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50 days of GST: Tough lessons learnt; road ahead looks good

50 days of GST: Tough lessons learnt; road ahead looks good

50 days of GST

Over the past 50 days, the transformative  GST (goods & services tax) has evolved at a very fast pace. Once the rollout became a certainty, the government and stakeholders have moved in fast to tweak rules, revise taxes and introduce new features in a bid to progress on the stated motto of making India a unified market.

Successive GST Council meetings, interactions with taxpayers and on-ground feedback have enabled smooth functioning of this new tax system that is young and still learning.

Over 71.30 lakh excise, service tax and VAT payers have migrated to the GSTN portal and over 15 lakh new assessees have registered on the platform.

Let’s look at the lessons from the past 50 days and understand the way forward.

Nifty-fifty days

While legislative provisions were framed before July 1, 2017, many of the practical solutions have been announced later. From the date of filing first GST returns, to dealing with trends like deregistration of brands post-GST to avoid taxes, to hike in luxury car cess, to changes in invoice rules – various enabling and implementation procedures and clarifications are being introduced along with the onset of GST.

Here is a brief assortment of important developments in the past 50 days:

• The government has notified the timeline for furnishing final tax returns for July and August under the GST regime. The GST Council had in June allowed businesses extended timeline for filing final GST returns in forms GSTR-1, GSTR-2 and GSTR-3 for July and August. In the interim period, businesses have to file GSTR-3B which is a summary of self-assessed tax liabilities with consolidated details of outward supplies and input credit.

• The GST Council in its 20th meeting decided to reduce the tax rate for job work for the entire value chain of textiles sector to 5 per cent. Alongside, it lowered rate for tractor parts to 18 per cent from 28 per cent. Also, the Council gave the in-principle nod to the e-way bill rules.

• The GST Council will soon start publishing rates of various products to prod companies to pass on gains, including those from input tax credit. To begin with, 150 items will be taken up. Once the rates of 150 items have been released, more items could be added later.

• The GST Council in its first review meeting since the implementation of India’s biggest tax reform since independence hiked the fixed cess on cigarettes by Rs 485-792 per 1,000 sticks, depending on the length of the stick. This is in addition to the 5% ad valorem cess which continues. The government has fixed a peak GST rate of 28% on cigarettes, with the cess being levied on top of the tax.


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Dynamic approach required

The quick and evolving nature of GST tax system has kept assessees on their toes for monitoring regular updates on various aspects with respect to GST. Hence, tax payers, be it trading houses to large global corporations, will be best-placed if they have a single window solution.

The approach needs to be a proactive one since the old way of reacting to changes slows down the compliance and may lead to temporary business disruptions. As the GST regime evolves, businesses that are open to new changes, and modifications around rates, processes and systems will ultimately be able to come out with flying colours.

With a deluge of tax-content and developments, a calculation-to-compliance approach enabled by technology will be necessary to accurately calculate GST based on the place of supply rules for the sale and acquisition of goods and services.

Given that transactions may be for intrastate, interstate, import, export, and stock transfer, it is important that the right logic be applied to enable CGST, SGST, and IGST calculations for domestic sales and purchases as well as imports and exports. Businesses will also need support for the Goods and Service Tax compensation fund cess on luxury and sin tax items.

Finally, perfect integration with the GSTN, supporting notifications, signatures and required validations are as important as automation of the import of data from existing ERP systems. Only a seamless and systematic approach, driven by technology and practical sense, can help a business furnish three returns a month and one annual return.


XatTaX: India’s most trusted GST compliance software – 100% accurate GST filing

Source :  The Economic Times
GST impact on corporates, economy, real estate and markets

GST impact on corporates, economy, real estate and markets

GST-Impact

Implementation of the goods and services tax (GST) bill is a now one more step closer to reality, as the government unveiled the taxation rates / slabs for a host of products and services last week.

Here is how leading research houses and brokerages have interpreted the announcements and their impact on the economy, corporates, real estate segment and the equity markets.

NOMURA

We believe that while corporates would pass on the direct benefits of GST (like a lower tax rate), they would aim to retain partly (if not fully) the indirect benefits from the saving in logistics costs, streamlining of business processes and the seamless flow of input credits.

While GST laws include anti-profiteering measures (which say that the benefits of the reduction in the tax rate and input credit shall be passed on by a commensurate reduction in prices and the government may appoint an authority/empower an existing authority to monitor profiteering), we believe such measures are difficult to implement and would be a retrograde step, similar to price controls, if implemented in haste.

First, it would be difficult to assess the commensurate price cuts (due to difficulties in the estimation of the benefits of GST). Second, the government may not have sufficient bandwidth to check / monitor the pricing/profitability of the entire gamut of tax-paying entities. In our view, pricing / profitability would be driven more by industry dynamics, rivalry and competitive intensity than by government directives on price cuts.

AMBIT CAPITAL

Rates indicate a clear bias towards lower taxes on daily consumption and products used by lower-income classes. Food, personal care, luxury items and building material items get taxed at higher-than-expected rates. Volume growth expectations across categories should be moderated given low scope of “branded becoming affordable” and unorganized now having a wider tax gap to manage.

