Author Archives: CA Amit Shah

GST

The business of GST decoded

The goods and services tax (GST) is not merely a tax change but a business change that will impact all functions of an organisation such as finance, product pricing, supply chain, information technology, contracts and commercials. Its companywide implementation is not limited to the finance and IT departments, but involves the entire business ecosystem. Any training and sensitising programme has to involve employees, vendors and key customers. Sudipto Dey looks at what it entails:

  • The regime’s impact analysis exercise has to involve several departments, including finance, IT, supply chain, product pricing and human resource, among others
  • Claiming input tax credit is the most important benefit. Currently, service providers can’t claim credit for VAT paid on goods, while traders can’t claim credit for excise/countervailing duty and service tax. Businesses have to identify benefits on account of the transition at an organisation-level
  • Identify possible cost savings key suppliers/vendors could be entitled to under the GST; engage with vendors for pass-through of these benefits in accordance with anti-profiteering provisions
  • Input tax credit is denied on goods and/or services used for personal consumption; tax credit not available on goods lost, stolen, destroyed, written-off or given away as gift or free samples
  • Employer can’t claim tax credit on offering cab service, canteen facilities, life insurance or health insurance to employees
  • One can’t claim input tax credit while taking a client out for a business lunch
  • To claim the input tax credit, the buyer has to ensure the supplier is paid within 180 days from date of invoice; otherwise, proportionate input tax credit will be reversed

 

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World Gold Council urges govt to reduce tax on gold under GST regime

The World Gold Council  urged the government to reduce the tax incidence on gold and gold products under the new Goods and Sevices Tax regime.

“In the GST regime, we urge and expect that the total tax burden on gold be halved from the current level of around 12 per cent,” WGC managing director Somasundaram PR said here today during launch of a new comprehensive India gold report in Bengali.

The report is published after 15 years and is also available in English, Hindi, Malayam and Tamil for a ready reference to Indian gold industry.

Currently, total taxation comes to between 12 and 13 per cent. Custom duty is 10 per cent, excise is one per cent and VAT of 1-1.5 per cent depending upon states.

“In the GST regime, we demand the total tax burden on gold to be not more than 6-7 per cent. But, we have to wait for a few days more when the GST rates on gold is expected to be announced,” Somasundaram said.

He tried to convince that gold import was not as bad as was perceived to be when asked why the government should offer low tax on gold which is an idle asset and contribute a lot for current account deficit.

“According to a 2014-15 report of PWC, value addition in gold is to the tune of USD 30 billion with a lot more scope. Gold loan is also to the tune of around USD 10 billion with about 1,250 tonne as collateral allowing persons access to credit be it formal or informal,” Somasundaram said.

Hoping GST will bring lot of transparency in the gold industry including check on illgeal imports which is about 120 tonnes a year now. But it will take few months industry to get stabilised, the WGC official said.

Somasundaram said government should promote gold investment through ETF with tax breaks rather than physical gold.

He reteriated that the country needed a gold policy that would help all stakeholders.

Meanwhile, the gold demand during Q1 (January-March, 2017) grew by 15 per cent to 123 tonnes, but it was 18 per cent down compared to the corresponding period in the last five years on average.

 

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Sugar, tea, coffee, milk powder to become cheaper under GST

Sugar, tea, coffee and milk powder will cost less with tax incidence coming down under the goods and services tax(GST) scheduled to be rolled out from July 1.

 

Currently, sugar attracts specific central excise duty of Rs 71 per quintal plus a cess of Rs 124, which translates into ad valorem rate of more than 6 per cent.

 

If central sales tax (CST), octroi, and entry tax are factored in, the total incidence works out to more than 8 per cent.

 

“As against this, the proposed GST rate on sugar is only 5 per cent, i.e. 3 per cent less than the present incidence of taxes,” the finance ministry said.

 

The tax under GST on tea and coffee – other than instant coffee – will come down to 5 per cent, from the current 7 per cent.

 

Milk powder attracts nil central excise duty and 5 per cent VAT.

 

The embedded taxes in the production of milk powder and the incidence on account of CST, octroi, and entry tax work out to more than 7 per cent. As against this, the proposed GST on milk powder is only 5 per cent.

 

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Exhibitors rally against 28% GST on cinema halls

The announcement of the Goods and Services Tax (GST) rates came as a disappointment to the film industry, specifically to the exhibitiors, as were put in the 28 per cent bracket.

