As many as 19,42,354 taxpayers have till Wednesday filed returns for July under the new goods and services tax (GST) regime. Officers of the GST Network (GSTN), responsible for the information technology (IT) backbone of the GST, said they hoped 2.8 million more would do so by the deadline in the next two days.
Those who have filed returns constitute over 22 per cent of total assessees (8.7 million) under the GST regime. However, of the 8.7 million assessees, 2.2 million are yet to complete the migration process to the new indirect tax regime.
The GSTN, also managing the tax filing apparatus, has geared up the IT network to handle the rush, its Chairman Navin Kumar said. A last-minute rush caused the GSTN portal to crash last week, forcing the government to extend the deadline by five days to August 25.
Those who wish to claim transitional input tax credit can file returns by August 28.
Sudhir Singh, MD of Marg ERP, a solution provider for GST returns, said over 1.9 million filers was not really a big number, but the numbers would swell by the deadline. He added that his clients were finding it difficult to file returns.
Till August 21, Rs 42,000 crore had come in as taxes from 1 million assessees. The collection figure is expected go up substantially, with the number of filers touching nearly 2 million as of Wednesday.
These returns are not detailed ones. Those would be filed next month.
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The pace of retail inflation quickened in personal computers, biscuits, laptops, cinema tickets and cigarettes in July, when the goods and service tax (GST) was introduced, compared with June and May. Gold prices continued to fall, in fact at a higher rate in July against June and May.
Internet expenses also saw a higher rate of price increase at 1.83 per cent in July compared with 1.39 per cent in June and 1.22 per cent in May, revealed official figures.
Data on the basis of the Consumer Price Index (CPI) for both May and June was taken for this analysis as the June numbers would not have been ideal for comparison. Companies were de-stocking their goods in June because GST was to be introduced from July. This argument could be substantiated from the inflation data on beverages such as those of cocoa and chocolate. While inflation in these was higher at 2.98 per cent in July, compared with 2.91 per cent in June. It was lower than 3.16 per cent in May. Also, inflation in mobile handsets was 1.95 per cent in June as well as July, but it was lower at 1.56 per cent in May.
Tax is one of the factors that explains inflation but is not the only reason for the price rise. For instance, tax on gold was a bit higher in the post-GST regime compared with the earlier system. But gold prices fell 7.44 per cent in July, higher than 5.36 per cent in June and 4.98 per cent in May.
Sumit Dahiya of Taxmann said the jewellery industry saw higher impact of GST than other goods as the rate of indirect tax on gold has increased by 50 per cent to 3 per cent from the earlier 2 per cent.
But then, why are gold prices falling?
It has to do with many other things. For example, the season of saavan, which started on July 16, is considered inauspicious for buying gold in many parts of the country, said M S Mani of Deloitte.
Refrigerators, washing machines, air conditioners and air coolers saw the same tax increase under the new taxation system. But inflation in air conditioners and air coolers came down in July, compared to June and May, while refrigerators and washing machines saw higher price rises in this period.
This may be due to the onset of monsoon, which led to less demand for at least air coolers, if not for air conditioners, an analyst explained.
Mani said the attempt was to ensure GST rates for products were similar to the rates under the earlier system. But due to rate slabs, the effective rates on some products have increased while those on some products have come down.
He said there were significant rate differences between the states in the past, hence a comparison at the product level was difficult.
For instance, he said, entertainment tax rates on movie tickets varied between 10 per cent and 45 per cent in the past. Hence a GST of 28 per cent on movie tickets would have reduced the rate in some states but increased prices in others.
There has been a mixed trend in revision of prices. For instance, several services were now being taxed at 18 per cent or 28 per cent, higher than the earlier 15 per cent (inclusive of various cesses). These have been passed on to consumers in cases such as mobile phone bills, etc. There was anecdotal evidence that final prices have been kept unchanged in some discretionary consumption sectors, with the higher tax liability being absorbed by the producers. This is likely to affect margins in Q2 FY18.
The GST Council had raised cesses on cigarettes after it was found that tax incidence under the regime was less. Also, companies were yet to figure out their input tax credit in July and benefits of area-based exemptions. For those who want to claim credit, the date for filing preliminary returns has been extended to August 28 from August 20. The sunset clause for area-based exemptions has also been extended till 2027 but companies have to pay tax and then claim reimbursement.
