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GST Council plans to take up three contentious laws for discussion; targets 1 July roll-out Aiming towards a smooth roll out of Goods and Services Tax (GST) from 1 July, the GST Council will look into the three GST laws in its next meeting, scheduled for 18 February. The session by the Secretaries Panel at CNBC-TV 18 Mint’s ‘Budget 2017: The Verdict’ programme in New Delhi on Thursday evening discussed in detail the GST and its power to arrest, disinvestment plans, mergers and acquisitions, proposals for a new financial year, and other factors. West Bengal finance minister Amit Mitra, who also heads the empowerment panel on GST. AFP file image “Industry is looking forward to the laws and rules. Once they are finalised by the GST council, it will pave the way towards the implementation of GST from 1 July. The agenda of the next meeting is to look into all the three laws. In the subsequent meetings, we’ll take up the rules. As far as rates are concerned, it’s going to be a simplistic formula. The council has said that there would be four slabs: 5 percent, 12 percent, 18 percent and 28 percent, ” said revenue secretary Hasmukh Adhia. After the announcement of the Budget on 1 February, West Bengal finance minister Amit Mitra, who also heads the empowerment panel on GST, sent 16 demands to the Finance Ministry to look into, including the arrest clause, which was described as “draconian” by the West Bengal government. “The power to arrest tax defaulters is already there under excise and service tax laws, and also under VAT in some states. After an extensive debate, a majority in the GST Council decided that no arrests should be made in cases of tax evasion up to Rs 2 crore. However, evaders between Rs 2 and Rs 5 crore could face bailable arrest. Above tax evasion of above Rs 5 crore, it may invite non-bailable arrest, ” he said. Is there a new financial year on cards? Economic affairs secretary Shaktikant Das said, “The report to change the financial year is under consideration by the government. We are examining it, and once the decision is taken, it will be communicated.” On IDBI Bank’s disinvestment plan The government announced in the Budget that it hopes to raise Rs 72, 500 crore in FY18 by divesting stakes in public sector firms. Compared to the revised estimate of Rs 45, 500 crore for FY17, this is an increase of around 60 percent. While discussing the disinvestment plan of the state-run IDBI Bank, Das said, “The divestment of IDBI Bank is not off the table. The work is in progress. Its share value in the market doesn’t reflect the real estate it holds in Mumbai. The real estate valuation needs to be done carefully and a transparent decision needs to be taken in this case.” “We’ve not derailed from the path of financial prudence. Today, our economy needs investment in certain sectors. As per the NK Singh panel, our fiscal deficit target is 3 percent and we’ll improve it in 2017-18, ” Das added. Priorities in 2017: “To ensure people pay tax and society becomes more tax compliant”: Ashok Lavasa, finance secretary. “Budget 2017 is very strong on reforms, and our focus is on implementation”: Shaktikant Das, economic affairs secretary. “Roll out of GST from 1 July 2017 will be the Year of GST”: Hasmukh Adhia, revenue secretary. “Look for a stable and buoyant market”: Neeraj
GST roll out next fiscal: Is the govt looking at changing the financial year? Aiming towards a smooth roll out of Goods and Services Tax (GST) from 1 July, the GST Council in its next meeting on 18 February will look into the three laws in GST. The session by Secretaries Panel at ‘Budget 2017 The Verdict’ of CNBC-TV 18-Mint at Hyatt Regency in New Delhi on Thursday evening discussed GST and its power to arrest disinvestment plan, merger & acquisition, proposal for a new financial year among others in detail. “Industry is looking forward to the laws and rules. Once they are finalised by the GST Council – it’ll pave way towards implementation of GST from 1 July. The agenda of the next meeting is to look into all the three laws. In the subsequent meetings we’ll take up the rules. As far the rates are concerned, it is going to be a simplistic formula. The council has said that there would be four slabs of rates—5%, 12%, 18% and 28%, ” said Revenue Secretary, Hasmukh Adhia. After the announcement of Budget 2017 on 1 February, West Bengal’s finance minister, who also heads the empowerment panel on GST, sent 16 demands to finance ministry to look into, including the arrest clause. The arrest clause has been described as ‘draconian’ by the West Bengal government. “Power to arrest the tax defaulters is already there in excise and service tax, and also under VAT law in some states. After an extensive debate, majority in the GST Council decided that no arrest would be made in the case of tax evasion up to Rs 2 crore. However, evader between Rs 2-5 crore will face arrest but get a bail. But above, Rs 5 crore, it’s non-bailable, ” he said. Is there a new financial year on cards? Economic