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Alcohol-based hand sanitisers to attract 18% GST: AAR

Alcohol-based hand sanitisers to attract 18% GST: AAR

The Authority for Advance Ruling (AAR) has said that a GST of 18 per cent will be levied on all alcohol-based hand sanitisers.

Springfield India Distilleries had approached the Goa-bench of AAR to seek classification of hand sanitisers supplied by the company, and contended that the product is taxed at 12 per cent.

It also sought to know if sanitisers would be exempt from GST since it is now an essential commodity.

The AAR, in its ruling, said since hand sanitisers manufactured by the applicant are of the category of ‘alcohol-based hand sanitisers’, a 18 per cent GST would be applicable.

Source: Times-of-India.

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GST rate cut to boost demand may be counterproductive, say finance ministry officials

GST rate cut to boost demand may be counterproductive, say finance ministry officials

The government may not accept the industry’s demand to substantially reduce Goods and Services Taxes (GST) for six months to boost demand as the exemption would block input-tax credit that would have an adverse impact on businesses and may not result into any significant gain to the consumer, two finance ministry officials said.

The GST exemption will make output tax as zero and thus the input-tax credit would be blocked, which will be added to the cost making the product costlier, the officials with direct knowledge of the matter said requesting anonymity.

“This will not only be injurious to the industry but also to the consumer at large and this is certainly not going to revive the demand,” one of the officials said.

The GST is an integrated levy of indirect taxes and a main source of revenue for both the Centre and the states. It is about one-third of the total tax receipts. Over 70% of the GST revenue accrues to the states through their own share and the devolution. Therefore, it is impossible for states to manage their finances without the GST revenue, a second official said.

Several industry associations have said demand generation would be a major challenge before the government after the lockdown is lifted and a substantial reduction in GST rates could be a solution. Niranjan Hiranandani, president, Associated Chambers of Commerce and Industry of India (Assocham) is one of its proponents who had proposed to cut GST rates on almost all products by 50% for six months to boost demand and had asked the government to include it in the part of its economic stimulus package with estimated cost of about Rs 3 lakh crore. HT reported it on April 17.

Responding to the finance ministry officials’ comments, Hiranandani said on Tuesday, “In theory, yes – lost input tax credit (ITC) on exemption from GST is an issue of concern, but that is not what the industry’s suggestion.”

“It has to be viewed from the perspective of incentivizing consumers by inducing them to make a purchase leading to the consumption which is the need of an hour. The argument is that a cut in GST for a short term, say next 6 months, will reduce the amount paid for the good or service, so the consumer will buy more (spend more) and thereby, revitalize the economy. It is a simple issue of reducing (not exempting) GST, so that consumers go ahead and buy – in the present, during the period of reduced GST rather than keep waiting for some other day to do so,” he said.

The logic is that demand generation needs reduction in GST,” he said adding “The aspect of ITC can be dealt with, so long as the suggestion is taken in the proper perspective.”

Experts, however, advised the government to adopt a cautious approach while tempering with GST rates. “There does not appear to be any empirical evidence that any country has exempted GST/VAT [value-added tax] across the board in order to drive up the pandemic-impacted economies. There could be specific sectors/areas where there may be a need to rationalise the GST rates for a temporary period to assist the sector. This needs be done very cautiously ensuring that revenue losses are minimised, leakages are avoided and the reductions do not lead to emergence of inverted duty structure situations,” said MS Mani, partner at Deloitte India.

Abhishek Jain, tax partner at consultancy firm EY said a GST exemption would entail breaking of credit chain, higher input tax costs for businesses and complexities on compliances with credit transitions during taxable and exempt tax periods. “A specified percentage GST rate reduction could be explored vis-à-vis a NIL rate/exemption by the government specifically for the severely impacted sectors. In a scenario, where the said rate reduction entails accumulation of credits, the government should ensure full refund of the credits so accumulated with faster processing of such refunds,” he said.

According to Pratik Jain, partner and leader-Indirect Tax at  India, providing GST exemption leads to complications in terms of blockage of ITC, coupled with rigors of anti profiteering provisions, besides imports become cheaper. “However, there is perhaps a need to make an exception for certain industry sectors such as airlines, hospitality etc. In addition, the government should consider providing working capital cushion to industry by deferring the payment of GST collected by few months to industry at large, without payment of any interest,” he said.

