.com [26-10-2016]

Revenue neutral rate structure of GST to be finalised next month

October 26, 2016

Asserting that the government is determined to implement GST from the next fiscal, Economic Affairs Secretary Shaktikanta Das on Tuesday expressed confidence that the revenue neutral rate structure will be decided the next month. “The rate structure on which there is a lot of discussion going on at the moment with the GST Council and also in the public domain… will get resolved in the next meeting of GST Council in the first week of November. Maybe, one or two sittings, it should come to a conclusion,” Das said at an Assocham event here. Dismissing criticisms, he said the rate structure has been prepared based on “a very practical basis”. – http://www.business-standard.com[26-10-2016]

Right Click: PMO Steps up to Hear Ecomm Complaint

October 26, 2016

The Prime Minister’s Office is looking to address complaints by ecommerce companies that the current rules are too restrictive pending the drafting of a longer-term plan for the key job generating sector by a NITI Aayog committee.

A meeting of top officials was held at the PMO on Thursday to discuss a range of issues including taxation, marketplace curbs and the offline-online conflict.

“There are a number of issues confronting the sector, including foreign investment, taxation,“ said a government official who attended the meeting. “The idea was to take a stock.“

The government has already set up a committee under NITI Aayog chief executive officer Amitabh Kant to review the ecommerce policy and issues faced by companies.

The PMO was drawn into the matter after ecommerce players approached several departments with multiple issues and in the absence of a single nodal ministry.

BRICKS AND MORTAR

The Department of Industrial Policy and Promotion (DIPP) had issued a press note in March laying down a new foreign direct investment (FDI) framework for ecommerce aimed at creating a level playing field vis-à-vis brick and mortar businesses. It allows 100% FDI in the marketplace model through the automatic route but such entities are not allowed to influence prices by offering discounts. Moreover, a single vendor cannot account for more than 25% of sales on an online marketplace. On the other hand, offline retailers met finance minister Arun Jaitley last week to press their case and raise the issue of unfair competition from online players through what they described as predatory discounting. Taxation has emerged as a major irritant for the ecommerce sector along with restrictions imposed by state governments.

States like Gujarat have imposed a separate entry tax on goods sold on online portals while others want to impose value added tax on top of the Centre’s service tax.

The ecommerce companies say they only facilitate sales and are not sellers themselves so they should only face service tax. States such as Uttar Pradesh even require consumers to file declarations with the state VAT department for goods above Rs. 5,000.

The NITI Aayog committee is expected to submit its report in a month’s time, spelling out a clear framework and bringing about predictability in the overall sectoral policy. Morgan Stanley estimates India’s ecommerce market will swell to $119 billion by 2020. The government sees ecommerce as having a huge potential for job creation by providing market access to small entrepreneurs and businesses that would find setting up physical retail establishments too expensive. – http://www.economictimes.indiatimes.com [26-10-2016]

Govt sources say cess is a better option than high tax rate

October 26, 2016

Just a week before the next Goods and Service Tax (GST) Council meeting on November 3 and 4, the view of states being compensated through a cess rather than a hike in the proposed GST rate has gained strength, with the Centre telling them that an increase in the tax rate has to yield around Rs 1.72 lakh crore. On the other hand, a cess which will yield Rs 50,000 crore a year would be enough to compensate states.

The Centre has proposed a four-slab structure — 6 per cent, 12 per cent, 18 per cent and 26 per cent— under the proposed GST and a cess beyond 26 per cent on luxury and sin goods. States are expected to lose around Rs 50,000 crore a year, which would be compensated by the Centre in full for the first five years. If the GST rates are raised beyond 26 per cent on luxury and sin goods, it must yield Rs 1.72 lakh crore to the states and the Centre, government sources said. This is so because half of this would be state GST, and of the remaining half— Rs 86,000 crore — 42 per cent, or around Rs 36,000 crore would go to states. This would leave Rs 50,000 crore in the Centre’s hands to compensate states.

The other option could have been to raise direct taxes, which did not find favour with the Centre, sources said.

While there has been demand from various quarters to have a maximum rate of 18 per cent, the government sources said it would have meant a Rs 1 lakh crore revenue loss to the Centre’s exchequer. This would have to be offset from increasing tax rates on items consumed by the poor, they said.

On the other hand, a 26 per cent peak tax rate would be mainly on consumer durable goods such as refrigerators which already are taxed at the combined rate of 25 per cent. So, there is not much of the difference between existing rate and the one proposed under the GST regime.

Moreover, there is no cascading and leakages under the GST regime which would save another 2-4 per cent on taxes, which should also be taken into account while comparing the present structure with the proposed peakGST rate.

The proposed GST, including a cess, would lead to a total of Rs 9.32 lakh crore to the Centre’s kitty.

The sources said that one can argue that the proposed GST is not an ideal one, but the government’s hands were tight.

While many experts have crticised the multiple tax rates proposed by the Centre for GST, the sources said even in Europe there are specific rates for products. while Luxembourg has four rates, other countries in theEuropean Union have three slabs. Former finance secretary Vijay Kelkar who headed the 13th Finance Commission that gave recommendations on GST, recently said the proposal was disappointing as it would rob the GST of its efficiency enhancing potential.

He had said the impact of the tax rate proposals on the economy would be only one fourth of the high potential impact that the 13th Finance Commission had estimated.

The next GST Council meeting’s agenda will be a packed one as it is expected to decide on the much-awaitedGST rates. Also, the issue of administrative control over tax assesses or dual control — claimed to have been settled earlier — has been cropped up and it will be decided upon at the meeting slated for November 3-4. In the last meeting on October 19, the Centre and states did manage to reach a broad agreement on the formula for compensation to loss-incurring states and a cess over the peak rate to fund the compensation.

The details of these, however, would be worked out at the next meeting, before tax rates can be fixed. Source -http://www.business-standard.com [26-10-2016]

GST will be game changer for media, entertainment industry

October 26, 2016

Minister of Information and Broadcasting M Venkaiah Naidu on Tuesday said the Goods and Services Tax (GST) will be a game-changer for the media and entertainment industry.

He also said that the media and entertainment industry needed to outline a firm roadmap to ensure the convergence of networks, devices and content, the core elements of the digital entertainment process.

“The Make in India, Skill India and Digital India campaigns are clearly positive signals of the new transformation including GST which is expected to be a game changer for the sector,” he said.

“The growth of varied platforms such as 4G, broadband, mobile technologies, digital media has enabled the sector to move towards convergence across platforms and content,” Naidu said addressing the 5th edition of the CII Big Picture Summit here.

“The Indian media and entertainment industry needs to outline a firm roadmap to ensure the convergence of networks, devices and content, the core elements of the digital entertainment process,” he said.

He also called upon the industry to give recommendations for tackling the “acute shortage” of professionals across different segments and assured the government’s commitment to work with the industry to develop infrastructure.

He said that there is a huge opportunity to transform India into a global hub for film shooting location and digital media.

“Our films, actors, content, technology are expanding footprint to new and emerging global markets, and the aim of the government is to make this transition smooth by creating an enabling regulatory environment,” added Naidu.

Speaking on the occasion TRAI Chairman R S Sharma said India was in the midst of a digital revolution which warranted creation of new business models.

“Given the changes and the convergence that this digital revolution is bringing, it is essential that a clear regulatory framework is put in place in order to minimise potential litigation,” said Sharma. Source – http://www.business-standard.com[26-10-2016]

Who killed GST?

October 26, 2016

It is becoming increasingly clear that what was expected to be a game-changing reform by ushering in the goods and services tax (GST) may end up being closer to a name-changing exercise. This statement is likely to be perceived by some as an exaggeration, but just consider the facts.

The proposed GST regime was to have replaced a plethora of taxes paid at different stages with a destination-based tax to be levied at one or two different rates with the benefit of a set-off for the taxes paid out in earlier stages of the value chain. The idea was also to avoid exemptions so that the overall rates remained reasonable without being unduly inflationary.