Affairs secretary, Shaktikant Das said, “The report to change the financial year is under consideration by the government. We’re examining it, and once the decision is taken, it will be communicated.” On IDBI Bank’s disinvestment plan The government announced in the Union Budget on 1 February that it hopes to raise Rs 72, 500 crore in FY18 by divesting stakes in public sector firms. Compared to the revised estimate of Rs 45, 500 crore for FY17, this is an increase of around 60 percent. While discussing the disinvestment plan of the state-run IDBI Bank, Das said, “The divestment of IDBI Bank is not off the table. The work is in progress. The share value of it in market doesn’t reflect real estate it holds in Mumbai. The real estate valuation needs to be done carefully and transparent decision needs to be taken in this case.” “We’ve not derailed from the path of financial prudence. Today, our economy needs investment in certain sectors. As per the NK Singh panel, our fiscal deficit target is 3% and we’ll improve it in 2017-18, ” added Das. Priorities in 2017 Ashok Lavasa, Finance Secretary: To ensure that people pay tax and it should be a more a tax compliant society. Shaktikant Das: Budget 2017 is very strong on reforms and our focus is on implementation. Hasmukh Adhia: Roll out of GST from 1 July. Year 2017 will be the Year of GST.
Budget 2017, highlights 1-Turnover of companies upto 50 crore - tax will be 25 percent instead of 30percent 2-MAT credit carry forward for 15 instead of 10 years 3-LTCG on immovable period reduced from 3 to 2 years 4- Base Year for indexation now 2001 instead of 1981 5- Presumptive tax for small traders with turnover upto 2 crore under 44Ad now 6% instead of 8 % for full non cash turnover 6- Cash expenditure now allowed only 10000 instead of 20000 per transaction 7- No transaction above 3 lac will be allowed in cash 8- Trust cash donations max allowed only 2000 instead of 10000 9- Political parties - max cash donations from 1 person Rs 2000. 10- Domestic transfer pricing - only if 1 party enjoys tax benefits 11- 44AD - turnover limit increased to 2 crores for business. - 12- Professionals can pay advance tax in 1 installments if below 50 lac 13-Time for revising income tax return now reduced. 14- Scrutiny time limit reduced to 18 months 15- Individual tax reduced for income 2.5 to 5 lac tax rate now reduced to 5% 16- Surcharge of 10% on those who earn income from 50 lac to 1 crore 17- TDS - no Tds on insurance agents if 15 h filed 18- Simple 1 page income tax return for persons having non business income upto 5 lac
For the implementation of GST from July, 2017 , Draft law of GST compensation has been approved by the GST council in 10th meeting. Now, three crucial draft laws — Central GST (CGST), Integrated GST (IGST) and State GST (SGST) expected to be approved in the next meeting held on 4 and 5 march. GST will impact on each and every industry & business in India. In Education and Training Industry, India holds an important place in the global education industry. The country has more than 1.4 million schools with over 227 million students enrolled and more than 36, 000 higher education institutes. India has one of the largest higher education systems in the world. However, there is still a lot of potential for further development in the education system. India has become the second largest market for e-learning after the US. In the Education and Training Industry will also be impacted by GST and impact is elaborate in the following aspects:- Tax Payment Registration Input Tax Credit Returns Refund Tax Payment: In the existing indirect tax structureeducation and training industry enjoy various tax exemptions and tax benefits. Education services provided by an educational institution (i.e. institution providing services of pre-school education and education up to higher secondary school not coaching instituteOR education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in forceOR education as a part of an approved vocational education courseto its students, faculty and staff. In addition of above, Following Services provided to an educational institution(i.e. institution providing services of pre-school education and education up to higher secondary school not coaching institute OR institution providing services of education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force OR institution providing services of education as a part of an approved vocational education course)— (i)Transportation of students, faculty and staff; (ii) Catering, including any mid-day meals scheme sponsored by the Government; (iii) Security or cleaning or house-keeping services performed in such institution; (iv) Services relating to admission to, or conduct of examination by such institution. » Following Services provided by the Indian Institutes of Management to their students as per the guidelines of the Central Government:- 2 years full time residential Post Graduate Programme in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management Fellow programme in