Source: Hindustan Times

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Govt not cutting GST on PPEs, masks, to save local cos from cheap imports

Govt not cutting GST on PPEs, masks, to save local cos from cheap imports

The government is holding back on any GST rate reduction for items like PPE, ventilators, test kits, and sanitisers, as this could end up encouraging ‘sub-standard imports’ from China.

Government sources clarified on this after Congress leader Rahul Gandhi raised the issue on Twitter, arguing that it was wrong to levy GST on such items from people who were dealing with poverty and disease.

On the contrary, sources said, GST exemption would make prices fall leading to hardships and distortion for domestic manufacturers without much cost-benefit to the consumers. They said such a step would ensure imports get an advantage on domestic supplies, especially in PPE where the hardship on account of GST exemption would be “severe” for domestic units as basic customs duty on the item is nil up to September 30, 2020.

“The recent experience shows that sub-standard quality goods are exported by China to India and the world. Therefore, incentivising imports by the reduction of GST, at the cost of domestic units, may not be a desirable option,” a government source said.

Sources also explained that distorting the rate structure at the cost of domestic supplier may not be desirable in a situation where government is the biggest buyer of these goods and is supplying these goods for free. “The GST on said items is mostly borne by the Governments. Domestic units are making serious efforts to ramp up their capacities. In certain cases, like masks and sanitisers, the items are being procured by individuals too. Putting domestic manufacturers at disadvantage viz a viz imports may not be desirable,” the sources said.

It was further explained that GST exemption leads to a blocked input tax credit (ITC) thus increasing the cost of manufacturing for domestic manufacturers. “Even if GST on PPE is reduced to nil, the total cost would remain unchanged. While GST exemption to PPE would make output GST as zero, the ITC (GST suffered on inputs) would get blocked and would get added to the cost. Therefore, while the consumer does not gain from GST exemption, the compliance burden would increase for the manufacturer,” sources said. They added that imports would not suffer any such block ITC and thus, imports get an advantage. Sources said GST exemption on sanitary pads had led to a similar situation for domestic manufacturers of the product.

The government had exempted basic customs duty and health cess on such items, except sanitisers till September 30 given the immediate need for such items from abroad. “But GST exemption on such items is in a different footing and has significant cons without much gains to the consumer,” sources added.

Source: Economic-Times

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Anti-profiteering body steps up GST compliance drive

Anti-profiteering body steps up GST compliance drive

A wave of orders is expected from the National Anti-profiteering Authority (NAA) in the next three months, with the Centre stepping up a goods and services tax (GST) compliance drive.

About 40 orders are expected to be issued shortly on complaints against firms in the real estate, consumer goods, and cinema industries, said a person with direct knowledge of the matter, who requested anonymity.

The firms facing investigations include some the leading suppliers of ayurvedic products, electronics and television makers, luggage and travel accessories makers, two leading multiplex chains, and hygiene and home products firms, said a second person aware of the matter.

This comes amid concern among policymakers that businesses have pocketed part of the ₹1 trillion worth of GST rate cuts that were to benefit end-users and thus help stimulate demand in the economy.

In the past, about 60% of the cases investigated by the Directorate General of Anti-Profiteering (DGAP) have confirmed profiteering behaviour by businesses. The NAA has issued orders on more than 100 cases since it came into force in November 2017. Its orders have led to businesses depositing about ₹600 crore in profiteered amount to a consumer welfare fund managed by the consumer affairs ministry, said the first person mentioned above.

Authorities intend to take more measures to reach out to consumers and sensitise them about their rights and remedies. Towards this, the government has decided to direct erring companies to deposit the profiteered amounts in a separate fund to be used for GST-related purposes.

“While some of the large brands have started passing on the GST rate reduction benefits, several others, especially the mid-sized ones, have not revised maximum retail price downwards and, hence, only one in three consumers have validated the reduction in MRPs,” said Sachin Taparia, founder and chairman of LocalCircles, an online community of consumers. Their survey last month covering more than 14,000 citizens showed that a large section of customers believe they are not getting the benefits of the tax cuts that came into force on 1 January 2019.

Source: Live-Mint.