But what you may actually have instead are seven different rates of taxation under GST. Government officials would of course have you believe that there would be only four rates of taxation — the lowest being six per cent, followed by 12 per cent, 18 per cent and 26 per cent on what are called demerit or sin goods including luxury items. What they do not count, however, are three more rates — a zero rate for items that will remain outside the new tax regime, a four per cent tax on gold and acess rate on the highest slab of 26 per cent, aimed at compensating the states for their revenue loss.

Even after assuming that there would be four rates – ostensibly to protect the poor from high taxes and to tax the sin goods at a higher rate – the multiplicity of tax rates, along with a long list of exemptions will be enough to damage the fundamental structure of GST. Four rates would inevitably give rise to classification disputes over what items should be taxed at what rates, allow discretion to the taxman and his political masters in deciding what rate should be levied on what items and, most harmfully, encourage business lobbying, often resulting in illegal gratification of a few powerful people in the system.

In contrast, all the problems arising out of classification of disputes, discretion and lobbying by vested interests could have been addressed by opting for two rates —one standard and the other lower to address concerns over inflation in basic essential items like food. Remember that most expert committees have recommended an average revenue-neutral rate of 12-18 per cent.

The committee headed by Chief Economic Advisor Arvind Subramanian has suggested a standard rate of 18 per cent and a lower rate of 12 per cent and explained that the inflationary impact under such a structure with a revenue-neutral rate of 15 per cent would be minimal. The committee has also convincingly argued that precious metals like gold should not be taxed at a low rate as now but at ahigher rate as these are not items of purchase by the poor.

Yet, the die seems to have been cast in favour of aGST structure that will have at least four tax rates, several exemptions and a cess on sin goods. There are many other imperfections in the current proposal. For instance, the service tax could well be levied at three different rates, instead of just one standard rate (with 10 abatement rates) at present, which might give rise to a new set of classification disputes. The dispute between the Centre and the states over the jurisdiction of service tax assessment has not been fully resolved. The registration requirements for trade and industry are not yet fully free of complications. But these problems will pale into insignificance when compared to the larger problem of multiple rates, many exemptions and the continued levy of cess.

So, who is responsible for the GST dream turning sour? Is it India’s tax bureaucracy that continues to enjoy a tremendous clout in the administration of tax policy? Imagine a GST structure where there are only two rates for both goods and services, with virtually no exemptions and no cess! There will be no disputes over classifications and no scope for shifting some items from the highest rate to the lowest or the one above that. Discretion will go away. The tax appellate bodies will have less work.

Could it be that the revenue departments of the Centre and states were not comfortable with the idea of two rates and had argued that it would adversely affect revenue collections? For finance ministers, this would have been an alarm signal. No finance minister would like to lose revenue and widen the fiscal deficit. Some finance ministers in the states could have even seen merit in retaining the flexibility of multiple rates which would have given them the leeway to juggle around with rates to address concerns of specific interest groups. Finance ministers are also politicians and none of them probably would like the idea of a GST that could have been accused of having fuelled inflation. Hence, perhaps, their desire to keep a low rate and more exemptions, never mind that it would have undermined the spirit and long-term gains of GST.

Ranged against all these powerful forces was a lonely group of economists, who had headed committees to recommend fewer and reasonable rates under GST with a very small list of exempted items. Remember that the GST Council that is discussing and debating the rate structure and its secretariat have a preponderance of representatives of the revenue departments and finance ministers. For now, therefore, it seems the economists have lost out to the combined force of the tax bureaucracy and politics. – http://www.business-standard.com[26-10-2016]

Congress backs Pradhan over GST on petroleum products in MP

October 26, 2016

Opposition Congress today backed Union Oil Minister Dharmendra Pradhan’s suggestion that the BJP government in Madhya Pradesh should levy Goods and Services Tax (GST) on petroleum products in the state.

Speaking at the just-concluded Global Investors Summit here, Pradhan had asked states to agree on bringing all petroleum products under the GST regime and made specific appeal to Chief Minister Shivraj Singh Chouhan in this regard.

“In public interest, we demand the MP Government give permission to GST Council to levy GST on petroleum products in the State as wished by Pradhan. But no other taxes should be levied on petroleum products in the State,” MP Congress spokesman Narendra Saluja told reporters here.

“The State Government had been collecting huge revenue from taxes like VAT on petroleum products. As a result of this, these products have become too costly, especially for the common man in Madhya Pradesh in comparison to other States,” he added.

Pradhan, during the meet, told Chouhan consumption of petroleum products had shot up in the last 3-4 years.

“I urge the Chief Minister to accord permission to bring petroleum products under the GST ambit. This won’t hit revenue collection (of the Government),” he had said.

The Oil Minister had said petroleum is currently under ‘state list’ for the purpose of taxation under GST.

“GST Council will decide on this (taxation of petroleum products). On behalf of the industry, I would request the States to allow petroleum products to be brought under GST taxation,” he had said.

As per the GST Constitutional Amendment Bill, petroleum products such as LPG, kerosene and naptha would attract GST.

However, other items — crude oil, natural gas, petrol, diesel, high speed diesel and aviation turbine fuel –have been excluded from GST for initial years. Hence, these products will continue to be taxed in the hands of the states as they are being taxed at present. Source – http://www.business-standard.com [26-10-2016]

GST Updates (25th Oct 2016)

Posted on 25th Oct 2016 by Business So Simple in Miscellaneous

Chamber opposes cess on GST

October 25, 2016

The Tamil Nadu Chamber of Commerce and Industry senior president S. Rethinavelu has strongly opposed the idea of levying cess on select goods.

The GST council meeting, which was held last week, had proposed to levy cess on ultra luxury goods like big cars and a few tobacco items. This, the Centre, had pointed at sourcing funds towards compensation to States in the event of any revenue loss, which may be faced over next five years due to implementation of GST .

Whatsoever may be the purpose, the Centre cannot levy cess under the guise of compensating or finding source.

The very idea of introducing GST was to avoid and eliminate all kinds of additions and stick to the one tax principle.

The cess was nothing but diluting the idea of one tax policy.

Instead of levying a blanket cess, the government may consider enhancing higher rate of tax on such ultra luxury products and stop the issue from snowballing into deeper crisis.

The Chamber hoped the GST council meeting would earnestly consider the appeal and try to sort it out in the initial stages and ensure smooth introduction of the much awaited GST from beginning of the next fiscal, Mr. Rethinavelu added. Source -http://www.thehindu.com [25-10-2016]

OPS cabinet discusses new edu policy, GST

October 25, 2016

The Tamil Nadu cabinet on Monday met under the leadership of finance minister O Panneerselvam and discussed the new education policy and the structure of GST as explored at a recent meeting in New Delhi. This is the second meeting convened by the finance minister in less than a week.

“The cabinet dwelt on the concerns to be addressed in the education policy, which is taken up for discussion by the Central Advisory Board of Education (CABE) in its 64th meeting in New Delhi on Tuesday,” sources said. In his recent statement, DMK leader M K Stalin had urged the state to unequivocally object to the policy, which according to him ruined the principles of social and equal justice, reservation policies, language, rights enshrined in Right to Education Act, and rights of the minorities. The CABE meet is expected to discuss about improvement of learning outcome, rationalization of posting of teachers in rural areas, national achievement survey, besides introduction of vocational subjects at secondary school, joyful learning and anganwadis to be co-located with primary schools.

“The cabinet also discussed about the state’s reservations over GST tax structure,” said a source. The recent GST council meet convened by Union finance minister Arun Jaitley failed to arrive at a consensus on a four-slab tax structure and put off the decision to next meet slated for November 3 and 4. The AIADMK government was objecting to the implementation of GST in the state, a manufacturing hub, as it would have have a substantial loss in its fiscal autonomy. Source -http://timesofindia.indiatimes.com [25-10-2016]

GST will be Catalyst for Investment Inflows: French MoS for Industry

October 25, 2016

Christophe Sirugue, French Minister of State for Industry, spoke to ET’s Dipanjan Roy Chaudhury on growing Indo-French economic partnership on a visit to New Delhi.

On quantum of French investments in India

France is the third largest investor in India. French investment stock is well over 20 billion. French companies in India have a significant and diversified presence: most sectors of activity are represented through more than 1,000 entities spread over the Indian territory, employing over 3,00,000 skilled workers. French companies are set to bring in more than a billion euros annually in new investments over the next few years. French companies invest in India and they innovate in India, through more than 25 R&D centers.