Organised players will have to make a choice of margins or volumes since. Against expectations, we are negatively surprised for FMCG, building materials and light electrical, whilst for most others rates were in line with expectations (and closer to earlier rates).

In the short term, GDP growth is unlikely to receive a booster as the adoption of a brand new indirect tax structure will entail a meaningful disruption. From a Government finances perspective, Central Government finances will be adversely affected in FY18 as it will have to pay compensation to supplier-state.

KOTAK INSTITUTIONAL RESEARCH

It would be interesting to see how the government handles the vexatious issue of tax on gold and jewellery since

(1) The industry vehemently opposes any changes to the taxation structure and

(2) Gold imports have surged of late.

In our view, the government should separate the two ‘roles’ of gold between savings and consumption and tax the ‘roles’ separately to achieve its objectives of

(1) higher disclosures on purchase and sale of gold and

(2) higher household financial savings.

Accordingly it can: (1) exempt ‘paper’ gold (gold bonds) completely from tax as is the case for other financial savings products (other than any GST on transaction fees), (2) tax bullion at a rate of 5% to discourage savings in the form of physical gold and (3) tax jewellery overall at 12% GST or making charges (service) separately at 18% GST.

INDIA RATINGS AND RESEARCH

The transition to GST will disrupt the working capital cycle of businesses in the initial phase and thus easy liquidity in the system is essential for two to four months. In order to minimize the magnitude of such disruption at the earliest, and to absorb the sudden changes in requirement of short term finance, easy system liquidity is necessary.

Ind-Ra studied a sample set of 11,000 corporates and estimates that the input credit lock up for this sample could be around Rs 1 trillion of which about Rs 500 billion could be blocked for about two months which may result in higher short-term working capital requirement for businesses in the near-term.

Even if businesses are able to achieve this seemingly mammoth task and the amounts are credited to the electronic ledger on a provisional basis, it will be subject to variations in the near term as there could be litigations on eligibility and availability under the existing laws and under the GST regime which may lead to disruption of working capital for businesses. The impact on individual companies could however vary widely and Ind-Ra’s study suggests that around 85% of the blocked input credit will be with companies with greater than Rs 5 billion revenues.

MOTILAL OSWAL

The impact of GST has been a mixed bag for the Capital Goods and the Consumer sector. While the Capital Goods sector would benefit from a lower tax rate on contracts there would be higher tax incidence on cables and transformers.

A few segments in the consumer sector would see higher effective taxes and need to take price hikes to offset cost pressures from increased taxes. Key changes/ surprises versus expectations were for a) Fans which were expected to come in the 18% bracket but have been bought at 28% (currently at 24%) and need price hikes. B)Air conditioners which have been put in the 28% bracket and would need 2-3% hikes, c) Transformer put in the 28% GST rate vs. the current 18% implies price hikes need to be taken d) Cables which were earlier in the 18% bracket taken to 28%, e) Work contract which is in the 15-20% range (depending on the VAT rate) taken to 12% is a positive for the construction sector (L&T, BHEL)

JM FINANCIAL

GST rate for under-construction development assets is 12% on property value (including land). Based on our analysis, we expect developers in states with composite VAT (Maharashtra, Haryana) to be negatively impacted as transaction rates increase from 5- 6% to 12% marginally offset by higher input credit.

For states with non composite VAT (Karnataka, Tamil Nadu, Andhra Pradesh), the transaction value changes marginally from 10- 11% to 12% under new regime. With input cost credits available, we could see developers in these regions to witness improvement in margins in case no price revision takes place (subject to anti-profiteering clause).

For affordable housing segment, only labour cost has been given exemption from GST. We await more details on the offset available and introduction of land abatement before implementation of GST.

CRISIL RESEARCH

CRISIL Research believes that industry stabilization, under the new tax regime, will take a couple of quarters. However, the benefits of GST on business practices and company strategies will be seen only in the medium term (1-3 years). The extent of business efficiency is estimated to be higher in goods as compared to services.

At present, supply chains across major manufacturing industries are strategised based on tax arbitrage aspect. Seamless tax treatment under GST will eliminate the need of multiple warehouses across states. Furthermore, companies will modify their supply chains based on the assessment of tax saving, inventory carrying cost and response time to meet market demand.

Source :Business Standard

 

 

GST: What still needs to be done

GST: What still needs to be done

What remains to be done between now and the final rollout? Here’s a lowdown.

The Goods and Services Tax Council will meet on May 18-19 to finalise various rules involved with implementing the new tax regime in the country, including on issues like input tax credit, valuation norms, composition and transition provisions, among others. What remains to be done between now and the final rollout? Here’s a lowdown.

What has been done so far?

The GST Council has met 13 times to finalise the minutiae of the five laws that will help bring the new tax regime to reality. Four of these laws have been cleared by the Union Cabinet and passed by Parliament. The fifth, the State GST law, needs to be passed by the legislative assemblies of each state and union territory with legislature. The Council still has to finalise the rules and rates of individual products and services.

Where is clarity needed?