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GST council begins review of rates, items to raise revenue

GST council begins review of rates, items to raise revenue

The government has begun discussions with states for a possible revamp of the goods and services tax (GST), which may include bringing a few exempted items under the levy while reviewing the rates and the cess on all goods and services, as part of an exercise to shore up revenue.

In a letter to states, the GST council has given a full menu of options and suggested their feedback ahead of a meeting of ministers expected before the end of the month. The move comes at a time when tax collections have been hit, which authorities believe is due to a massive reduction in rates. The RBI had recently estimated that the effective GST rate in India has come down from 14.4% in May 2017 to 11.6% now.

Officials said this has robbed the government of potential revenue of around Rs 2 lakh crore annually and also increased compensation payout to states as the Centre had assured them to make good on any “losses” in case collection growth was less than 14% a year. The economic slowdown, along with tax leakage, has added to the government’s woes and the growth has been lower than anticipated despite an expansion in taxpayer base.

“The effective indirect tax rate on many products in the pre-GST era was around 25%, which has reduced to 18% in GST. In the absence of a significant increase in volumes, there would be an impact on revenues,” said M S Mani, a partner at consulting firm India.

gst rates

Another tax consultant said the services sector revenue has not seen a significant expansion in the base as investments have slowed down. As a result, the GST council has asked states to review the list of products that are currently exempted, which includes some of the items that were earlier subject to tax.

With states complaining about the Centre holding up compensation, the government is also seeking a review of the items that can face the levy apart from looking at the possibility of enhancing the levy on existing items like tobacco, soft drinks and cars.

With the compensation cess kitty eroded, states have little choice but to either agree to settle their bills over a longer period than the five years that was provided for or agree to higher cess or expanding its scope, said officials.

Source: Times-of-India

India GST panel likely to recommend tax cuts on 20-25 products – sources

India GST panel likely to recommend tax cuts on 20-25 products – sources

India’s goods and services tax panel is likely to recommend tax cuts on 20-25 products on Friday but will avoid lowering rates for items that will significantly dent revenue collections, two government sources said.

The panel, comprising state finance ministers and the federal finance minister as the chair, will shortly meet to decide on reducing tax rates to boost growth that has fallen to a six-year low.

The proposed GST tax cuts will have limited impact on government revenue, the sources said.

Source: Economic-Times

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Booked hotel room? Expect 10% GST refund if room rate exceed Rs 7500

Booked hotel room? Expect 10% GST refund if room rate exceed Rs 7500

Guests of luxury hotels are likely to gain from the recent government decision to slash goods and services tax (GST) on rooms priced at over Rs 7,500 to 18% from 28% now, and below that tariff to 12% from 18%. The new rates will be effective from October 1.

So, if a person books a stay in a luxury hotel with an average room rate of Rs 10,505, he will save Rs 1,050, or around 8%, under the new GST rate as he has to shell out a total of Rs 12,395 against Rs 13,446 under the existing tax regime.

The new rate will also be applicable to those who have already paid for bookings after October 1.

Typically, holidaymakers book hotel rooms in advance as tariffs are known to rocket during peak season in India, which begins in October and touches a high by the year-end.

One such vacationer, John Paul (name changed), has booked three rooms for a five-night stay in December at a luxurious Goa property. He shelled out Rs 2.6 lakh per room for five nights that included a 28% GST of Rs 57,540.

Days after his booking, the government slashed the GST and the 10-percentage-point reduction made a difference of Rs 20,550 per room to Paul’s bill.

The saving is equivalent to the price of a brand new Lenovo laptop.

Paul contacted the five-star chain for reimbursement of the balance GST amount and the hotel in an email said, “The difference of tax excess payments received will be used against extras consumed at the hotel.”

“If a customer has made part-payment while booking a room, then the adjustment will be done by the hotel at the time of final billing incorporating the revised GST rate. In case of full payment done by a customer in advance, the hotel will have to refund the balance amount to the customer. GST will be paid as applicable at the time of billing and not at the time of advance received,” said Pradeep Shetty, vice-president of Hotel & Restaurant Association of Western India (HRAWI).

Luxury hotels, which are twice as expensive to develop but command a premium pricing, account for 11% of the overall supply of 2.8 lakh rooms in India.

The GST rate reduction is likely to lead to customer savings of 5-8% on existing room rates across hotel segments, with luxury properties benefiting more, a recent Kotak Institutional Equities report said.