On sectors attractive to French investors under Make in India initiative

Make in India programme offers tremendous opportunities for French companies, which have understood this well and incorporated it in their projects. The areas in which French companies are well-known for their expertise and in which India has immense needs, such as the development of Smart Cities, sustainable modes of transport, renewable energy, have particularly promising potential.

French companies account for 10% of India’s installed capacity in the solar energy sector. Besides they are present in the automobile industry, chemicals and pharmaceuticals, mechanical engineering, aerospace industry, services etc. Renault’s Kwid has met with great success among Indian consumers; Alstom Transport will build 800 electric locomotives in a “Make in India“ unit in Bihar; Sanofi recently set up a vaccine production facility near Hyderabad.

On ease of doing business in India

Reforms initiated by Prime Minister Modi for facilitating FDI are going in the right direction: adoption of the GST is a very important step, which will help catalyse investment inflows. Raising the foreign investment rate in certain sectors, such as in insurance, has also contributed to India’s attractiveness. AXA has made a major investment to increase its share in the Bharti group.

On status of French assisted nuclear power plant in Jaitapur

The Jaitapur project negotiations are progressing well, in continuity with the impetus received during the State Visit of President François Hollande in January this year. A road map has been adopted for the negotiations, the goal being to wrap them up during the semester to come. Six EPRs means a total capacity of almost 10 GW, which will be a major contribution to India’s goal of generating 63 GW of nuclear energy by 2030.

On Indian’s defence acquisitions from France

The recent signing of the Rafale contract was a major step, paving the way for unprecedented industrial and technological cooperation for the 40 years to come. The significance of the 50% offsets in the Rafale contract, will enable the Indian defence industry to develop its technological capabilities and know-how in crucial areas. – http://www.economictimes.indiatimes.com [25-10-2016]

World will toe GST invoice matching, says Deloitte’s David Raistrick

October 25, 2016

World will toe GST invoice matching, says Deloitte’s David Raistrick

Invoice-to-invoice matching under the proposed goods and service tax (GST) in India will make it harder for the cash economy and other parts of the world will soon like to emulate this feature, says David Raistrick, Deloitte Global Leader for indirect tax.

“India is the only country that is doing it (invoice-to-invoice matching). This is unique…People will have to comply or they will fall out of the GST chain,” Raistrick told ET in an interview.

He said invoice-to-invoice matching will make it harder for people to use cash and for people to be in business and not pay tax. “Only those who play in the cash economy will feel the pressure as they will lose credit,” he added.

Raistrick, who supports indirect tax practices in Deloitte member firms and has also worked at the UK tax authority HM Revenue and Customs, sees introduction of this game-changing feature being done at the opportune time as the country is going in for a new tax framework and believes other global tax administrations to follow suit.

“It is the right time to do as it’s a new tax. It’s going to happen everywhere. It should generate more revenues for the government and improve compliance,” he said.

Raistrick said if India sticks to 18% standard rate that would be reasonable, but pointed out that global norm was also to include petroleum and alcohol within GST but have additional excise duty levied on it to allow industrial consumers to claim credit.

“I don’t think prices will start shooting up. Rates as proposed look sensible. What is proposed is below global average. Food, water goods of peoples’ interest can be lower…. Globally, that (imposing GST on petroleum and alcohol) has become a norm. I would not say what India should do but this is what the world has done,” he said.

India is proposing to roll out GST from April 1, 2017, to create a seamless national market by merging central and state taxes on goods and services.

He said GST will make it easy for foreign investors as they know and understand this tax and make the country an attractive investment destination.

“India has a host of indirect taxes…. hidden from consumer….the current tax regime is very complex. It puts off foreign investment…. International business understands GST, so would feel more comfortable now,” he added.

The norm for launching new tax is 9-18 months and India’s deadline may be very tight but the Central Board of Excise and Customs is preparing and that should help, he said. “The way CBEC has taken upon itself to prepare is fantastic. I have never seen any tax authority do as much. It will definitely help taxpayers. For small business there will be a challenge, but once implemented, it would be quite positive and administrative compliance burden would come down,” he said.

He said some had already started acting and they would be fine. International businesses know GST so they will be fine but those that never believed that GST would be happening and deferred preparations till January “would not be fine”.

On provisions such as anti-profiteering clause, he said: “I don’t personally like such provisions… I don’t think the new tax will be inflationary for India. Normal market economics would come into play.” Source – economictimes.indiatimes.com [25-10-2016]

Manish Sisodia lauds Jaitley over GST, says ‘grateful’ to him

October 25, 2016

In a rare show of admiration, Deputy chief minister Manish Sisodia on Monday lauded Union Finance Minister Arun Jaitley over the passage of the GST Bill, saying the AAP government is “grateful” to him for pushing for tax reforms in the country.

Addressing a seminar on GST here, Sisodia said the Delhi government is a supporter of new tax reforms subject to “non-harassment” of traders.

“We should congratulate the Centre and Jaitleyji for bringing GST. As per my view, the governments which have implemented the GST across the world have been unpopular (among some sections who have to adjust during the transition),” he said. He said GST becomes “unpopular” among the sections who have to adjust during the transition from one system of taxes to another. But it’s (GST) beneficial for the public at large.

“We are grateful to Jaitleyji for pushing for the tax reforms after talking to all party leaders. GST is the need of the country…I am supporter of GST and Delhi government is also a supporter of GST subject to non-harassment of traders,” the Deputy chief minister said.

The Delhi government had been at loggerheads with the Union Finance Minister in the past over alleged irregularities in Delhi Districts Cricket Association (DDCA). “Delhi government has cleared its stand that there should be Rs 20 lakh threshold limit under GST, but some states want to bring it down upto Rs 5 to 10 lakh,” he added.

He further said traders should be apprised of benefits of GST in Delhi. In August this year, The Delhi Assembly had ratified the GST Bill. Source – timesofindia.indiatimes.com [25-10-2016]

Centre’s proposals on GST rates find favour with NITI Aayog

October 25, 2016

NITI Aayog vice-chairman Arvind Panagariya on Monday defended the Centre’s proposal of a four-slab goods and services tax (GST) rate structure, beside a cess on luxury and ‘sin’ goods. There is criticism in some quarters that the multiple rates would distort the structure of the proposed indirect tax regime. Panagariya also said the April 1 target for rolling out a national GST was possible, though a race against time. “The criticism that the relevance of GST would be lost due to the proposed four-slab structure is a bit overstated, Panagariya told reporters. One should note, he said, that while there might not be asingle GST rate for all items, each item would have a single rate panIndia. No tax theory, he added, said two slabs were better than a bit more. If GST would have only one rate or two rates, items attracting a levy of three or eight per cent would see much higher inflation. It is so as rates on these items would have to be stretched much more in that case. Those attracting three to eight per cent now are proposed to come under a six per cent GST rate. The other rates are 12, 18 and 26 per cent, plus a cess. Panagariya said this gave predictability to the tax structure, as rates were not altered too much as compared to the present one. This would not have been possible if there had been a twin or single rates. GST, he added, was a process. Hopefully, later, there would be gradual movement towards a single rate. Giving historical perspective, Panagariya said former finance minister Yashwant Sinha had converged 11 excise rates to three — of eight, 16 and 24 per cent — in 1999-2000. There were two additional non-VAT rates on luxury goods. On the proposed move to impose a cess over 26 per cent on luxury and sin goods, he said if this was replaced with another tax, the rate would be much higher than the cess, as 42 per cent of it would go to states. Beside, a cess could be temporary and be done away with, once its purpose to compensate states for revenue loss in the first five years of GST roll-out, is over. The GST Council could not decide on the rates on Thursday as discussion on cess was inconclusive. If cess is decided, then tax rates could be fixed, finance minister Arun Jaitley had said. The next Council meeting on November 3-4 would try to evolve aconsensus on the rates. Former Finance Secretary Vijay Kelkar, who headed the 13th Finance Commission (TFC) that gave recommendations on GST, recently said the proposed structure was disappointing, as it would rob the GST of efficiency enhancing potential. Hed also said the impact of the tax rate proposals on the economy would be only a fourth of the high potential impact the TFC had estimated. Pratik Jain, partner with PwC, said multiple rates werent desirable but were perhaps the only realistic way for a consensus. “In particular, a six per cent band is necessary as many products, including food items, currently attract an effective rate of five to six per cent, and having those at a 12 per cent slab could have been inflationary,” he said. However, he said, a cess on products under the higher slab was not a good idea. It would complicate compliance for business and could lead to cascading of taxes. “Instead, it might be a better idea to increase the tax rate nominally, if needed. In any case, the government might not need to compensate the states if there is revenue buoyancy,” he said. – http://www.business-standard.com[25-10-2016]

Four slab rate structure for GST is better than a single rate

October 25, 2016

Four slab rate structure for GST is better than a single rate: Arvind Panagariya

NITI Aayog, government’s premier think-tank, has supported the four slab structure for GST besides arguing in favour of cess after several critics have questioned the proposed structure saying that it would dilute the original idea of a single unified rate.

