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Back offices now face 18% GST for services to multinational companies

Back offices now face 18% GST for services to multinational companies

Many back offices of multinationals in India will have to fork out 18 per cent and Goods and Services Tax (GST) on their services, the Economic Times reported on Monday mentioning a recent ruling of the Authority of Advance Ruling (AAR). The AAR has said that back office support services qualify as “intermediary” services and not exports.

Besides, Indian firms providing offshore support services to multinational companies will also face 18 per cent GST levy on their revenues. It may be noted that several of these firms were treated as exporters of services and thus, taxes were not applied in most situations. The AARs are quasi-judicial body that taxpayers may approach to seek guidance regarding the correct interpretation of GST provisions.

Abhishek Jain, Tax Partner, EY India, told ET: “This ruling could open the Pandora’s box for various India setups that are assisting foreign companies with back-office support functions such as accounting and legal. As these services do not qualify as exports, 18 per cent costs on these services could make them non-competitive.”

Many experts believe the verdict could also impact the service tax regime and that tax demands could also be made retrospectively, the report highlighted. According to the AAR decision, services provided by intermediaries should not be treated as ‘zero rated supplies.’

Tax experts feel the judgment has wide ramifications for businesses. They are of the opinion that the ruling would lead to litigation as tax sleuths may go after many companies that export services, the report said. Also, the verdict is likely to go against the GST law.

The implications would largely be on Indian firms that provide services to foreign companies, which in turn sell services to another company. “The ruling could lead to disputes in cases where three parties are involved, like vendor payments, follow up for receivables etc. In all such cases, there could be a potential tax demand of 18 per cent from the Indian entity,” Pratik Jain, National Leader, Indirect Tax, PwC India.

Meanwhile, the Indian IT industry revenue, including exports, is likely set to touch USD 167 billion for fiscal 2018-19, said its apex body Nasscom had said in October.

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Sources: Times Now News
GST has positive impact on overall biz: CFOs survey

GST has positive impact on overall biz: CFOs survey

A significant majority of the CFOs surveyed by global professional services firm Deloitte have given a thumbs-up to the Goods and Service Tax (GST), stating that implementation of this indirect tax GST has positive impact on overall biz: CFOs surveyreform has had a positive impact on overall business. This appreciation of GST’s value proposition comes on the eve of India completing one year of GST implementation.

Over 250 CFOs with revenues spanning from less than Rs 250 crore to more than Rs 10,000 crore, responded to the Deloitte India CFO Survey 2018. The respondents included listed and unlisted companies from both the private sector and PSUs, Indian companies and MNCs headquartered in India as well as overseas.


Seventy-seven per cent of the CFOs believe that GST has had a positive impact on overall business. Additionally, GST has had a positive impact on the revenue (71 per cent) and supply chain (70 per cent), and 58 per cent CFOs felt it had led to an improvement in ease of doing business. On the other hand, industry has witnessed a negative impact (as responded by 66 per cent CFOs) on working capital post-GST implementation.


In terms of the external environment, the survey reveals that regulatory and policy changes such as IndAS, demonetisation or GST, are the biggest concerns for CFOs. Technology disruption is also an important concern, as revealed in the survey. Companies have seen numerous technological disruptions and will continue to encounter the same in coming years.

As much as 89 per cent of the CFOs highlighted GST as a top challenge and saw it as a key regulatory change faced by the company. Rightly so, given that GST had brought about changes not just in technology, systems and reporting, but has also necessitated a relook into the existing business models impacting each and every aspect of business.

The other top challenge seen by CFOs is that IndAS aligned with International Financial Reporting Standards has been introduced, dealing mainly with revenue recognition. The new revenue standard brings in a comprehensive and robust framework (five-step model) for recognition, measurement and disclosure of revenue. This standard would change the manner in which companies recognise and report revenues.

Interestingly, the survey highlights that changes in the regulatory environment has added to the cost of compliance. As much as 49 per cent of the CFOs surveyed witnessed a challenge in terms of increased cost of meeting the regulatory requirements, the survey showed.