Interestingly, despite lowering of the GST on rooms priced at more than Rs 7,500 and also those priced between Rs 1,000 and Rs 7,500, industry executives said hotels in India continue to be the most taxed across the world.

Source: Times-Of-India

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The GST’s initial premise should be revisited

The GST’s initial premise should be revisited

When the GST was launched in July 1, 2017 with the promise to simplify our incredibly complex indirect tax system and unify the country through a single indirect tax, the nation supported the new disruptive tax regime the way it had supported demonetisation, setting aside the creeping doubts that were upsetting many businesses. The GST system was built on the simple premise of automatic matching of the invoices submitted by suppliers and buyers, enabling automatic processing of input tax credits (ITC) and refunds by the Infosys-built GST Network (GSTN) portal, the IT architecture that is the backbone of implementation. The GSTN was supposed to minimise frauds, curtail evasion, end harassment of taxpayers and corruption, and bring in transparency, leading to an increase in revenues, which would enable the government to lower rates and converge slabs, finally culminating in a single rate, one nation-one tax system, making it truly a “good and simple tax”.

Two years down the line, most of the promises, however, still remain only on paper. The GSTN has turned out to be miserably inadequate to fulfil its role due to the inefficiencies of the software. The automatic matching of invoices was junked only after a few months, when the returns for outward supplies (GSTR-1) and inward supplies (GSTR-2) could not be matched by the GSTN, and hence the refund of the ITC could not be processed, blocking scarce capital for millions of taxpayers. For easier transition to the new regime, a simple return — the GSTR 3B — was introduced only as a temporary measure while the GSTR-2 was suspended, so that the ITC refund could be made by using only the GSTR-1 and GSTR-3B.

The 3B return, however, has no validation whatsoever in the system, making it open to frauds and evasion that the automatic and complete matching between the GSTR-1 and GSTR-2 was supposed to have eliminated. In fact, the CAG, citing numerous instances of false ITC claims in his Report No, 11 of 2019 has said as much, emphasising that the rollback of invoice matching without any safeguards had rendered it prone to frauds. The self-correcting mechanism of complete invoice matching is a critical requirement of the system, in the absence of which the ITC is claimed by the taxpayer purely on a self-assessment basis without any system validation.

Curbing tax evasion

There have even been efforts to rationalise the incompetence of the system and institutionalise its inefficiencies. A former member of the Central Board of Indirect Taxes & Customs (CBIC) has argued that no country in the world has a complete invoice-matching system which is impractical. It is further asserted that major taxpayers such as public enterprises and private players like the Tata group, the Birla group, Mahindra & Mahindra, Hero, Infosys etc, who together pay 80 per cent of the GST, are not tax-evaders; hence, instead of wasting system resources on universal invoice matching, an intensive audit of their accounts equally serves the purpose.

Besides, it is claimed that in sectors like automobiles, steel or services, there is no scope for evasion since components and final products, or contracts and purchases, match perfectly. It is only in the sectors that sell products piecemeal, like soaps or toothpastes, that universal matching should be made mandatory; for all others, an intelligence-based checking, along with comprehensive auditing, should be far more effective than universal invoice matching. The alleged large-scale falsification of invoices has been dismissed as “absurdly illogical” and “only good English”.

Fake invoices

The arguments are as vicious as they are absurd. If universal invoice matching was impractical in the first place, why was the system designed upon this very premise? The argument that big players are all virtuous and small players are all evaders is dangerous to say the least — it is an inevitable step towards lobbying and patronage distribution, unfettered discretion, harassment and extortion — in fact, it is an insane prescription to institutionalise corruption and perpetuate very aberrations the GST regime was designed to thwart. There is also complete ignorance of the huge frauds and evasion resulting from fake invoices, which tax officials are struggling hard to curb.

In fact, the Minister of State for Finance has himself stated in Parliament that frauds amounting to ₹45,683 crore were unearthed since the launch of the GST. The CBIC Member (Investigation) had admitted that between April 2018 and February 2019, evasion of ₹20,000 crore was detected, of which ₹10,000 crore were recovered. A thriving ecosystem of fake companies using fake invoices has grown luxuriantly for claiming ITC; no sooner are the refunds claimed that these companies disappear into the thin air.