“A four slab rate structure for GST is better than going in one go on to a single rate as in the latter price effect on specific products could be substantial,” Aayog vice chairman and noted economist Arvind Panagariya said.

According to Panagariya, the revenues loss prospects under four slabs will be much less as opposed to the single rate, would be predictable and would give a better picture of what the unified rate could be going forward. “GST is a process and we are gradually heading towards it,” he added.

The Centre has proposed a four-slab rate structure for the Goods & Services Tax, ranging from zero to 26%. The structure proposes the GST at 0 per cent on a host of goods and services, including food, health and education services, and at 26 per cent on luxury items, such as fastmoving consumer goods and consumer durables.

On consumption of ultra-luxury items and demerit goods, such as big cars and tobacco products, it proposes imposition of cess over and above a 26 per cent GST rate. The GST is proposed to be levied at 6 per cent, 12 per cent or 18 per cent on the remaining goods and services.

Further supporting the imposition of cess under GST, Panagariya said that it is temporary in nature and could be withdrawn anytime. “Centre has to compensate states for revenue loss. Keeping it separate from tax rate will mean that it can be withdrawn anytime,” he added.

Commenting on whether the government will be able to meet the April 1 deadline for GST roll-out, Panagariya said government is working towards it and there is no reason why I should believe that it will not happen.

“It’s a little bit of race against time but certainly well within the realm if possibility,” he added. Source -economictimes.indiatimes.com [25-10-2016]

Multiple-rate GST will be disastrous

October 25, 2016

The proposed multiple rate GST structure will be “disastrous” and nothing more than same old VAT rates in a “new shape”, former finance minister P Chidambaram said on Monday.

“We sincerely hope that we do not misinterpret the design of standard, standard minus and plus rates of GST. We can have 20 rates. It will be disastrous and that cannot be GST, it will be fooling the country,” Chidambaram told an interactive session with IIM Calcutta students on economic reforms.

“A well designed GST is expected to have standard rate, plus and minus standard rate. That latitude interpreted to me as multiple rate — zero to 100 — that’s not GST. That is simply existing VAT rates in a new shape, old wine in a new bottle,” he said.

He said he hoped better counsel would prevail which would reduce the number of rates to “three or so”.

The new Goods and Services Tax (GST) will subsume a number of indirect taxes at the state as well as central level and is targeted for rollout from April 1, 2017.

About states disagreeing and joining the second wave of GST reform, Chidambaram said that even when UPA had implemented VAT, some had not joined initially and they had joined later, and so eventually all states will fall in line.

“Whatever, be the standard rates it will raise service tax,” he said.

At the GST Council meeting last week, there was virtual consensus among states on imposing of the cess, which tax experts and industry have opposed vehemently, saying it defeats the very concept of one-nation, one-tax.

Besides, a four-slab tax structure of 6, 12, 18 and 26 per cent with lower tariff for essential items and the highest bracket for luxury and sin goods also found favour with them but a decision was put off to the next meeting on November 3-4. Source -www.business-standard.com [25-10-2016]

GST Updates (24th Oct 2016)

Posted on 24th Oct 2016 by Business So Simple in Miscellaneous

Huge challenges for CAs after GST implementation

October 24, 2016

Addressing the ICAI International Conference ‘Jnana Yagna’ here, the Urban Development Minister said Chartered Accountants should play a vital role in addressing issues such as curbing black money.

“Introduction of GST (Goods and Services Tax), which is round the corner is one of the pioneering and game changing transformative initiatives taking shape in our country. GST introduction is a huge challenge and opportunity for the Chartered Accountants and you need to get ready for enabling this change in a smooth and seamless manner,” Venkaiah added.

“This is a huge opportunity for all of you to be partners in the progress of our nation,” the Minister said.

He further said, it is a matter of pride that in none of the scandals or scams any Indian CA firm is reported to have been involved and it is the international accounting firms which were reportedly involved in different frauds and scams in India. Source – timesofindia.indiatimes.com [24-10-2016]

GST law to boost domestic demand, drive job creation

October 24, 2016

GST law to boost domestic demand, drive job creation: PM Narendra Modi

The Goods and Services Tax law will boost domestic demand, create more opportunities for domestic business and drive job creation, Prime Minister Narendra Modi said today.

He said so far the domestic market has been fragmented and different taxes across different states have made goods and services more expensive.

“This has hampered growth in inter-state commerce. We are enacting a Goods and Services Tax law, to create an integrated national market. This will further boost domestic demand, create more opportunities for Indian business and drive job creation,” he said.

India today, Modi said, is the fastest growing major economy, and one of the most attractive destinations for FDI.

“Indeed, we stand out as a bright spot in the global economy. This is the result of India’s fundamental strengths — democracy, demographic dividend and demand. We need to fully harness these strengths. This can happen only if businesses make long-term investments that create jobs and sustain economic growth,” he said.

Addressing the valedictory function of an international conference on arbitration, the Prime Minister said India is experiencing a digital revolution which is bridging the digital and economic divide in the society in general and rural society in particular.

“A boost to the rural economy through this revolution will make the Indian economy even more robust,” he said.

Innovative business models and app-based start-ups have instilled a spirit of enterprise among Indians, he noted, adding that yesterday’s job seekers are becoming today’s job creators.

“The legal profession is also opening up to the promises of the digital world. From cause-lists to case-laws, the lawyer’s library is now just a click away on your mobile phone,” he said. Source – economictimes.indiatimes.com [24-10-2016]

GST Will Lead to Mergers, Rise of World Class Cos, Says Mobius

October 22, 2016

In an exclusive interview with ET Now’s Tanvir Gill, Mark Mobius, executive chairman, Templeton EM, says GST is unlikely to be fully implemented before end of next year. Edited excerpts:

The GST council has proposed a structure of levying cess on ultra-luxury and sin goods, a departure from original GST concept. The sound bites that you are getting as of now, do they convince you that they could perhaps make it at 11th hour 59th minute?

No I do not think that is possible because there are so many different forces at work that you cannot expect a clean immediate implementation of this system.

So what would be a reasonable time line according to you?

I think the end of next year.

So it gets pushed back by eight-nine months?

For complete implementation. In the mean time, there will be incremental changes taking place which will be very beneficial. But to be realistic, we have to take longer term in consideration. I would be happy to be surprised. It will be wonderful if they are able to do it before that, but I think it will be a little longer than we expect.

The reason I ask you this is because you had told me that with GST passage, you would look at doubling your India investments. Even in your last interview, you said that your India allocation stands at 7.5-8%, the EM fund can go up to 14%, even 20% plus. So when would you start increasing your allocation? What would you want to see to make that decision?

A lot of it will depend on what happens to pricing of the securities. When I say that I do not mean just this absolute stock price but also the earnings. If earnings surge, then we can justify doubling, tripling our allocation; and of course, when we talk about GST, we talk about what impact that has on the earnings of the companies. We have to be flexible and look at each company on an individual basis and determine what they are going to be and what impact the GST is going to have on those earnings. In some cases, it will be as much as 10% increase in earnings and that can be very significant.

Yes I want to talk about that because even S&P has put out a note that if GST goes through as per plan, then India’s potential of 8%-plus would very much come to the fore. Do you agree with that?