India’s short and medium-term economic outlook remains optimistic. While two-thirds of the respondents are positive about economic prospects in the near term, the percentage jumps to 94 per cent over the next 2-3 years.

Positivity among investors about the economic outlook over the medium term is reflected in the risk appetite of Indian businesses. 57 per cent of CFOs are now willing to take greater business risks, as the next couple of years are expected to be a period for consolidating gains from recent reforms, according to the Survey.

Source: The Hindu Business Line
Eight months of GST (Goods and Service Tax): How prices have moved

Eight months of GST (Goods and Service Tax): How prices have moved

The goods and services tax (GST)—which subsumed multiple indirect taxes at the central and state levels—completes eight months on 1 March. How has it impacted consumers and the companies that service them? To answer this, we looked at prices of goods that make up an average middle-class shopping cart, at five points of time after GST, for the five main metros.

We sourced prices from India’s largest online grocer BigBasket’s website for 71 items, covering 18 categories of the consumer price index. GST was applicable on 47 of these items, and the total billed amount for this basket was around Rs7,000, of which GST was between Rs1,300 and Rs1,700 depending on the city.

What companies are paying as tax: Up

Other than in Kolkata, the amount companies paid as tax under GST for our basket is higher now than when the new indirect tax system was launched (see graph 1 below). This could be on account of companies facing higher costs. At the same time, prices paid by consumers have not increased by a similar degree—in fact, they have fallen in most cases. This suggests companies are facing higher costs, but are unable to pass it on; or that they are not passing it on to avoid being seen to be profiteering by the government.

Consumers, though, are paying less for this shopping basket. There are two prices of consequence here. The first is the maximum retail price (MRP), or the price listed on the packet.The second is the selling price (SP), which factors in discounts given by a retailer (here, BigBasket).

At the MRP level, the price of the overall shopping basket has increased in some instances, notably in Delhi, or has fallen marginally (graph 2). But at the SP level, the consumer is better off. Companies are unable to increase prices and retailers are extending greater discounts to keep customers (graph 3).

Change in MEP and selling price in GST
Source: Live Mint
15th Finance Commission to assess GST impact on tax revenues, allocate more resources to states, says Arun Jaitley

15th Finance Commission to assess GST impact on tax revenues, allocate more resources to states, says Arun Jaitley

Arun Jaitley : GST

The Cabinet on Wednesday approved the setting up of the 15th Finance Commission which will assess the tax resources of the nation and suggest a formula for their devolution among states.

The members of the Commission and its terms of reference will be notified in the due course of time, Finance Minister Arun Jaitley said after the Union Cabinet meeting. Its recommendations will have to be in place before April 1, 2020, he said.

“Normally, it takes 2 years for Finance Commission to give its recommendations.”

As per Article 280 of the Constitution, the Commission is required to make recommendations on the distribution of the net proceeds of taxes between the Centre and the states.

The Commission also suggests the principles which should govern the grants in aid of the revenues of the states out of the Consolidated Fund of India. This time it will have to take into account the impact of the Goods and Services Tax, which kicked in from July, on the resources of the central as well state governments.

On who will head the 15th Finance Commission, Jaitley said: “The members of Finance Commission will be appointed very very soon.”

When asked whether the 15th Commission will also allocate more resources to the states, he said: “I think let us not prejudge the situation. India is a Union of states, the Union also has to survive.”

The 14th Finance Commission was set up on January 2, 2013. Its recommendations cover the period from 1 April, 2015 to 31 March, 2020.

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Source :  Firstpost
Note ban, GST impact behind us, growth in sight: FM Arun Jaitley

Note ban, GST impact behind us, growth in sight: FM Arun Jaitley

Arun Jaitley : GST

Finance Minister Arun Jaitley said today that the impact of structural reforms is “behind us” and the early economic indicators point to an improvement.

Structural reforms like demonetisation and the rollout of the Goods and Services Tax  (GST) would have had some consequences but they will help the economy, in the long run, he said.

“Having undertaken two major structural changes which are extremely important for the Indian economy, I think the impact being substantially behind us, the early indications for the future look to be positive,” he said at the India Today Conclave here.