 

Interestingly, other categories in this bracket include luxury goods, casinos, races and 5-star hotels. The Multiplex Association of India (MAI) has appealed to the government to reduce this levy in the interest of the survival of the

 

The letter, signed by president of MAI Deepak Asher, points out the various challenges that the industry is facing, including lack of screens, decreasing footfalls and competition by It adds that the total tax levied on cinema house may actually be more if the local bodies decide to levy an additional tax.

 

“Many states are now empowering local bodies (municipal corporations, municipalities, panchayats, local councils, district councils, etc.) to levy an additional entertainment tax. While entertainment tax levied by the state government is subsumed in GST, entertainment tax levied by such local bodies would be outside of the regulatory framework. In other words, according to the current tax regime, the entertainment tax levied by such local bodies would not be creditable under the regime and would end up being an additional tax. In substance, could well end up paying, not just a prohibitive 28 per cent GST, but possibly a 10 – 25 per cent local body entertainment tax as well,” Asher argues in his letter.

 

The exhibition industry, which includes single screens and multiplexes, was rallying for the implementation of in the hope that the taxation will decrease. Until now, the exhibitors paid blended taxes depending on the tax regime of the states. So the tax component varied from state to state.

 

“We were hoping to be placed in the 12 to 18 per cent slab. This would have been a balanced approach to the taxation issue for the exhibition industry,” says Ajay Bijli, chairman and MD, Ltd, the largest multiplex chain in the country with more than 500 screens.

 

He adds that while the burden of taxation will be felt equally by multiplexes and single screens, exhibitors in Tamil Nadu, Karnataka and Madhya Pradesh will have a particularly tough time since the government (state) has levied a cap on ticket prices in the state. In this case, since the ticket price cannot be raised, the operators stand to take a major hit in the bottom-line, especially because all three states had entertainment tax levy less than 28 per cent.
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GST blow: Medicines to be get costlier as raw materials to be taxed at 18%

The pharmaceutical industry was hoping the goods and services tax (GST) rate on life-saving drugs would be zero, even as it has been capped at 5 per cent and that of all other formulations at 12 per cent. The rates in the GST regime will be slightly higher than what prevail now.

Kanchana TK, director general of the Organisation of Pharmaceutical Producers of India (OPPI), said: “The research-based pharmaceutical industry hoped there would be a reduction in the tax incidence on pharmaceutical products. We believe this reduction would have helped in reducing the medicine prices and impacted patients positively.”

In the GST regime, essential drugs that treat malaria, HIV-AIDS, tuberculosis, and diabetes fall in the 5 per cent bracket. Almost all other drugs are in the 12 per cent net.

The tax on nicotine is fixed at 5 per cent, while nicotine gum comes in the 18 per cent slab. Cipla, which markets nicotine gum under the Nicotex brand, declined to comment on how the new tax rate would impact the sales of the product.

Active pharmaceutical ingredients, or raw materials, will be taxed at 18 per cent.

“By and large the tax impact will be neutral on the pharmaceutical industry,” said Hitesh Sharma, leader (life sciences) at consultancy, EY.

More than the tax rate, the bigger worry for the companies is the disruption the new tax regime will bring. While companies have geared up for the launch, many distributors and stockists have not even registered themselves to the GST portal, according to a senior executive of a pharmaceutical company.

“In many states VAT on pharma products is on maximum retail price, which is on a single point. Due to this the distribution channel does not pay VAT. Thus, for them paying tax, coupled with three returns a month, is a humongous task,” said Kirti Oswal, partner (indirect tax), BSR & Associates.

Distributors and stockists are upset at the loss they might have to incur with the increase in the effective tax rate. The effective tax rate on formulations, now 9 per cent, has been increased to 12 per cent, and trader margins have been built into the tax rate. While companies such as Abbott and Cipla have decided to absorb the losses which traders might incur during the transition period, distributors are unhappy.

The All India Chemists and Distributors Federation (AICDF) said its members would have to incur a loss on investment. The organisation said currently the trade channel paid 5 per cent VAT and now it would have to pay an additional 7 per cent but their profit margin would remain the same.

Joydeep Sarkar, secretary, AICDF, says: “Under the GST regime, we will not be able to claim refund on the tax for expired products. The government allows it only for up to six months but in pharmaceutical products, the average shelf life of a product is one year.”

For dealers, around 10 per cent of the products expire annually.

The All India Organisation of Chemists and Druggists (AIOCD) said since the National Pharmaceutical Pricing Authority (NPPA) controlled prices of drugs, companies might not increase the prices.