I agree. Yes. Full implementation. This is very important. – http://www.economictimes.indiatimes.com [22-10-2016]

CAG gearing up for audit changes in view of GST rollout

October 22, 2016

As the government goes full throttle to roll out Goods and Services Tax (GST) from April 1, the CAG today said it is ready for the new challenges and will take steps to enhance effectiveness of revenue audit.

Comptroller and Auditor General (CAG) Shashi Kant Sharma said the department has been alert to the emerging new challenges in the area of revenue administration, including the GST and various other reform measures taken by the government to improve tax collection and combat tax avoidance.

In the coming days, the CAG will take measures that would enhance the effectiveness of revenue audit such that it contributes more effectively to the fiscal sustainability of the governments, he added.

During the valedictory function of the two-day event of CAG, Sharma said reforms undertaken by the government are likely to improve budgetary process and tax administration in a big way.

“Amalgamation of the Railways and General budgets has brought the 92-year-old practice to an end. The government proposes to advance the budget presentation date from the last week of February. Further, plan and non-plan expenditure are proposed to be merged.

“Many more sectors have been opened up to foreign direct investment. Debt recovery is being made easier by amending the SARFAESI Act. And the most significant reform is introduction of GST,” he said.

Observing that CAG has taken due cognizance of these new challenges, Sharma said the department has taken note of the changing paradigm in revenue administration, including the challenges posed by shadow economy and black money, transfer pricing, accommodation bills etc and the need to manage large volumes of digital information that will emerge from increasing automation of tax filing.

“Notwithstanding the fact that the revenue audit has led to identification and recovery of thousands of crore of tax amounts every year, the audit department has faced challenges in accessing the data and information of taxpayers, which significantly limits the potential and effectiveness of audit,” he said.

He further said the urban local bodies and Panchayati Raj Institutions that constitute the third tier of government have come to occupy a very important place.

These bodies receive significant flows of funds, now close to Rs 14 lakh crore annually, but suffer from poor governance, weak financial management and poor accountability, he said. Source – www.financialexpress.com [22-10-2016]

GST Updates (22 Oct 2016)

Posted on 22nd Oct 2016 by Business So Simple in Miscellaneous

GSTN ready to migrate existing 80 lakh assessees from Nov. 8, 2016

October 22, 2016

GSTN ready to migrate existing 80 lakh assessees from Nov. 8, 2016

Goods and Service Tax Network (GSTN) is ready to enroll 80 lakh existing assessees of Excise, VAT, and Service Tax on its platform.

We will enable the GSTN platform for migration of existing assessee with effect from November 8, 2016, said Prakash Kumar, Chief Executive Officer, GSTN. This move will help assessees to do their business without any hassle from April 1 next year on implementation of GST.

He further pointed that the assessee’s details would come onto the GSTN Platform, but they would not be able to use other features from November 8, itself.

GST roll out stuck again

October 22, 2016

GST roll out stuck again

After raising high expectations, Finance Minister Arun Jaitley-headed GST Council has hit a speed breaker which is rather annoying. This does not augur well for the economy that needs as big bang a reform as the Goods and Services Tax, sooner than later. Given the diversity of economic development, divergence of opinion among states is not surprising. To narrow down such differences itself is the job of the GST Council. The first two meetings of the Council appeared to be quite promising, raising hopes about the roll out of the new tax regime from April 2017. Even on the opening day of the third meeting of the GST Council on October 18, it looked as if the agreement on the all-important issue of the rates would be stitched and announced the next day. But instead of a broad consensus, the three-day meeting collapsed on the second day with wide differences among the Centre and the states and within the states coming out in the open.

It now looks difficult for the GST Council to finish its work and enable the codification of rates and other important criteria for administering the most important indirect tax reform, into a Bill for passage of Parliament in the winter session. The Centre cannot escape from its blame for seeking to distort the concept of simplifying tax administration. Instead of making the GST people-friendly, the surprise proposals would put more burden on the tax payers. By flagging four slabs to include the priority, less priority, standard and so-called `sin’ goods, the whole concept of tax compliance and rationalisation has been turned upside down. The most regressive among the proposal is to slap a cess over and above the highest slab, believed to be 26% to make for the shortfalls in the revenues of the states.

As it is, the GST dispensation approved by Parliament is flawed with key items like petroleum and natural gas being kept out of the purview. It is also believed that the most of the items of use to the middle class would either be covered in the top or the standard rate which could be 18% or 20%. There would be exemptions as well for the priority goods while for the less priority ones, the rate could be 12% or so. This complex structure would surely open a gold mine for the lobbyists among different industry groups. The fresh proposals have created so much confusion that even the ground covered in the first two meetings on threshold limit and assessing authorities is lost. Let it not be a lost opportunity. Source – www.deccanherald.com [22-10-2016]

GST Updates (21st Oct 2016)

Posted on 21st Oct 2016 by Business So Simple in Miscellaneous

Shifting the GST goalpost

October 21, 2016

The outcomes of the latest meeting of the Council tasked with steering the Goods and Services Tax regime are worrying. For one, it leaves the Centre hard-pressed to meet its intended deadline for the new indirect tax regime, April 1, 2017. Finance Minister Arun Jaitley had set a November 22 target to resolve all operational issues with State representatives in the Council so that the rates and implementation modalities could be codified into law and passed by Parliament in the winter session. When it met for the first time in late September, things appeared to be on track, with the Council agreeing almost unanimously on technicalities such as the turnover thresholds for firms to be covered under the GST and the division of administrative control over tax assessees between the Centre and the States. A time-bound road map to finalise remaining details, such as the tax rates, compensation for States in case of revenue loss under the new system, as well as the legislative actions required in Parliament and the State Assemblies, was also agreed upon.

As the winter session approaches, that spirit of cooperation has evaporated: the Council has agreed on precious little, including the tax rates proposed by the Centre. Worse, the pact reached earlier on administrative control of manufacturing sector assessees has unravelled with States raising fresh concerns. The proposal to subsume in the GST all cess levies, several of them introduced by the present NDA government, has been discarded. This was a critical part of the official GST pitch and was backed by the Council in September. But now the Finance Ministry is keen on an additional cess on ultra-luxury and ‘sin’ goods to fund compensation for States losing revenue. It has suggested a cess may be better than the 40 per cent slab for demerit goods, mooted by a committee led by Chief Economic Advisor Arvind Subramanian along with two other slabs of 12 per cent and 17-18 per cent. With a four-tier GST rate structure, a 4 per cent tax on gold (in line with the CEA’s advice), in addition to some exemptions that would be granted as tax refunds, topped with the new cess to compensate States, the new regime could well just be old wine in a new bottle, from the taxpayers’ perspective. Mr. Jaitley has explained that the rate proposals are meant to prevent a spurt in retail inflation. But to bring about convergence with States at the Council’s next meetings in November and bring its showcase reform item back on track, the government needs to return to the drawing board. Source – www.thehindu.com [21-10-2016]

GST cess confusion: Focus should be having most products at 18% rate

October 21, 2016

The third meeting of the GST council (October 18-19), primarily to finalise the rate structure, compensation mechanism to states and issue of ‘dual control’ in tax administration can be termed as ‘partially’ successful.

There were two key outcomes from the meeting. First, there seems to be a consensus on the mechanism of compensation by the centre to the states by taking FY16 as the base year and 14% annual growth over the base year. This looks far simpler than earlier discussions about taking three years out of last five or an average of last five years, etc., for arriving at the base amount. States seemed happy with this consensus and with that the focus moved to the rate structure.

As expected, the proposal mooted was for multiple rate slabs of 6, 12, 18 and 26%. This is in contrast with earlier discussions (emanating out of the CEA report) about primarily two slabs of 12 and 18, with a proposition of 40% on few ‘sin’ or ‘luxury’ products. Having a lower rate of 6%, which seems to be primarily meant for food products and other essential items, makes sense as increasing the effective rate on these products to 12% could have been inflationary and detrimental to the common man.