Management 5 year integrated programme in Management. » Services of National Skill Development Programme implemented by the National Skill Development Corporation (NSDC)OR A vocational skill development course under the National Skill Certification and Monetary Reward Scheme ORAny other Scheme implemented by the National Skill Development Corporation by the following:- National Skill Development Corporation set up by the Government of India Sector Skill Council(SSC) approved by the NSDC Assessment agency approved by the SSC or NSDC A training partner approved by the SSC or NSDC. » Services of skill or vocational training courses certified by National Council For Vocational Training provided by training providers i.e. Project implementation agencies under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under the Ministry of Rural Development. » Services of training or coaching in recreational activities relating to arts, culture or sports. Any education and training service except aforesaid education and training services are liable of Service Tax @15%. In the GST Law, It is expected that any education and training service except exempted in existing tax system will of GST @18% then the price will up by 3%. But the input Tax credit will be allowed on the input goods which was not available in existing tax system resulting some relaxation to the education and training service provider. And it is expected that exempted services in the existing tax system will continue to remain exempt as exempt supply in GST law. 2. Registration: In the existing tax system, Centralized registration facility is available for the taxpayer who provides education and training services from more than one premise. Such premises may be located in the same state or in different states. In the GST Law, State wise registration is mandatory i.e. If any institution supply services from more than one premises located in different states then registration in every state from where services supplied is mandatory. For Example: – ABC smart classes having 20 offices in India and each office is located in different state and provide services and head office is situated in New Delhi. In present tax system, Centralized registration facility may be availed by the ABC smart classes however in the GST law, Registration in all 20 states is mandatory for ABC smart classes. Migration of Existing Taxpayers into GST has been started from 08th Nov 2016. In the migration, taxpayers can log in to GST Portal i.e. www.gst.gov.in to fill the required fields and submit scanned documents. Input Tax Credit: In the existing tax structure, education and training services are provided by the various institution and they procure various goods and services for providing education and training services. Service provider avail the credit of service tax paid on input services however can not avail the credit of input tax on procured goods for providing services. In the GST law, institution which will provide education and training services can avail the credit of CGST+SGST or IGST (as the case may be) paid on input goods and services procured for providing education and training services in the following manner: Cross utilization of CGST and SGST will not be permitted i.e. for the payment of SGST, input of CGST is not available and vice-a-versa. For the payment of CGST, first input of CGST to be used then input IGST to be used. For the payment of SGST, first input of SGST to be used then input IGST to be used. For the payment of IGST, first input of IGST to be used then input CGST and then input of SGST to be used. Returns: In the existing tax structure, Education and Training service provider are required to file the following returns:- Half Yearly Service Tax return. Annual Service Tax return. In the GST law, institution which will provide education and training services are required to file the following returns:- Return Particulars Due Date Applicable For Form GSTR-1 Outward Supplies 10thdayof next month Normal tax payer GSTR-2 Inward Supplies 15thdayof next month Normal Taxpayer GSTR-3 Monthly return 20thdayof next month Normal Taxpayer GSTR-8 Annual return 31st Dec of the next FY Normal Taxpayer GSTR-4 Quarterly Return 18th day of next month qtr. Compounding Taxpayer GSTR-5 Return by Non Resident Taxpayer Ø If registration period is less than month -within 7 days after the date of expiry of registration. Ø If registration period is more than one month then to be furnished on monthly basis -20thday of next month. Non Resident Taxpayer In addition of above returns, GSTR- 6 and GSTR- 7 are required to be filled by Input Service Distributer and Tax deductor respectively. Refunds Same as refund in existing tax structure, Refund under GST by Educational and Training institution may be availed in the following situations:- In case of excess payment In case of export of services In case of Finalization of Provisional Assessment. In case of pre deposit in case of Appeal. Further, Refund application shall be filled within 2 years from the relevant date.
