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GST impact: Maharashtra may revise incentives plan

GST impact: Maharashtra may revise incentives plan

gst impact : psi

The Maharashtra government plans to revise the Package Scheme of Incentives (PSI) offered to attract investments in the state for industrial development, and to promote employment generation.

This is necessitated due to the launch of the Goods & Services Tax (GST), as beneficiaries from various sectors, including automobile, steel, cement, textiles and mirco, small and medium enterprises (MSMEs) may lose the permissible quantum of refund towards Value Added Tax (VAT) and central sales tax (CST) under the VAT regime. The state industries department has already launched an extensive review of the GST impact on various sectors. The department will then introduce a revised PSI. The present PSI, brought into effect in 2013, is applicable till March 2018.

An industries department official, on the condition of anonymity, said under the proposed revised PSI, industrial units will get interest and power tariff subsidies apart from the exemption in stamp duty, octroi duty and electricity duty. These benefits are generally granted as subsidies based on the quantum of payment of VAT and CST by companies to the state government according to their manufacturing activities over a specified time period. The state’s annual outgo towards refund paid to auto, cement, steel and other units is of the order of Rs 3,000 crore.

”Presently, industrial units get a VAT refund on 20 per cent of local sales (within Maharashtra) and a 2 per cent refund of CST on nearly 80 per cent of inter-state sales (outside the state). The CST is also paid to the state government (being the originating state) as it is calculated towards the incentive.

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However, with the shift to the GST regime, the benefits will now be restricted to 20 per cent of local sales, with the units standing to lose out on a refund for 80 per cent of sales outside the state,” said the official. He added that various sectors made a strong case for the protection of their benefits during the GST regime, and called for an increase in its tenure beyond March 2018.

The officer said the textile sector has brought to the state government’s notice that it would have to bear an additional burden following a 5 per cent GST on cotton. Therefore, it has pleaded for a protection of benefits under the GST regime. Further, the small units, which are not entitled to benefits based on gross taxes paid, but on net taxes paid, have hinted that they would be hit badly.

KPMG, a leading auditing firm, in its recent analysis on the GST impact on PSI said the picture changes dramatically. There will be a two-fold impact on the quantum of incentives, therefore, inter-state sales will not contribute to the incentives under GST, and the effective tax rate could also be lower.

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GST: Wind of change, but some grey clouds linger

GST: Wind of change, but some grey clouds linger


On July 1, at the stroke of the midnight hour, India woke to see its new tryst with destiny – Goods & Services Tax (‘GST’). Pebbled as not being a mere tax reform, GST is expected to stimulate socio-economic growth by softening prices and plunging the parallel economy.

Any new law typically entails various changes to gear up for – with efforts being commanded both from a law makers as well as industry perspective. In the backdrop of indirect taxes being a key factor for supply chain modelling of Indian businesses, GST being a complete overhaul of the existing taxation structure, is expected to affect the transaction system as a whole. The new law while would definitely unleash a huge quantum of positive impulses, but would also have various challenges to conquer – especially in the short term on account of various obscurities.

While the GST law and related Rules/ Notifications have addressed various concerns and demands from time to time lobbied for by the industry, opacities still continue; some essentially being on account of the intrinsic federal structure and others on the gargantuan intensity of the reform.

J&K conundrum

One of such ambiguities being taxability of supplies to Jammu & Kashmir. The GST law in its current form, applies to the whole of India except the state of Jammu & Kashmir. A reading of the said provision seems to suggest that GST would apply on the sales/ stock transfers made to businesses/ branch offices respectively in J&K.

However, for further supplies by the businesses/ branch offices to consumers/ other businesses in J&K, local J&K taxes would apply vis-à-vis GST, entailing GST charged on the inputs for such supplies becoming a cost in the supply chain.

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Speed bump

Another worrisome aspect under GST is exports for automobile sector/ other sectors on which compensation cess is leviable under the rebate route. Aligned to the government’s objective of promoting exports and earning of related foreign exchange, the GST regime inherits the current zero rating for exports i.e., non-payment of GST on exports.

Alternatively, the Government also prescribes a mechanism for payment of IGST with claiming of corresponding refund of the same – the shipping bill filed being the deemed application for such refund. Basis the recently released format of the shipping bill, while the exporters could include information of the IGST paid on exports, there appears to be no field in the format for inclusion of the compensation cess paid.

On similar lines, the outward supply return to be filed under GST i.e., GSTR-1 as well does not include a separate field to report details of cess paid on exports. This intentional/ unintentional miss has elicited apprehensions especially for automobile exporters as to whether compensation cess is required to be charged on exports.