Only last week, ₹470 crore of evasion and fake invoices of ₹3,500 crore were uncovered by the tax authorities. There is something much more serious than “good English” at stake here, and the focus should be on addressing these serious structural deficiencies.

Source: The-Hindu-Business-Line

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Panel spikes plea to lower GST on 165 more items

Panel spikes plea to lower GST on 165 more items

Motor vehicles and biscuits may have hogged the headlines when the Goods and Services Tax (GST) Council decided not to lower the rates last week, but beneath the news radar, 165 other categories, including ghee, butter, cheese, and dry fruits, met with the same fate.

The Fitment Committee (FC), the sub-committee of the GST Council comprising tax officials of the Centre and the States, had reviewed rates, including compensation cess, and procedural issues in respect of over 200 categories of goods. Finally, it recommended changes or clarification for 32 categories of goods, and deferred a decision in respect of 10, but left the rates on 167 categories of goods untouched.

Based on representations, the FC analyses and decides on the merits of a change in tax rates. Its recommendations are placed before the GST Council, which accepts or rejects them.
gst
Ghee, cheese and butter attract GST at 12 per cent. There had been representations seeking that it be lowered to 5 per cent. However, the FC noted that in the pre-GST period, the tax had been nearly 12 per cent. As of now, these products are sold largely by the organised sector, by companies such as Amul and Mother Dairy. Small manufacturers can avail themselves of threshold exemption, the FC reasoned, and recommended no change.

On instant food mixes
Another proposal was for lowering GST on all convenience instant food mixes – idli mix, vada mix, dosa mix, gulab jamoon mix, thandai mix, payasam mix and upma mix – from 18 per cent to 5 per cent. The FC noted that processed food items attract 12 per cent tax, but a few items, including instant food mixes, attract 18 per cent. “These are consumed by better-off sections of society, who can afford the rate,” the FC said.

It also noted that GST on idli dosa batter had been reduced to 12 per cent. Instant food mix products are manufactured by large corporations and a rate reduction may not be passed on to consumers, but may lead to profiteering; hence no change was recommended.

The proposal for lowering GST rate on helmets, after the Motor Vehicles Act was amended, did not find favour with the FC. Inputs for helmets attract 18 per cent GST, and lowering the rate on helmets to 12 per cent may result in manufacturers seeking refund of unutilised input tax credit, with associated financial and administrative costs.

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Source: The-Hindu-Business-Line
GST rate cut on auto, other products to be political call

GST rate cut on auto, other products to be political call

A decision to reduce goods and services tax (GST) on automobiles and other products will be a political call even as finance ministry officials remain unconvinced of the utility of bowing to the clamour for a rate cut. They point out both – lack of fiscal space and doubts whether such a measure will really address the causes for the slowdown in the sectors.

Already, collections from automobiles are down from around Rs 15,000 crore a month to Rs 10,000-11,000 crore, and the compensation pool does not have sufficient corpus – funded through a cess on cars, tobacco and soft drinks – to pay states for any GST “shortfall”. Under the agreement with states, the Centre has to compensate those that do not see 14% or higher annual GST growth for five years.

Collections have so far this fiscal grown at over 6% against the asking rate of 13%. Sources told TOI that, barring automobiles, most other sectors were not as badly hit so far.

Though the auto lobby has been the most vocal in its demand, the finance ministry has so far refused to cut the levy, which adds up to 43%, including a 15% cess on mid-sized and large cars above the 28% tax. Industry representatives have told the finance ministry that collections may drop further as they see a sharper slowdown in coming months.

Last week, transport and MSME minister Nitin Gadkari, however, backed the auto sector and suggested that he will seek a “package”, with junior finance minister Anurag Thakur suggesting that the vocal auto lobby should take up the issue with the states – equal partners in the GST decision-making process. Given that most of the states are BJP-ruled, state FMs will take a cue from the Centre.

Finance ministry officials see the GST Council meeting on September 20 as the last window for a rate reduction, ahead of the festive season when cars and durables sales get a boost. But they find little merit in the demand with some of them conceding that consumers are deferring purchases due to weak expectations on their income growth in the coming months.

Besides, they said, rate cuts in the past have yielded little results, and point to the experience of the real estate sector where the levy was considerably slashed ahead of the general elections. “A spending boost for infrastructure and other sectors will have more impact than a reduction in GST,” said an official.

Source: Times-of-India.

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