In the last 2-3 months the Purchasing Managers’ Index (PMI) data has come out positive, similar to industrial output and core sector growth, he said, adding that these are some of the early indicators and “probably point to an improved situation”.

Also Read: PM Modi indicates more relief measures at next week’s GST Council meet 

Prime Minister Narendra Modi had on November 8 last year announced the demonetisation of old Rs 500 and Rs 1,000 notes to combat corruption, black money, terrorism and fake currency.

On the criticism that note ban has impacted growth, Jaitley said: “If you don’t have the capacity or courage or broad shoulders to undertake those structural reforms, then, of course, that status quo would have continued.

“And the status quo ante that existed in India, I don’t think that is an ideal situation where India would have lived to be.”

Jaitley said India was a fast-moving global economy for three years in a row and the time was opportune to undertake structural reforms. “Otherwise, the only option to structural reform that my predecessor could give you is policy paralysis, not my choice.”

Also Read: GST council meeting: 24 states confirm participation

The economy slowed to 5.7 per cent in the April-June quarter of the current fiscal, the weakest pace since 2014 as demonetisation sucked out 86 per cent of the currency in circulation throwing cash-dependent businesses in disarray and the implementation of GST from July 1 hit small and medium enterprises.

The GDP growth had started to slip in the quarters before demonetisation, he said, adding that the manufacturing activity declined in the run up to the GST roll out from July 1 as businesses started destocking their goods.

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Source :  The Times of India
PMI: Restocking bounce short-lived, GST clouds over manufacturing sector darken

PMI: Restocking bounce short-lived, GST clouds over manufacturing sector darken

GST will further boost India’s ranking in ease of doing business, say bankers

Concerns of Indian manufacturers over the negative impact of the goods and services tax (GST) are far from over. The bounce seen in manufacturing output and new orders, aided by restocking ahead of the festive season in September, has waned.

The Nikkei Purchasing Managers’ Index (PMI), a seasonally adjusted monthly survey of private sector activity, showed that manufacturing PMI fell to 50.3 last month from September’s 51.2. A reading above 50 indicates economic expansion from the previous month, while one below 50 points to contraction.

PMI: Restocking bounce short-lived, GST clouds over manufacturing sector darken
After expanding for the previous two months, the New Business Orders Index slipped into the contraction zone at 49.9 in October.

Even though the manufacturing PMI remained above the expansion threshold for the third consecutive month in October, it was only marginally in positive territory. The deceleration suggests that manufacturing activity has not recovered from disruption caused by goods and services tax.

Also Read: GST will further boost India’s ranking in ease of doing business, say, bankers

Ambiguity over the new tax regime weighed on demand conditions, consequently hampering new business orders. After expanding for the previous two months, the New Business Orders Index slipped into the contraction zone at 49.9 in October.

Commenting on the Indian Manufacturing PMI survey data, Aashna Dodhia, economist at IHS Markit and author of the report, said, “India’s manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October. Disappointingly, manufacturing production rose at the weakest pace in the current sequence of growth. Inflows of new orders stagnated as the negative effects arising from the implementation of GST continued to dampen demand levels.”

As a result, business confidence among manufacturers, which had recovered in September, faded. The Future Output Index eased to 57.5— the weakest since February. “Optimism was rooted in projected benefits of GST materializing over the next 12 months. However, some firms expressed concerns over negative GST effects,” added Dodhia.

Also Read: GST extension- July deadline to file GSTR-2, GSTR-3 moved to Nov 30, Dec 11

Meanwhile, the deadline to file GST returns for July was extended since many could not upload information given the technical glitches with the GST Network. Businesses will be able to claim timely credit depending on the accuracy and completeness of data. Failing that, the pressure on their working capital is likely to remain.

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Source :  Livemint
Transition to GST takes a toll on Q1 results: Analysis

Transition to GST takes a toll on Q1 results: Analysis

Transition to GST takes a toll on Q1 results: Analysis

June quarter sales and profit growth of listed companies were hit by the transition to GST, a Mint analysis shows. This has prompted analysts to continue cutting earnings estimates for the current fiscal and the next, thus making stock valuations look more expensive.