“In our view, some businesses may choose to observe the impact of changes related to area-based exemptions, input tax credit etc. on costs over the course of the ongoing quarter, before updating final prices to reflect higher GST rates,”
A small inflationary impact of GST for a temporary period couldn’t be ruled out. “However, with increased input tax credits to businesses, over the medium term, the inflationary impact of GST is bound to reduce.”
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As much as Rs 42,000 crore has come in as taxes so far in the first monthly filing under the new goods and services tax (GST) regime, and the revenues are expected to swell further as the filing cycle closes later this week.
A senior official said that about Rs 15,000 crore has come in as Integrated GST, which is levied on inter-state movement of goods, and another Rs 5,000 crore by way of cess on demerit goods like cars and tobacco.
The remaining Rs 22,000 crore has come in as Central GST and State GST, which would be split equally between the Union and state governments.
“Tax deposited till this morning was Rs 42,000 crore,” the official said. So far, one million taxpayers have filed returns and another two million have logged in and saved return forms. “We are seeing good compliance and our estimation is that 90-95 per cent of the assesses will file returns and pay taxes,” he said.
Under the GST regime, which was implemented from July 1, businesses are expected to file the monthly tax return. Tax for the first month is to be filed by an extended deadline of August 25. The deadline was extended as the tax return filing website snapped just a day before the due date ended on August 20. GST unifies more than a dozen central and state levies including excise duty, service tax and VAT, and the revenue generated is to be split equally between the Centre and states.
In July last year, Rs 31,782 crore of excise duty was collected and Rs 19,600 crore of service tax. Estimate for the combined sales tax or value added tax (VAT) collection by states was available.
While 7.2 million assessees of the old indirect tax regime have migrated to the GST Network portal, nearly 5 million have completed the migration process.
Besides, of the 1.5 million fresh registrations that have happened, as many as 1 million are expected to file returns for July.
A total of 6 million businesses are expected to file returns and pay taxes for July, the official added.
As per the GST law, any registered person who fails to furnish the details of outward or inward supplies or returns required by the due date will have to pay a late fee of Rs 100 for every day during which such failure continues subject to a maximum amount of Rs 5,000.
Besides, every person who fails to pay the tax within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, will be required to pay interest at 18 per cent from the day succeeding the day on which such tax was due to be paid.
The collections from customs duty and IGST from imports post-implementation of GST have almost doubled to Rs 30,000 crore in July.
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Now that the goods and services tax (GST) is a reality, it is necessary to look at some key areas that the government should focus on to unleash the true potential of the indirect tax regime.
Fewer rates and classifications
The GST has four base rates (5 per cent, 12 per cent, 18 per cent and 28 per cent), two special rates (0.3 per cent and 3 per cent) and three rates of cess (1 per cent, 2 per cent and 15 per cent). While services were earlier taxed at a uniform 15 per cent, the four base rates are now applicable to services as well. The classification of goods and services across these rates is going to lead to disputes. The rates have also been changed a couple of times even before the launch, giving credence to the fact that the multi-tier rate structure and the rate equalisation exercise has created certain anomalies. Some of these issues have been addressed, while some would hopefully get resolved soon.
Hence, it is necessary that the government now focus on reducing the rate slabs to possibly two base rates of 18 per cent (standard rate) and either of 5 per cent or 12 per cent as the merit rate. This would reduce the potential for disputes.
Inclusion of petroleum products, realty and electricity
The GST leaves out three important sectors, making the coverage sub-optimal. Petroleum, real estate and electricity generation would continue to have the older indirect taxes. The problem is exacerbated by the fact that these sectors would pay input taxes in the form of GST, which cannot be offset against the existing taxes. It is essential that the government work on a time-bound plan to get these sectors into the GST framework. This will not only expand the GST basket but also make it a more comprehensive tax, besides ensuring that all suppliers to these sectors become part of the ecosystem.
Soft launch to build acceptability
The ability to handle the changes that GST entails would depend on the size and nature of a business. While large businesses have the resources and knowledge to prepare for a change of this magnitude, smaller businesses would find it difficult. Businesses used to filing monthly returns and dealing with state tax authorities will find it easier to deal with GST, compared with service providers accustomed to a centralised registration with two returns a year. There is also now a need to ensure invoice matching to get input tax credits and reduce tax payment liability.
It is, therefore, necessary that the government ensure a soft approach for the first year or so, instead of focusing on strict observance of provisions. Similarly, there should be some leniency in allowing input tax credits for the first year, and the implementation could become progressively stricter. This will make the GST more acceptable to all businesses. It is necessary to ensure that several penal provisions are kept in abeyance during the introduction period.