Kept outside

Separately, another aspect of worry for the industry as a whole has been the continuation of concessional rate benefits on items which have kept outside the GST realm as of now; existing taxes inter-alia including CST continuing to be levied on such supplies.

These products essentially include petrol, diesel, ATF and natural gas which are required by most manufacturing houses. To recap, currently a manufacturer could procure such products at a concessional rate of CST against Form C.

However, given the amendments in the CST Act for harmonizing it to the GST regime, issuance of Form C’s and related concessional rate benefits for such procurements seems unlikely. While this could have a miniscule impact for some industries, discontinuation of such concessional rate benefits could entail sharp increase in costs for some sectors like fertilizers and many more where these products form a significant proportion of the total costs.

Amidst various other technical worries and related impact on cost, the industry as a whole, has been sceptical on the way-bill related requirements for movement of goods. The said worry essentially being on account of the postponement of the e-way related requirements under GST with no related clarity on continuation of existing procedures.

While some states have issued Notifications/ Circulars clarifying the continuation/ discontinuation of the existing way-bill related requirements, clarity is awaited from most states; the same entailing trepidations on sale/ purchase of goods by businesses.

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Another worry from a working capital perspective has been the levy of IGST at the time of import of goods leased from foreign countries. Herein, it is pertinent to note that leasing of goods from overseas countries could entail dual levy of GST, both at the time of import of goods as well as “import of service” i.e., payment of lease charges, given that “leasing” has been clarified to be a service under GST. While this aspect could impact various industries, it circularizes more of a concern for the airline sector, where typically the aircrafts are leased from foreign countries.

With the Government’s positive outlook to addressing industry worries and apprehensions coupled with clarities being issued from time to time in the recent weeks for most aspects, we expect most of the above issues, including various other issues not highlighted above, to be discussed with the industry and appropriate clarities being issued for the same.

Source: ET
Taxing times: With GST, a multi-location service provider would file atleast 37 returns per year

Taxing times: With GST, a multi-location service provider would file atleast 37 returns per year

With epochal decisions being made by the GST Council in Srinagar, India, now is soon expected to hop on to a new tax bandwagon – GST. Touted as a reform to unravel the various convoluted knots of the current state and central levies, GST is expected to create a seamless nationwide market in India.

Identical to most reforms across the globe, GST too is expected to be a mixed bag of pluses and minuses for a business. Of the various advantages envisaged under the GST era, the focal one for most businesses is the erasure of a perplexing array of taxes on a single business transaction with some taxes like CST, entry tax, stock retention VAT reversal, etc becoming a cost as well at each limb of the supply chain.

However, in the backdrop of most business transactions being monitored under the GST regime, there has been a significant amplification to the domain of transactions on which GST would be levied. To illustrate, unlike the current regime, where no CST was chargeable on an inter-state stock transfer of goods against a Form F, tax would be levied on such transactions under the GST era.

While valuation of such goods is relatively easier in cases where the recipient branch/ office is eligible for full input tax credit, there could be multifarious complexities in cases where the recipient location is not engaged in supply of fully taxable goods/services.

Further, while credit of such taxes should typically be available to the recipient branch/ office with generally no additional costs, such payment of taxes on stock transfer would augment tax costs for sectors engaged in exempt/non-taxable supplies and could also entail additional working capital costs where there is no immediate tax payable in the recipient location.

Further, the GST legislation, unlike the current VAT/CST provisions, prescribes for payment of GST on advances received for goods entailing additional working capital costs for the supplier/recipient, as recouping of related credits would be available to the recipient location only on actual receipt of goods.

Separately, the GST legislation has also inherited various concepts prevalent under the current regime – one of it being reverse charge mechanism. To recap, while typically a supplier is liable to discharge tax for the supplies made by him, in certain scenarios, the Government may notify a person other than a supplier to be the person liable to discharge tax like the recipient of service, etc. Such mechanism commonly being known as “reverse charge mechanism”.

The GST legislation prescribes such reverse charge provisions for certain supplies, which include supplies received from unregistered suppliers and other specified supplies. Largely for services, the bracket attracting reverse charge under the current vis-à-vis the GST regime for a business entity is almost analogous, with certain services having been obliterated like rent-a-cab, manpower supply and works contract services.

Also, in contrast to the current provisions, where credit in relation to capital goods was available over a span of two years, the GST legislation enables one for the full eligible credit in the first year itself, leading to a positive impact on working capital. Also, unlike the current CENVAT Credit Rules, the GST legislation links availability of credit to the actual payment of related taxes to the Government treasury.

While the new tax era does come with various pros with industry as a whole prognosticating various efficiency, the increased compliance aspect is fairly worrisome for the businesses. To illustrate, a multi-location service provider would under GST be required to file atleast 37 returns per year per registration vis-à-vis the current requirement of only two returns in total, where a centralized registration is obtained.