According to data compiled from Capitaline, June quarter net sales growth of 1,671 BSE-listed companies slipped to a three-quarter low of 4.51% as distributors and retailers stopped stocking goods and liquidated inventory ahead of the GST implementation on 1 July.

Similarly, net profit growth after adjusting for one-time items fell to a six-quarter low. It shrank 3.89% in June, compared with a year ago. This sample set excludes banks, financial services firms and energy companies as they follow a different earnings model.

“Last quarter earnings were hit by a combination of factors. Though GST disrupted business, there were a few other sector-specific issues specifically in information technology (IT) and pharmaceuticals which impacted overall growth in Q1,” said Navneet Munot, chief investment officer at SBI Mutual Fund.

He also added that a further appreciation of the rupee—which has gained 6% against the dollar this year—may extend the pain of companies that earn much of their revenue in dollars.

That the pain to earnings is likely to sustain can be seen from the continuing earnings downgrades.

Data from Bloomberg show Nifty companies’ consensus earnings per share forecast for the current fiscal has fallen 7.23% since April; for fiscal 2018-19, it has been cut by 3.43%.

For the 50 members of the Nifty index, adjusted net profit fell to a four-quarter low, shrinking 0.84% year-on-year. The Nifty currently trades at 19.6 times 12 months forward earnings, making it one of the most expensive benchmark gauges.

“Besides GST, a global slowdown and forex losses made a deep impact on business,” said Siddhartha Khemka, head, equity research (wealth) at Centrum Broking Ltd.

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The slowdown in growth has happened despite a fall in costs.

For the 1,671 company set, raw material costs declined 6.2% helped by the falling prices of inputs such as crude oil. Brent crude prices dropped 10.7% in 2017. Similarly, employee expenses fell by 4.39%.

Still, investors would take heart from the fact that operating profit margins rose to 18.78% against 17.4% in the March quarter.

Secondly, interest costs grew slower than operating profits, and that meant the debt servicing capability of this set of firms improved a bit. The interest coverage ratio was 3.18 for the June quarter against 3.0 in the three months to March.

Some analysts such as Mayuresh Joshi, a fund manager at Angel Broking Ltd, expect an earnings recovery towards the second half of this fiscal.

“Management commentaries after the first quarter have indicated business is stabilizing post transition to GST, and companies are confident of volume growth recovery in forthcoming quarters. Also, a well spread out monsoon and festivals will see a revival in consumer demand,” said Joshi.

Munot of SBI also said that “valuations are reflecting expectations of earnings recovery”.

The Sensex and the Nifty have gained nearly 19% this year, fuelled by liquidity inflows and hope of more reforms propping economic growth. Analysts see tepid company earnings growth and risks to overall economic growth such as the threat of deflation flagged by the mid-term economic survey as key threats to the stocks rally.


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Impact of GST on Indian Healthcare and Pharma Sector

Impact of GST on Indian Healthcare and Pharma Sector


In India many types of tax systems were prevailing in the past, and during British period, there were significant changes in the taxation system. There after many changes took place time to time. To make the Indian Tax system more uniform, Goods and Services Tax has been introduced in India from 1st July 2017.

Goods and Services Tax is hailed as the biggest tax reform since independence. Parties on both sides of the political divide say it is a good initiative but may disagree on preparedness to implement and the rates on various goods. It will include all taxes at various stages of value addition in production process of goods and services i.e. buying raw material, manufacturing of components and final product, warehousing, and transportation and final sale to customer. These taxes were levied by multiple authorities such as local (municipalities), state and central governments. The final customer will pay GST while purchasing from the last dealer. Thus it is not a new tax but replaces all taxes which were levied at all the previous stages in production and sale process with one tax.

Now there is one tax with two components i.e. state components and central. The state component will go to the state in which final transaction took place and central component will go to central government. GST is expected to increase the government revenue as tax evasion will be checked and many services that were not under the service tax regime will come under GST. The increase in Government revenue will improve investment in health and the social determinants of health. It will also provide transparency and certainty in the Indian tax system. It will improve the ease of doing business in India for both local and off-shore investors.India’s current standing globally in ease of doing business is 130 out of 190 countries. Globally, Goods and Services Tax is seen as a simple, efficient and successful form of indirect tax reform. It will contribute to accelerate economic growth in India by replacing the current multiple (more than 15), inefficient, irrational and complex indirect tax system in India.