According to experts, the draft rules that will be finalised during the upcoming Council meeting do not as yet address key operational issues that directly affect vendors, distributors, and service providers. These issues include the place of supply rules for service companies. Clarity on this will determine whether a service has been provided on an inter-state or intra-state basis, which in turn will determine whether the Integrated GST tax will apply.

Another major issue is the treatment of cases where the billing address is different from the shipping address. Since most companies have so far configured their ERP programs to incorporate GST as a destination-based tax, there is no clarity as yet in the rules as to what happens if the destination of the goods or service is different from where the bill is to be made. For example, if a company places an advertisement in the Mumbai edition of a Delhi-based newspaper, it can be billed in Mumbai only if the paper can show that it has an establishment in Mumbai and can print invoices there. Else, it will be billed to Delhi. Industry associations have sought for greater clarity on such issues from the government.

Another issue is the e-waybill, required for the transport of goods across the country. The e-waybill has to be accepted by the seller, transporter, and recipient for the transaction to be closed as far the GST Network is concerned. Tax experts say that the reconciliation of waybills is currently a big problem, with the recipient usually failing to accept the waybill, leaving the transaction incomplete. The e-waybill system will require a big change in behaviour for it to work, they say.

A larger issue is that incorporating GST will require SMEs to overhaul and computerise their systems, since even dealing with the Harmonized System of Nomenclature (HSN) codes for individual products will require a computer. The codes are up to 10 digits in length. The first four define the category and the subsequent digits specify the exact product. For example, Lay’s chips and Kurkure could have the same first four digits, but subsequent digits would be different. Such an overhaul of systems and the implementation of a new ERP system takes time. Industry players are complaining that with the rules only being decided upon on May 18-19, they will be able to finalise their software only by the first week of June, leaving barely any time for testing.

When can we expect tax rates to be made public?

The tax rates are not likely to be made public in the next meeting of the GST Council. Experts working on ERP systems say that there is no great urgency on this count, because the numbers can simply be plugged into the software as and when they are known without having to change the coding itself. The rules are more critical in that respect.

Also, revealing the rates too early may lead to people hoarding goods that are likely to become more expensive under GST due to higher tax incidence. However, knowing the tax rates of individual items could greatly help companies in their procurement decisions for the July-September quarter.

Source :  The Hindu
GST on market price even in exchange sale?

GST on market price even in exchange sale?

Exchange offers may pinch the pockets of an individual buyer, going by the draft rules for valuation of supply under GST. This tax is triggered on supply of goods or services. Supply is a comprehensive term that includes not just sale, but also exchange and barter. The draft valuation rules, released on April 1, explicitly provide that in cases where the supply of goods is ‘not wholly in money’, the value of the supply will be its open market value. The draft rules provide an illustration: A new phone is supplied for Rs 20,000 in case it’s exchanged with an old phone.

Without the exchange, the price of the new phone is Rs 24,000. In this case, the open market value of the supply will be Rs 24,000. GST will be computed on this amount, rather than on Rs 20,000.

Exchange offers are quite popular in the white goods segment — old mobile phones, refrigerators, television sets, cars, et al — can be exchanged under various schemes extended by both brick-and-mortar and online stores.

“Currently, in most states (Gujarat being a notable exception), VAT is payable on the money consideration paid by a customer. Under the proposed draft rules, the supply value will be the market value of the goods itself,” explains Badri Narayanan, partner at law firm Lakshmikumaran & Sridharan. “The differential levy, which arises owing to non-adjustment of the value of the old product, will pinch the pocket of an individual customer (say a salaried employee) who cannot claim any input tax credit for the GST borne by him.”

The draft valuation rules state that where goods or services are supplied and where the consideration is not wholly in monetary terms, the valuation for GST levy will be determined in the following order — open market value (according to the earlier illustration); value of goods and services of like kind and quality; 110% of the cost and, lastly, any other reasonable means. “There will be added complexity in cases involving exchange of old goods. As there is a supply of an old phone by the customer (who is not registered under GST), the mobile phone dealer will have to bear GST on this old phone under a reverse charge mechanism,” adds Bipin Sapra, indirect tax partner at EY – India.

The valuation draft rules also provide that the value of supply of services by an agent for booking of air travel tickets shall be 5% of the basic fare in case of domestic and 10% in case of international travel. This remains the same as current rates, even as the industry had recommended that a lower rate be introduced under GST.

“However, if the GST on air travel is higher than the current rate of 15%, say 18%, it would also have a cascading impact on booking costs. In such an eventuality, the customer would pay more for air travel,” points out Narayanan.

For supply of services relating to life insurance, the current practice of reducing the investment-related component to arrive at the taxable value of the service continues. “GST is a consumption tax and investment is not a consumption,” explains Narayanan.

Thus, the gross premium charged from a policy holder will be reduced by the amount allocated for investment. After such adjustment, the value of the supply on which GST is to be levied shall be 10% of the premium charged in case of single-premium annuity policies. In all other cases, it will be 25% of the premium charged in the first year and 12.5% of the premium in the subsequent years.After obtaining stakeholder comments, the set of eight draft rules — covering issues ranging from registration to valuation — will be further discussed at the GST Council meeting to be held in mid May.
Source : Times of India