A similar manifold increase in the compliances is expected for a supplier of goods as well. Roping in of requirements like raising of self-invoice and payment voucher for reverse charge supplies, waybills for intrastate movement of goods, etc further intensify the compliance woes.

Despite the fact that the new tax era would necessitate gearing up for various changes in the short term, the increased efficiencies and reduced tax costs should benefit the economy as a whole in the long run.

Source :
GST is a Business Reform, not just a Tax Reform: TAIT (Trade Association of Information Technology)

GST is a Business Reform, not just a Tax Reform: TAIT (Trade Association of Information Technology)

India is ready to roll out its biggest tax reform possibly from July 2017. The Goods and Services Tax (GST) embodies the concept of one nation, one tax and is a destination based tax levied on the supply of goods and services. The intent of implementing GST is to eliminate the tax-on-tax imposed on goods and services, improve compliance, and consolidate several Central and State taxes, but the ease of doing business also brings in repercussions for some. Mumbai-based Trade Association of Information Technology (TAIT), the premier association of IT companies recently conducted a workshop discussing in detail with Shailesh P. Sethi, Advocate & Founder, M/s SPS Legal in the area of Indirect Tax Laws.

GST includes all forms of supply of goods and services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. For instance, an application which is downloaded by oneself from Google legally will be treated as an import of services for consideration for the furtherance of services.

Shailesh P. Sethi, Advocate & Founder, M/s SPS Legal said, “GST is not merely a tax reform, it is a fundamental business reform which will change the way business activities are conducted in the country by anyone. The dual structure of GST is the compulsion of federal character of our country and therefore a unified GST across the country is not possible. It will also be applied on bundled services, for instance if one books a Shatabdi train ticket which includes meal, it is a bundle of supplies. It is a composite supply where the products cannot be sold separately. The one purchasing will not buy just the train meal and not the train ticket. The transportation of passenger is, therefore, the principal supply. Other examples will be dry fruit box, lodging services which come with food and stay package etc.”

Further elaborating in the GST tax regime he explained that the existing origin based consumption tax such as Central Sales Tax (CST), service tax bill will be a thing of the past with the introduction of GST. Under GST, all transactions involving the inter-state supply of goods and services will be subjected to IGST but with the credit available to the recipient in another state. Presently, CST is not refundable. With a much wider availability of credit or input tax credit, GST is expected to mitigate the cascading effect of tax-on-tax to a large extent. It will help in creating a borderless common national market for goods and services and ensure a smooth movement of goods and services across the country.

As GST will subsume all major indirect taxes (central & state), the taxpayer will be relieved of the burden to deal with multiple tax window as is the case at present. Under GST, exports will be zero rated with a full refund of the GST paid by the exporters on their procurement of goods and services for export activities. GST will cost heavy compliance burden on the taxpayers requiring a registration in every state from where taxable activities are carried out. Every taxpayer, manufacturer, service provider, trader will be required to file minimum three returns for every registration held by him.

Strict provisions are made for the time bound filing of returns, which is also for the validity of tax paying invoices on which Input Tax Credit (ITC) is taken. The burden is cast upon the buyer availing ITC to ensure that the supplier discharges his tax liability, as per law any non-payment of tax, even marginal by the supplier will result into the denial of credit to the buyer. Invoice making provisions will require a special attention by the taxpayers. Every taxpayer will have to maintain a strict order of utilization of ITC in the form of CGST, SGST, IGST. Imports of goods and services are deemed to be interstate supplies and therefore will be subjected to IGST (replacing CVD & SAD) besides custom duty wherever applicable.

Rushabh Shah, President, TAIT said, “India is a big unorganized market and it will be difficult to have a smooth working tax regime due to lack of available resources. Some of the businesses are asking for a delay in implementation of GST as they are not prepared and it’s too early for them to be planning for the stock, accounting systems, new laws and enactments. It is completely a new challenge for the organizations.”

GST will cover all B2B and B2C transactions and therefore the tax net will become wider. GST will necessitate and relook at all the areas of the business including procurement, marketing, warehousing, logistics, transportation, IT operations, indirect tax and above all the finance. GST will have a serious impact on the cash flow of the company and is expected to result in an increasing need for the working capital to attract in the initial years.

Lastly, GST may deal a crippling blow to the parallel economy as every single transaction is expected to leave an audit trail. At the same time, GST may pose a serious threat to the SMEs, who may even face the survival challenge under GST.

Samir Mehta, General Secretary, TAIT said, “Our workshops are always dedicated to the welfare of our members. We make a point to provide solutions to various issues or hurdles that our members face with their business operations by calling domain experts.”