Existing tax issues and assessments
There is significant pendency of assessments in various states and a large amount of appeals pending at various levels of adjudication. Many of these relate to periods for which even records would be difficult to trace. GST signifies the commencement of a new journey. While embarking on this journey, it is essential to discard old baggage and start afresh.
The government should fix timelines for disposal of cases and assessments so that businesses can focus on GST compliance and not worry about older cases and other such matters.
Seamless GSTN portal
Key GST processes would be entirely dependent on an information technology (IT)-enabled platform. The government has taken considerable pains to ensure the country gets a world-class IT-enabled system.
But the government should ensure that the GST portal is appropriately tested, even if this means initial processes are put on an extended timeline. It is better to have a tested system with some small delays instead of launching an imperfect system on time. Any difficulty in accessing the database or in uploading transactions could lead to credibility issues.
GST LIVE: The midnight launch of the Goods and Services Tax (GST), the country’s biggest tax reform since independence, has catapulted India into a select league of nations with a national sales tax.
Amid boycott of the launch ceremony by principal Opposition parties like the Congress, which termed it “tamasha” (gimmick), the new tax regime overnight replaces the messy mix of more than a dozen state and central levies built up over seven decades.
The one national GST unifies the country’s $2-trillion economy and 1.3 billion people into a common market, an exercise that took many long years.
The GST will eliminate the compounding effect of the current multi-layered tax system as well as the cross-state tax heterogeneity by fixing the final tax rate. It is expected to lower the average tax rate on manufactured goods and make them uniform across states by fixing the final tax rate.
Filing a tax return on the Goods and Services Tax Network (GSTN) portal by an entity will cost Rs 55 a month but the state will bear this burden. The user charge for all eight million taxpayers will be borne by the Union and the state governments, to keep revenue flowing for GSTN, the company charged with providing the information technology (IT) backbone for the reform, without burdening the assessees.
GST is set to be rolled out from Friday and will absorb a slew of indirect taxes — including service tax, central excise, value added tax, central sales tax and octroi.
GSTN, officially a private body (it was formed at the government’s behest and support), has estimated the total cost of the project at Rs 3,000 crore. That covers salaries, interest cost, security operations for five years of operation and the ongoing development period of two years. It awarded a contract worth Rs 1,320 crore to Infosys for building and maintain the IT network, crucial for implementing the proposed system across the country, for five years.
GSTN’s job is to provide a common platform for registration, a filing of returns and e-payment. It will also integrate the common GST portal with the tax administration systems of Centre and states.
The Centre and states will pay Rs 550 crore to GSTN for the expenses incurred this financial year. The budget proposal was approved by the GST Council in its recent meeting. “We will get money on a per-taxpayer basis for all the cost we are incurring and other expenses that will come up. We have worked out the per-taxpayer cost,” said Navin Kumar, chairman, GSTN.
It had earlier proposed to charge a user fee for filing a return using the portal. The government rejected the proposal. ‘The government disagreed as taxpayers have never been charged anything for filing a return. It asked for the number of taxpayers and said they will pay,” said Kumar.
The cost of each taxpayer will be split between the Centre and states on a monthly basis. The cost per state will be calculated on the basis of the number of taxpayers in that state and will be shared with the Centre. With that, the Centre will pay the GSTN a little over Rs 23 crore a month.
The total cost was arrived by taking into account the slightly over eight million taxpayers. “Using the same formula, we will calculate the cost for next year as well,” said Kumar.
The Rs 550 crore revenue will go towards repaying a Rs 550 crore loan from IDFC and to pay, Infosys, besides salaries for the staff. The GSTN had taken the term loan earlier this year and will further take a working capital loan. The government has provided a guarantee for the loan, used for developing the service and hardware.
The loan is needed only till rollout of the portal. The revenue model of charging on a per-user basis will help it sustain afterwards.
GSTN was incorporated at end-March 2013, as a private limited company, with government shareholding of 49 per cent and private shareholding of 51 per cent. ICICI Bank, HDFC Bank, LIC Housing and NSE Strategic Investment Corporation hold at least 10 per cent stake each. The other 49 per cent is held by the central and state governments, each holding 24.5 per cent.
About 6.6 million taxpayers have already migrated to the GST portal and received provisional identification. The window for migrating was earlier closed for a while; it reopened for new taxpayers last week. It is compulsory for dealers with an annual turnover of more than Rs 20 lakh to register