GST in other countries:

Most of the countries (160) in the world especially the ones with advanced economy have Goods and Services Tax or similar tax system, some have been in place for more than fifty years. These include France (first country to implement in 1954), China (1994 modified in 2016), Japan (1989), Malaysia (2015), Australia (2000), New Zealand (1986), Singapore (1994), and Canada (1991). Globally there are more than 40 models of GST. India’s GST system is closer to that of Canada with two components (state and the center).

Even smaller economies like Seychelles, Gambia and Congo have introduced GST in last five year. The countries introducing Goods and Services Tax have faced short term disruptions such as protests, inflation spikes, burden on small businesses etc. before the benefits start emerging. India has four slabs of taxes (5, 12. 18, 28 and on some goods sin tax of 40%) where almost all other countries have only one slab.There is no doubt that GST is going to affect almost every sector of the economy in India, so the experts are trying to analyse their respective sectors and their growth under the umbrella of GST.

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GST and healthcare sector

Health care is one of the fastest growing sectors of the Indian economy with lots of potential in terms of revenue and employment. Health care is a wider term that mainly includes pharmacy, medical devices, medical insurance, diagnostics and other components of medical care. The GST is going to affect all the components of health care in various ways.

1) GST and Pharmaceutical industry

About two thirds of the out of pocket expenditure on healthcare is on drugs in India.The burden of all the taxes on drugs in general was about 13 percent in the pre GST period and the current GST is 12 percent as a whole including ayurvedic drugs. The medicines for HIV-AIDS, malaria, tuberculosis and diabetes will be imposed 5 percent GST. The GST on the drugs produced under excise free manufacturing zone is yet to be clarified.The best thing for the pharma companies is that their cost of purchase is going to reduce. Moreover the burden of multiple tax and complexities associated with multiple tax system slowed down the business. GST will give hassle free business environment to the pharma companies. For the consumer the cost of drugs will come down.

2) GST and Medical devices and Equipment

The manufacturers of medical devices are also joining the party as medical devices and surgical equipments are proposed to be taxed 12 percent under the GST. The previous burden of taxes on the medical devices and equipment was over 13 percent including all the bunch of taxes. So one percent tax benefit is clearly visible under the new tax system for the medical device and equipment industry. This will clearly give a boost to the industry in the near future. The consumer will also share the benefits in terms of lower price and affordability.

3) GST and Health Insurance

There is lot of scope of for health insurance in the country like India where the coverage under health insurance is only 18 percentage in urban and 14 percent in rural India in 2016. The GST rate on the insurance sector is 18 percent as against 15 percent service tax in the pre GST era. It clearly indicates that the health insurance premiums are going to increase.

4) GST and diagnostics

There is expected rise in the prices of diagnostics such as blood tests, X-rays, MRI and strip based diagnostics as they are put under either 12 or 18 percent slab which is higher than the previous tax rate on these services. In the pre GST era the 10-15 percent of out of pocket expenditure is on diagnostics which is expected to increase in the post GST period.

Goods and Services Tax will certainly increase the Government revenue in the country with more transparency in the tax system that will further simplify the tax structure. The economy is expected to grow at a faster rate. Every sector of the economy would have its share in the growth of the economy including healthcare sector. In a broad spectrum, it is an analysing phase for the healthcare sector to see the impact of Goods and Services Tax. The experts of the healthcare sector are confident that the post GST period will bring the strategic change and will create a positive environment by minimizing the obstacles and complexities in the growth of healthcare sector and have a positive impact to bring down the cost of health.

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Source : ETHealthWorld
No GST impact as traders continue to charge high rates

No GST impact as traders continue to charge high rates

GST impact as traders

After the Goods and Services Tax (GST) came into effect, the prices of items with lower tax rates have gone down, but traders are allegedly refusing to cut prices on new stock arrivals.