Arguably the biggest indirect tax transformation will be upon us in a few weeks from now. The law makers are deliberating on the specific clauses and contours of it – so that the appropriate legislations can be passed. There is no doubt that this will be one of the great levelers in the market, and open out the Indian market for the businessman. The barriers of inter-state trade will disappear, and one will be able to find more customers and more suppliers than the present. Less people will be able to take undue advantage of law provisions, or by evasion of taxes, and so more businesses will flourish since competition will have a level playing field. Absorbing multiple current taxes into a single tax regime will reduce time and cost of compliance. It is indeed time for celebration. Except for the Small Businessman. CLICK TO TWEET In general, Small Businesses are generally ‘more honest’, and generally suffering ‘more cash flow problems’. Whether the increased relative honesty comes due to fear of social stigma, or inability to ‘settle’ when problems are detected, or the benefit of dishonesty is not large enough to be a temptation, or just the basic moral fibre not being tested with enough temptation, is actually a moot point. It is well known that the Micro Lending space sees the highest repayment ratios of any other lending business. At the same time, the Small Business suffers frequent unevenness of cash flow. Even a simple one-week delay in receiving money for goods sold throws their routine out of gear. A marriage in the family? The cycles take several weeks to repair. A promising auction or offer for materials which would give them higher profitability, and they have to readjust their cash cycles for a few weeks to take advantage of it. A marriage in an employee’s family? Their desire to help out comes at a cost of their cash flow management. The current statement by the Government in their Draft Model Law for GST has a few proposals which will slowly, but with certainty, drive almost every Small Business to eventual closure. This is not the INTENT of the Government, it is simply an unexpected consequence of other good intent. It is also CORRECTIBLE, provided the causes, and the consequences, are appreciated. The provision for ‘input tax credit available to buyer only if supplier has paid tax inside a given window’ is one problem which a reasonable percentage of Small Business will face in their life-cycle. Most (if not all), will have no bad ‘intent’ of evasion or not paying. Nor will they be taking the Govt. for granted. It is just that they may sometimes need to delay payment, due to other exigencies – some of which I described above. Sometimes, the choice of ‘paying salary to my workers on time’ and ‘paying a penalty to the Govt. for delayed payment’ is a conscious call they take, otherwise they may lose their people. Sometimes, the pressure of paying their supplier becomes critical, else their material cycle is broken and they may permanently lose business of their customers – so again the ‘penalty for delayed payment’ becomes acceptable. And, they eventually pay. A related and even more frightening provision is that the Government intends to make public a ‘Compliance Rating’ – so you will know before you buy whether your supplier has a ‘good or poor’ rating. The objective being, that since your input tax credit is dependent on this ‘quality’ of the supplier, you will try to avoid buying from people with ‘poor’ rating – which means, that people will do everything they can to AVOID a poor rating. And the rating becomes ‘poor’ not just because you delay filing your data, but because you may have delays in your payment. In essence, when you take these provisions together, any difficulty a Small Business may have faced, will now have ‘visible and public’ knowledge and corresponding snowball impact. So, the moment you face a problem, the problem magnifies the next month since your buyers will ‘play it safe’ and buy from others (the fact that the market is now a ‘more open market’ is a boon here). This will simply increase your problem, leading to further payment delays and/or further reduction of your rating, losing even more customers – till you eventually face closure. The need of ‘emergency funds at any cost to pay GST and avoid bad rating’ for Small Business is going to lead to usurious scenarios, and cost burdens which they will be unable to sustainably bear. As it is, they are unable to manage costs through economies of scale. Now, just trying to keep their ‘business afloat’ in a GST regime, will become prohibitive. And the paradox is, GST was expected to REDUCE compliance costs! CLICK TO TWEET There is no doubt at all that the Government has every right to deny input credit for possibly fraudulent