The other departure from the earlier thinking was to have a new slab of 26% for certain products, possibly the ones the CEA recommended to put in 40% slab such as tobacco, luxury cars etc. Principally, this line of thinking looks reasonable, as a differential of 22% (between 40% and standard rate of 18%) was too steep and unprecedented. However, there were two big surprises here. First, there was a reference to ‘luxury products’, other than those contemplated in the CEA report. While there were no official words on the additional products which could fall here, possibility of certain consumer durable and FMCG products falling into this category was doing the rounds. Till now, the industry (including FMCG, consumer durables etc.) had been expecting a standard rate of around 18% and had factored that in their business plans. The government had also been saying that there would be a consequent price reduction in these segments as the effective rate of tax would drop from current 25-27% to around 18%, making them cheaper for the common man.

It appears that the government is trying to compare the possible GST rates with the existing rate of tax on a product-by-product basis, which may not be the best strategy, when the country is on the cusp of a radical tax reform. Instead, the focus should be to have most of the products at a standard rate (of 18%) and bank on increased consumption, more manufacturing and economic activity leading to revenue buoyancy.

The second and bigger issue is the proposal that products under this category could attract a central cess (under Article 270 of the Constitution, Centre has a right to impose such cesses) to fund the compensation to be given to states, if any. While there does not seem to be a consensus on this cess as yet, initial indications are that most states are in agreement with the mechanism. I think having a cess is not a good idea and there are many reasons for it.

To start with, right from the first discussion paper on GST, issued by the then Empowered Committee in 2009, industry has been told that all cesses and surcharges will be subsumed under GST. This has been reiterated over the years in various official documents and the government interactions, including the FAQ document issued by CBEC last month, which says that ‘central surcharges and cesses so far as they relate to supply of goods and services’ would be subsumed in GST. A simple tax rate structure, with uniform classification across states, with no additional layering of tax, was one of the reasons why GST got such an overwhelming support from all stakeholders.

Currently, many of these cesses (like automobile cess, NCCD, etc.) are applied at the stage of manufacturing only and are not credible for businesses. However, since GST is on all supplies, it is not clear whether this cess will also apply at each leg of supply chain, which would further lead to cascading of tax. Further, it seems that thinking is to have different rates of cess for different products, as the idea is to recover the differential between the current effective rate of tax and 26%, which will lead to further complications.

Also, it is not certain if the Centre would actually need to compensate the states, given the fact that there are estimates of additional GDP growth between 1-2% on account of GST. The experience of VAT also suggests that revenue growth of the states could be significant. Economists would argue that if GST rates are moderate, it would boost the consumption and will result in overall increase of tax base for the government.

It is also expected that parallel economy will shrink under GST, which could also lead to increased income tax collections. In any case, there are various taxes which are outside the GST net, which can be used as additional revenue generating measures. These include excise duty on tobacco, taxes on petroleum products, stamp duties and so on.

The other problem with having a slab of 26% is the subjectivity in defining what would constitute a ‘luxury’ product. Till a decade back, probably a television could qualify as a luxury product, which is not the case today. Same is the case with four wheelers, air conditioners and so on. Similarly, it’s a matter of debate as to whether an aerated beverage is a luxury product or not, given that studies point that more than 90% sales are made to people other than high income class.

As it is, India is making a departure from a classical GST system in many ways, including proposing the multiple rate structure, which seems to be the only realistic way of moving ahead as of now. However, imposition of cess and broad-basing of this proposed 26% slab, may be too much of a diversion from what was envisaged till now. This does require a serious rethink. Source – www.financialexpress.com [21-10-2016]

GST Updates (20 Oct 2016)

Posted on 20th Oct 2016 by Business So Simple in Miscellaneous

No decision on GST rates–Key takeaways from Third Meeting of GST council

October 20, 2016

The GST Council headed by Union Finance Minister, Shri Arun Jaitley, has to recommend various issues related to GST, viz., GST rates, administrative control over assessee, compensation to States, etc., in its third Meeting scheduled on 18-20 October, 2016. However,the third meeting of GST council concluded abruptly on October 19, 2016, a day ahead of its schedule. Key takeaways from such meeting are given hereunder:

1.The Centre has proposed four-tiered rate structure, i.e., 6%, 12%, 18% and 26%.Such proposal also includes tax rate of 4% on gold. Maximum rate of 26% has been proposed on demerit or luxuries goods. However, the GST meeting was concluded without any final decision on GST rates. Decision on GST rates will be decided in next meeting of GST council to be held in November, 2016.

2.The Center and States approved the formula for giving compensation to loss-incurring States. They proposed cess over the GST rates to fund such compensation. Thus, the GST council has virtually agreed on such method of funding the compensation. However, a final announcement will be made after working out the details, said Union Finance Minister, Arun Jaitley.

3.Earlier the GST council has decided that States would have control over VAT assessees having an annual turnover of Rs 1.5 crores. For those above this threshold, a model of cross empowerment will be followed, wherein the control will be divided between the Centre and the States. The Center would have control over assessees in the services sector till the time States established a mechanism to monitor such assessees. However, that consensus broke down later on. Now the GST council revisited such issue of administrative control. However, such issue is wide open again as GST council had not taken any decision on this.

GST Council meet ends without any decision on rates

October 20, 2016

Industry and consumers would have to wait at least a fortnight to know the much-awaited goods and services tax (GST) rates, as the meeting of the Council to decide it ended abruptly on Wednesday, a day ahead of schedule. The Centre and the states failed to reach any consensus on it. Also, the issue of administrative control over tax assesses or dual control – claimed to have been settled earlier – cropped up again. It was decided the GST Council would meet again on November 3 and 4. The Centre and states, however, did manage to reach a broad agreement on the formula for compensation to loss-incurring states and a cess over the peak rate to fund the compensation. The details of these would be worked out at the next meeting, before tax rates can be fixed. The issue of tax rates, for which the Centre has suggested four slabs and a cess, would also be taken up in the November meeting. “On the issue of source of funds from which compensation to the states would be funded, the GST Council has virtually converged towards a consensus. But a formal announcement on that will be made after working out the details. Once that is decided, a decision on the rate structure will become easier,” Union Finance Minister Arun Jaitley told reporters after the meeting chaired by him. He said once the issue of whether or not the compensation was to be funded out of the rate structure itself or out of some cess is answered, the rate structure can be determined independently. “We cannot under-tax or over-tax to keep rate slabs minimum… the attempt was to fit zero-rated items while levying a six per cent tax on items that are currently charged three to nine per cent tax. We will finalise the tax structure at the next meeting,” he said. Revenue Secretary Hasmukh Adhia said first tax slabs have to be decided, then there would be decision on which goods and services go where. The GST Council will again on November 9 and 10, when it is slated to discuss draft model GST Bill. Differences between states and the Centre over dual administrative control cropped up again, forcing the council to look at it again. Jaitly said, “We started a discussion on the issue of dual control and division of authority with regards to assessments. The underlying principle, which has been agreed on, is that a single assessee will be assessed by a single authority. So who will the Centre assess and who will states assess, and how that division will take place depends on how the dual authority is managed.” Earlier, the council had decided that states would have sole administrative control over assessees having an annual turnover of Rs 1.5 crore. Above that, both the states and the Centre would have control. The Centre would have sole control over assessees in the services sector right from the beginning till the time states have a mechanism to monitor service tax assessees. However, that consensus broke down later as a few states said they also monitor some service taxes even now, such as entertainment tax and as such should have control over that. Some states also said there should be a similar mechanism between goods and services. Adhia said, “There was a view that assessment control over goods and services should not be different from each other.” This is especially in the case of businesses which provide both goods and services, he said, adding some people will be registered for VAT as well as service tax. “For instance restaurants register for both service tax and VAT. All this will be decided later. So, the whole issue of dual control is being revisited. Yes, the Rs 1.5-crore dual control issue is also being relooked at,” he said. However, consensus was reached on compensation to states by way of cess on ultra-luxuries or demerit items, but the rate of cess could not be decided upon. The Centre’s proposal of a four-tiered rate structure – 6, 12, 18 and 26 per cent – will again come up for discussion in the next meeting. The rate proposal also includes a four-per cent tax on gold. The entire requirement for compensation is broadly pegged at Rs 50000 crore per annum. Of this, Rs 26,000 crore is estimated to come by way of Clean Environment Cess, which will not be subsumed into GST unlike other cesses and surcharges. Then, the proposal is to have a cess over the peak rate on luxury and “sin” goods. “The compensation mechanism is almost finalised. The council is in favour of a cess as it is the simplest way of funding compensation,” said Haryana Finance Minister Abhimanyu. Adhia said cess will be same for all states for a particular item. “One challenge is how many slabs you can have,” he said. Experts warned of a cascading effect if cess was imposed on GST. “The maximum rate of 26 per cent for demerit or luxury goods may harbour more goods than initially envisaged, which will make them costlier. Also since cesses would be outside the GST, the present cascading may continue raising the tax burden,” said Bipin Sapra, tax partner, EY. Kerala Finance Minister Thomas Issac said the compensation issue was largely settled. Tamil Nadu, which had opposed the Constitution amendment Bill on GST, said it was not opposed to GST per se. Its School Education Minister K Pandiarajan, who attended the Council meeting, said, “We were opposed to loss of fiscal autonomy. We are happy with the transparency in discussions so far. However, we are concerned that there is no one tax rate but many slabs have been suggested. We are happy that the Centre has proposed a cess to fund compensation of producing states that would lose revenue.” Adhia said he was confident of meeting the April 1 deadline to rollout of the uniform indirect tax regime. The government was hopeful of deciding on key GST issues by November 24. The council is headed by Union Finance Minister Arun Jaitley and comprises finance ministers or other representatives of states. – http://www.business-standard.com[20-10-2016]