Though the state government had released a list of 101 essential commodities, whose prices should have come down following the implementation of GST, the merchants ignored the instructions. They have also kept the prices of freshly procured products unchanged, refusing to adopt the pricing protocol prescribed by the GST regime.

Citing legalities, the state GST department has not initiated any comprehensive action so far to stop producers and distributors making the most of GST or pass on the benefits to consumers.

The government’s efforts to rein in prices of hotel food have also made little headway despite marathon meetings with restaurateurs.

Hoteliers claimed that they were under tremendous pressure to hike prices of food and beverages because of the sharp increase in prices of various commodities, especially that of chicken.

With the reduced tax, a bottle of drinking water should cost at least Rs 1 lesser, but the maximum retail price remains Rs 20 per bottle despite the arrival of fresh stocks after the GST rollout.

The state government had declared that the prices of essentials would moderate from July 1. They include atta and maida (by 6 percent), sugar (4 percent), tea, coconut oil, gingelly oil, sesame oil, and spices such as elachi, clove, and cinnamon. However, though once month has passed since the implementation of GST, the prices of all these items remain the same, if not higher.

Nevertheless, the merchants have hiked the prices of items with increased tax rates under the GST when fresh stocks arrived.

Some of the leading consumer goods manufacturers have decided to lower the prices of commodities such as toothpaste, milk powder, washing powder etc. Whereas, many of the other companies continue to sell the same products at older rates.

There have been complaints galore from the public over jacked up prices, over billing, masking or tampering with stickers to the state GST department and the minister concerned. Though finance minister Thomas Isaac had promised to intervene in the issue, no action has been initiated against erring merchants so far.

At the same time, the government has received memorandums from different industrial sectors seeking reduction of tax rates.

At the GST Council meeting scheduled for August 5, the minister would urge the government to consider their demands, including tax reduction, it is learnt. The main demand would be to bring tax on sanitary napkins, fishing equipment, ayurveda medicines, plywood products etc to 5 percent.

Apart from this, a proposal to constitute a panel under governments in each state to monitor the implementation of GST and prevent malpractices/irregularities in the name of the new tax regime would also be put forward at the meeting.

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Source :  Manorama Online
Good news for foodies: GST ushers hotels, restaurants to scale down prices by 5-10 per cent

Good news for foodies: GST ushers hotels, restaurants to scale down prices by 5-10 per cent

GST Bill Hotel

Eating out is going to get cheaper as hotels and restaurants in Pune have decided to reduce the price of food items by 5-10 per cent; the prices had recently gone up after the Goods and Services Tax (GST) came into effect. Recently, the GST commissionerate held a meeting with Pune-based hoteliers and urged them to reduce their base prices as their input costs have reduced.

Both AC and non-AC hotels and restaurants in Pune had started charging more from July 1, in view of the 12 and 18 per cent GST slabs applicable to them. Restaurant and hotel bills had increased as hoteliers had started to charge Goods and Services Tax on their existing rates.

Ganesh Shetty, president of the Pune Hotelier’s association, had said that unlike other industries, the hospitality industry did not have the option to offset their taxes based on inputs. “Agricultural inputs do not attract GST so we thought that we could not avail the benefit of the tax offset,” he said.

Rajlakshmi Kadam, deputy commissioner of GST, Pune Zone, said, “During a recent meeting, hoteliers were asked to pass on the benefits they would be getting in view of the reduction in the prices of inputs”. She said that following multiple meetings with hoteliers, the latter have started offering a discount on their existing menu card.

Shetty said the hoteliers have decided to offer between 5-10 per cent discount after their meeting with GST officials, as well as Union minister Prakash Javadekar.

“Soon after GST came into effect, there was a lot of confusion about the tax. We had multiple discussions and have decided to provide the discount in anticipation of the reduction in input costs,” he said.

Around 70 per cent of the restaurants have already printed new menu cards, with the reduced prices, while the rest are in the process of doing so.

K N Shetty, manager of Hotel Roopali, said they have reduced their prices and are charging GST on the new price. “Post July 1, we were charging Goods and Services Tax on the original prices and that had created some unpleasantness with the customers. Now, we have reduced the base prices and are charging GST on them,” he said.

Source: The Indian Express