claims on false bills. With the current provisions of suppliers needing to register their supplies with GSTN, and input credit only being available on such invoices, this is already a plugged problem. By demanding that all businesses must have uploaded their invoices fully establishes their liability, and their payment (or the right of the Government to demand/collect the payment) is almost certain. It is rumored that the key reason for such an unsustainable provision in law is due to the problem of IGST distribution to various states, particularly when a given business fails to pay. Alternate methods to deal with this are all under consideration by the Government, but the present Draft Law continues to reflect the provisions above – but the unofficial sentiment is that this problem can be solved later, and the first implementation happen along the present Draft Law framework. Yet, this is not a problem to solve later. There is no such thing as temporary death. Enough small businesses will be wrongly ‘branded’ as ‘why take risk in dealing with them’, and they will not be able to recover even if law changes later. The reverse is true. If the Government does not find tax fraud dramatically going down even WITHOUT this provision, they can always introduce it later as ‘the only way to control’. The change being requested is – do not link ‘payment’ to statement of ‘valid return’. Let a ‘valid return’ be one which is correct in its computation, and defines the liability of the tax payer. Let a ‘valid return’ of a supplier be the only basis on which a customer can claim ‘input credit’ (this is already the current provision of law, except that it is treated as ‘valid’ only if the liability is ‘paid for’). This simple change will anyway unlock the businesses, improve compliance, and dramatically reduce fraud due to the triangulated nature of GST. Linking payments to tax credit is not just a ‘flaw’, but a major ‘anomaly’. CLICK TO TWEET Taking a simple chain of 3 businesses, assume Company A raises an invoice of 1 Cr + 20 Lacs GST (total value 1.2 Cr) on Company B. Company A also discharges the tax of 20 Lacs to the Government. Company B now raises an invoice of 1.2 cr + 24 lacs GST (total value 1.44 cr) on Company C. Company B is liable to pay 24 lacs, and take credit of 20 lacs, and therefore, needs to pay 4 lacs to the Government. However, due to some situations, it fails to pay it. Company C now raises an invoice of 1.5 cr + 30 lacs GST (total value 1.8 cr) – and assume this is end of the chain (that is, sold to an end consumer). Company C was liable to pay 30 lacs after taking input credit of 24 lacs – or net of 6 lacs. However, due to Company B’s inability to pay the tax on time, this input tax credit is denied, and Company C has to pay the full 30 lacs. Now, IF Company B had paid the tax, the total tax collected by the Government would have been 20 by Company A, 4 by Company B, and 6 by Company C – or a total of 30 lacs. However, since Company B failed to pay in time, the Government actually collected 50 Lacs! 20 by Company A, and 30 by Company C. Suddenly, non-payment of Tax by Company B has become a bonus to the Revenue Department! Also, it is entirely possible, that Company B either voluntary, or through recovery action initiated by the Government, lands up paying a part of the 4 lacs. Making the total collections become even more than 50 lacs! This anomaly of law will be inherently unsustainable. Suddenly, non-payment of tax by Company B will be seen (albeit wrongly) as something good for the nation, since the revenue of the country will go up! Suddenly, non-payment of tax by Companies will be seen (albeit wrongly) as something good for the nation, since the revenue of the country will go up! CLICK TO TWEET That is certainly neither the intent of the law, nor can it be upheld as a valid outcome. It is VERY IMPORTANT that all of us, as citizens, help the Government to formulate a law which will give the benefits that it has the capability of, rather than create the problems which are not required to be created. The present laws are already giving tremendous security and protection against tax evasion, and only some minor technicalities require to be resolved (for IGST, for example) – and this artificial and unsustainable provisions can be replaced with the simpler ‘input tax credit available only on invoices registered with GSTN’. In fact, the current laws also allow for ‘provisional input credit even if the invoice is currently not registered’, and businesses will be more than happy to give up this ‘luxury’, if the ‘payment linkage’ is removed. Let us all pray for a Great GST Law which we will welcome with open arms, and not one which we will struggle under.
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