GST Council meet ends without any decision on rates

October 20, 2016

A compromised GST

October 20, 2016

The Goods and Services Tax (GST) was expected to provide for moderate rates of tax, with only a couple of tax slabs — so designed to improve compliance, avoid classification disputes and keep matters simple. It was also intended to provide for comprehensive coverage and, therefore, an efficiency dividend in terms of better tax collection. Unfortunately, as things seem to be turning out, none of these objectives may be realised. Compromises along the way to getting approval for the new tax regime have meant that this long-awaited legislative reform will end up as a lost opportunity. There are too many tax slabs — as many as four main ones, and a total of seven categories, ranging from zero to an undefined level beyond 26 per cent. The estimates made in the past by expert committees and by government officials had led the country to believe that the main tax rates would stop short of 20 per cent; the figure mentioned during the Parliament debate was 18 per cent, which was also the broad level indicated in a report by the chief economic advisor in the finance ministry. Instead, it now turns out, the two most important rates of tax will be 18 and 26 per cent, with almost all items of middle-class consumption attracting the higher of these rates. The 12 per cent rate will be mainly for intermediate products, added to which is a concessional slab of 6 per cent. The introduction of this last slab is the direct result of a desire to not tax items of mass consumption in any way that might push up their prices. It bears pointing out, therefore, that food, education, health care and other key items of common expenditure are to be completely exempt from the GST. The result of the multiple rates is that what is a flat tax in other economies has morphed in India into a progressive tax system, with the top rate being hiked to 26 per cent in order to neutralise the revenue loss from the six per cent slab. The result is precisely what a GST should not be. As Vijay Kelkar and others have argued, in an article inMint newspaper, any negative impact of a properly constructed GST on the poorer sections is better taken care of through a direct benefit transfer scheme, so that the GST system does not lay itself open to evasion, classification disputes and other complications — all of these are the hallmark of the existing indirect tax system, which GST was supposed to change. There is more. What is one rate of service tax today is to give way to three rates! While most existing cesses will cease to exist, one or more will continue to be charged. Finally, there is the aggravation of ~50,000 crore to be collected as a contingency to compensate states for any revenue loss. First, it should be obvious that no state is going to lose revenue at the proposed rates of tax; the sum to be collected as insurance against revenue losses will probably add a percentage point to the overall tax rate. Second, GST was supposed to deliver efficiency gains through better coverage; the proposed rates of tax seem to make no assumptions at all on this point, and it is pertinent to ask why. It is not too late to adopt reasonable rates as the GST Council will meet again in early-November. – http://www.business-standard.com[20-10-2016]

200 Applications on GSTN Table

October 20, 2016

Goods and Services Tax Network (GSTN), the agency in charge of building the technological infrastructure for the implementation of GST, has received over 200 applications from IT and fintech companies who seek to become GST Suvidha Providers, but there are very few startups among them.

The GST Suvidha Provider (GSP) will offer products and services to help tax payers and businesses in compliance. While leading tech companies such as SAP India, Tally Solutions, Vayam Technologies and Mastek Holdings have sought to become GSPs, ClearTax seems to be among the few startups to have applied. The problem is the stringent criteria related to paid-up capital and turnover.

An ITITeS or financial company looking to become a GSP must have paid-up (raised) capital of at least Rs. 5 crore and an average turnover of at least Rs. 10 crore during the last three financial years.

“We kept the criteria stringent because, at the beginning, we want companies who are tested and whom we can rely on, since we are also building our own infrastructure. Also, we cannot handle a large number of GSPs right in the beginning,“ GSTN chairman Navin Kumar told ET. “However, we are not barring startups from applying, and we have given a notification that even companies that don’t fit the criteria can apply and we will consider them in the next phase of selecting GSPs,“ he added.

Software think tank iSPIRT said it was pushing to relax the GSP criteria to help startups. “iSPIRT is looking for an open policy that allows any startup or a small company to become a GSP. Instead of turnover, the GSTN could use other instruments like surety bonds or bank guarantees of Rs. 5-10 lakh for a period of 12 to 18 months,“ said Sudhir Singh, a policy expert at the iSPIRT.

“The real concern of GSTN should be the product that the GSP develops. To ascertain the application security and ICT infrastructure of GSPs, they can use third parties to verify that the technical criteria is met,“ Singh said. Becoming a GSP can also open a business opportunity as the selected companies are allowed to turn their services and products into a revenue model.

ClearTax’s B2B business of providing software products to businesses brings 60% of the company’s revenue, and is expected to grow to 65% after integration with the GST ecosystem, said CEO Archit Gupta.“Startups have an important role to play in the GST ecosystem for their speed of innovation and the quality of the products. They should be encouraged to become GSPs,“ he said. – http://www.economictimes.indiatimes.com [20-10-2016]

India Inc to lobby against imposition of cess

October 20, 2016

India Inc may prefer a higher rate at the top end of the goods and services tax (GST) bracket, rather than have a cess that is non-creditable by nature, with a cascading effect on the indirect tax system. “Industry is not going to welcome the idea of a cess. In fact, industry may prefer a higher tax rate so that the input tax credit chain is not broken, and the whole indirect system remains less complicated,” said Harishanker Subramaniam, national leader, indirect tax, EY India. Tax experts say imposing a cess is a bad idea as it complicates the structure of GST. Pratik Jain, leader indirect tax, PwC India, agrees that cesses, if imposed, will lead to cascading of taxes and complicate the overall GST structure. “Increasing the rate of GST slightly might be a better solution,” he adds. Tax experts and corporate lawyers say the government in all its communications on GST highlighted that all cesses and surcharges would be subsumed under the new indirect tax regime. This was also reflected in all official documents till date. A cess will increase the compliance hurdle for businesses, say experts. “It will add to challenges for companies when it comes to record keeping and making changes in their IT system,” said Sachin Menon, partner and head of indirect tax, KPMG. Another school of thought among tax experts feels the impact and scope of the proposed cess should be limited, if it has to be imposed. According to Rajeev Dimri, leader, indirect tax, BMR & Associate, the cess is workable only if it is limited to only two or three items in the business-to-consumer space. “It will still be a distraction, but could be overlooked,” he adds. The quantum of the cess and the stages of transaction where it is imposed will be a key determinant of their impact on the indirect tax system, say experts. Over the next two weeks, tax experts and industry players are expected to intensify lobbying to do away with the proposed cess. “One hopes that government will reconsider the decision on cess,” said an expert. – http://www.business-standard.com[20-10-2016]

Clear refunds, drawback before GST roll-out

October 20, 2016

CBEC on Wednesday asked its officials to chalk out action plan for clearing pending refunds and drawback payment for smooth transaction to GST — the new indirect taxation regime that is to be rolled out from April.