 

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GST: Booking a Rs 5,000-plus hotel room? Be ready to pay more

Staying in luxury hotels with tariffs above Rs 5,000 will cost you more as the service tax under the new GST regime has been set at 28 per cent. Experts consider this a regressive move, especially at a time when occupancy levels in metros and tier-II cities are on the upswing.  On an average, effective tax rate on hotels in Maharashtra are between 19 per cent and 20.5 per cent. This subsumes nine per cent service tax and 10 per cent luxury tax for hotels in general and 10.5 per cent service tax and 10 per cent luxury tax for hotels with banquet facilities.

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GST: Phone bills, insurance and banking to cost more

Availing insurance, banking services, investing in mutual funds and paying mobile bills will get costlier with the GST Council setting a rate of 18 per cent for telecom and financial services. But, while telephone bills will surely rise, analysts are divided over to what extent financial services companies will pass on the increased tax rate to clients. The existing service tax rate, including for telecom and financial services, is 15 per cent, including Swachh Bharat cess and Krishi Kalyan cess. Industry body Cellular Operators Association of India (COAI) feels an 18 per …

 

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New GST rules provide clarity on 3 issues

On Thursday, the GST Council approved all eight rules, clearing the ground for the rollout of the Goods & Service Tax (GST). A preliminary reading of these rules reveals three significant changes.

 

First, the final rules have clarified on the valuation of goods between related parties. Under the new indirect tax regime, transactions between related parties, for example two companies belonging to the same group, will now be valued at 90 per cent of the market value.

 

“This is a simple method of valuation and provides much-needed clarity to the industry,” said Pratik Jain, national leader-indirect tax, PwC India.

 

Second, clarity has also been provided on how to arrive at the value of assets repossessed by banks on which the  GST rates will be levied. Earlier, it was not clear as to whether  GST would apply on the entire sale proceeds of such assets. But the rules have clarified that under GST, banks will now be allowed to deduct five per cent every quarter, or 20 per cent each year from the purchase value of the asset to arrive at the price at which  GST is applicable.

 

“The effective incidence of  GST  in such cases would reduce, providing relief to banks and financial institutions,” Jain said.

 

Third, the rules have also clarified on how to deal with cases where input tax credit has been claimed but later reversed due to non-payment to the vendor.

 

Now, it has been provided that in such cases the credit can be reclaimed on payment to the vendor without prescribing any time limit.

 

 

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Textile sector pins hope on 5% GST rate

The textile industry is awaiting the central government’s decision on whether the new Goods & Service Tax (GST) rate would be five per cent for segments presently not subject to any indirect tax or stick to one of 12 per cent.

 

The sector provides direct employment to an estimated 45 million individuals and indirect jobs to another 60 million. And, is a tenth of the country’s manufacturing. Textile commodities have a seven point weight in the Consumer Price Index.

 

Observers say there is a large ‘grey market’ which is completely outside the ambit of tax payment.

 

Currently, fabrics are fully exempt from taxes but not yarn or garments. The way GST works, with input credit, the duty will apply to all on value addition and can be collected back from buyers. However, a segment that has been completely out of a tax regime will find it difficult to accept a 12 per cent rate.

 

Rahul Mehta, chairman, Clothing Manufacturers Association of India (CMAI), said: “A low GST rate of five per cent, applied uniformly across the sector, will propel domestic production and facilitate and encourage voluntary (tax) compliance. This growth would enable India to achieve its target of generating 35 million jobs, and attracting investment worth $200 billion by 2025.”

 

Adding: “A multiple tax structure will also compromise fibre neutrality, with producers moving to manufacture of garments made from lower taxed fabric. Such a structure might also lead to disputes in classification of textile products to different tax categories.”

 

CMAI says extension of GST to both fabrics and apparel would mean a substantial expansion of the tax base. Assuming even 50 per cent compliance in the sector, a five per cent GST would generate annual revenue of Rs 10,850 crore for the government.

 

The current system, say observers, is marked by exemptions, concessions and tax cascade. Fabrics are exempt under both the central excise and state value added tax (VAT). The effective rate on garments is also low (1.2 per cent excise and five per cent under state VAT). The total of output tax from the sector is estimated to be about Rs 3,400 crore a year.
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1% tax at source under GST likely for online sellers

The Centre and states are likely to each impose a 0.5 per cent tax collected at source on sellers of products on e-commerce websites such as Flipkart and Amazon under the goods and services tax (GST) regime.  This proposal would be taken up at the two-day meeting of the GST Council, starting Thursday in Srinagar. The tax will be collected by the e-commerce marketplaces: They will deduct 1 per cent while paying the sellers. E-commerce players had earlier opposed a provision in the GST law to impose a 2 per cent tax — 1 per cent by the Centre and states ..

 

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