In a communication to top officials, Chairman of Central Board of Excise and Customs Najib Shah said preparations for introducing GST from the beginning of the next financial year are in full swing with the present focus on timely finalisation of its legal and administrative framework.

“At the same time, it is necessary to continue to focus on reducing the pendency of current items of work as this would have an important bearing on the successful implementation of GST,” Shah said.

The pending work relates to adjudication, and payment of refunds, rebates and drawbacks.

“You would agree that too heavy a burden of legacy work regime would hamper us in giving our undivided attention to GUST. The solution, therefore, is to immediately chalk out an action plan to reduce the pendencies to the maximum possible extent in the balance months of the current financial year,” Shah said.

The all powerful GST Council is currently meeting here to decide host of issues, including the GST rates. This the third meeting of the council headed by Union Finance Minister Arun Jatiley. Finance ministers of all states are members of the Council.

Government intends to implement the Goods and Services Tax (GST) from April 1, 2017. GST will subsume most of the indirect taxes and make India a common market.

“I am confident that with the suggested focused approach on reducing pendencies, come April 1, 2017 the CBECwould be in an ideal position to ensure the success of GST in the national interest,” Shah added. Source – www.business-standard.com[20-10-2016]

CBDT notified Rules on Buy Back of Shares

Posted on 19th Oct 2016 by Business So Simple in Miscellaneous

Please refer full extract of CBDT notification dated 17th Oct 2016 on Buy Back of shares:

MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION No. 94/2016-INCOME-TAX

New Delhi, the 17th October, 2016

G.S.R. 982(E).—In exercise of the powers conferred by section 115QA read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely: ‑

1. (1) These rules may be called the Income-tax (28th Amendment), Rules, 2016.

(2) They shall come into force from the 1st June, 2016.

2. In the Income-tax Rules, 1962, after PART-VII B, the following part shall be inserted, namely:

‘PART-VII BA

Special Provisions Relating to Tax on Distributed income of Domestic Company for Buy-Back of Shares

40BB. Amount received by the company in respect of issue of share. (1) For the purposes of clause (ii) of the Explanation to sub-section (1) of section 115QA, the amount received by a company in respect of the share issued by it, being the subject matter of buy-back referred to in the said section, shall be determined in accordance with this rule.

(2) Where the share has been issued by a company to any person by way of subscription, amount actually received by the company in respect of such share including any amount actually received by way of premium shall be the amount received by the company for issue of such share.

(3) Where the company had at any time, prior to the buy-back of the share, returned any sum out of the amount received in respect of such share the amount as reduced by the sum so returned shall be the amount received by the company for issue of said share:

Provided that if the sum or any part of it so returned was chargeable to additional income- tax under section 115-0 and the company has paid such additional income tax then such sum or part thereof, as the case may be, shall not be reduced.

(4) Where the share has been issued by a company under any plan or scheme under which an employees’ stock option has been granted or as part of sweat equity shares, the fair market value of the share as computed in accordance with sub-rule (8) of rule 3, to the extent credited to the share capital and share premium account by the company shall be deemed to be the amount received by the company for issue of said share:

Explanation.– For the purposes of this sub-rule the expression “sweat equity shares” shall have the meaning assigned to it in clause (b) of the Explanation to sub-clause (vi) of clause (2) of section 17.

(5) Where the share has been issued by a company being an amalgamated company, under a scheme of amalgamation, in lieu of the share or shares of an amalgamating company, then, the amount received by the amalgamating company in respect of such share or shares determined in accordance with this rule, shall be deemed to be the amount received by the amalgamated company in respect of the share so issued by it.

(6) The amount received by a company, being a resulting company in respect of shares issued by it under a scheme of demerger, shall be the amount which bears the amount received by the demerged company in respect of the original shares determined in accordance with this rule in the same proportion as the net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger.

(7) The amount received by the demerged company in respect of the original shares in the demerged company shall be deemed to have been reduced by the amount as so arrived under sub-rule (6).

(8) Where the share has been issued or allotted by the company as part of consideration for acquisition of any asset or settlement of any liability then the amount received by the company for issue of such share shall be determined in accordance with the following formula‑

Amount received = A/B

Where,

A= an amount being lower of the following amounts‑

(a) the amount which bears to the fair market value of the asset or the liability, as determined by a merchant banker, the same proportion as the part of consideration being paid by issue of shares bears the total consideration;

(b) the amount of consideration for acquisition of the asset or settlement of the liability to be paid in the form of shares, to the extent credited to the share capital and share premium account by the company;

B= the number of shares issued by the company as part of consideration:

Explanation.- For the purposes of this sub-rule, the term “merchant banker” shall have the meaning assigned to in sub-clause(b) of clause (iv) of sub-rule (8) of rule 3.

(9) Where the shares have been issued or allotted by a company on succession or conversion, as the case may be, of a firm into the company or succession of sole proprietary concern by the company, then the amount received by the company for issue of shares shall be determined in accordance with the following formula‑

Amount received = A-B÷C

A= book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortized amount of deferred expenditure which does not represent the value of any asset;

Explanation.-For determining book value of the assets, any change in the value of the assets consequent to their revaluation shall be ignored.

B= book value of liabilities shown in the balance-sheet, but does not include the following amounts, namely:‑

(a) capital, by whatever name called, of the proprietor or partners of the firm, as the case may be;

(b) reserves and surpluses, by whatever name called, including balance in profit and loss account;

(c) any amount representing provision for taxation, other than amount of tax paid, as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(d) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; and

(e) any amount representing contingent liabilities, C= number of shares issued on conversion or succession.

(10) Where the share has been issued or allotted, without any consideration, on the basis of existing shareholding in the company, the consideration in respect of such share shall be deemed to be “Nil”.

(11) Where the shares have been issued on conversion of preference shares or bond or debenture, debenture-stock or deposit certificate in any form or warrants or any other security issued by the company, the amount received by the company in respect of such instrument as so converted.

(12) Where the share being bought back is held in dematerialised form and the same cannot be distinctly identified, the amount received by the company in respect of such share shall be the amount received for the issue of share determined in accordance with this rule on the basis of the first-in-first-out method.

(13) In any other case, the face value of the share shall be deemed to be the amount received by the company for issue of the share.’.

[Notification No. 94/2016 [F. No. 370133/30/2016-TPL]

NIRAJ KUMAR,

Under Secy. (Tax Policy & Legislation)

Note : The principal rules were published in the Gazette of India Extraordinary, part III, section 3, sub-section (i), vide notification number S.O. 969(E), dated the, 26th March, 1962 and were last amended vide notification number S.O. 3179(E) dated the 7th October, 2016.

Five different rate structures were presented to GST Council: FM Arun Jaitley

Posted on 18th Oct 2016 by Business So Simple in Miscellaneous

Five different rate structures were presented to GST Council:FM Arun Jaitley
(By Vinay Pandey, ET Bureau | Updated: Oct 18, 2016, 08.27 PM IST)

NEW DELHI: Finance Minister Arun Jaitley has said at least five different rate structures were presented to the GST Council on the first day of the three day deliberations.

The discussions will continue tomorrow. One of the options is standard rate of 18% and a high rate of 26%. A committee headed by chief economic advisor Arvind Surbamanian has suggested a four rate structure with standard rate of around 18%, a lower rate of 12%, 26% for precious metals and a demerit rate of 40%.

FM said the rate should be such that it does not add to the consumer inflation while at the same time protects the revenues of the states and the centre.

The GST Council managed to sort out the details of the compensation to the states on account of any loss incurred due to the roll out of the Goods and Services Tax (GST).

Food items are proposed to be exempt from the tax and 50 per cent of the items of common usage will be exempt to keep the inflation under check. The lower rates would be levied on essential items and the highest for luxury and demerit goods.

The cess would help create a compensation fund to help compensate states for any loss of revenue from implementation of the new indirect tax regime that will subsume a host of central and state taxes including excise duty, service tax and VAT.

Kerala Finance Minister Thomas Issac said his state government wanted the highest rate to be fixed at 30 per cent so that common man items can either be exempt or levied with lower tax rates.

The compensation to states would be “limited to taxes subsumed into GST,” he said.