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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.
Is a progressive GST possible? The short answer is no. The long answer then is to focus on correcting the unfairness and skew in goods and services tax (GST), with greater redistribution India has one of the lowest direct tax to GDP (gross domestic product) ratios in the world. This was documented in last year’s Economic Survey. When it comes to taxing income, we have a very generous threshold for exemption. As Praveen Chakravarty pointed out in a BloombergQuint column, India is the second-most generous country, among 20 major countries, when it comes to granting exemption from income tax. Tax liability kicks in only when your income exceeds 2.4 times the national per capita income. So, a lot of income earners legitimately escape the income-tax net. For instance, if the income exemption limit had been kept at Rs1.5 lakh in in 2012-13, then tax collection would have increased by Rs31, 500 crore and we would have had 16.5 million new taxpayers. Those are automatic additions to the tax net, since incomes rise with GDP, and taxable brackets need not. In these days of demonetization post-mortems, it is claimed that 2.2 million entities, mostly consisting of individuals, but a few trusts and companies as well, deposited a total of Rs2 trillion. All these 2.2 million entities have never paid income tax. Since the average deposited amount is Rs9 lakh, much more than the annual exemption limit, it is possible that a significant number of individuals may have to pay tax. Of course, it is entirely possible that the entire amount that was deposited was savings accumulated over several years. The process of determining if there has been tax evasion involves inquiry, investigation, scrutiny, charges, judicial decision, appeals and tribunals. This can take a lot of time. If a handful of the cases revealed by the Panama Papers leaks have still not reached their logical conclusion, one can only speculate how long it will take to pursue hundreds of thousands of cases thrown up by suspiciously high deposits in the aftermath of demonetization. In short, it is easier to get people into the income-tax net simply by avoiding exemption-bracket generosity every year. The total exemption granted to capital gains is another glaring loophole. It was recently extended even to gains made on sale of real estate, by reducing the holding period to two years. Last year’s Economic Survey gave extensive details of the loss to the exchequer due to exemptions to long- term capital gains in the past few years. For instance, in assessment year 2014-15, the capital gains that went tax free were Rs64, 521 crore. In later years, this figure could be much higher. The prime minister is on record urging the capital markets (where much of the tax-free capital gains are made) to bear their fair share of the tax burden in the economy. He hinted that the tax burden on stock market profit should be higher than it is. This leads us to the other big anomaly of India’s tax revenue. It is that the share of direct taxes in total tax revenue (both state and Centre) is only 35%. Indirect taxes, now made up chiefly of the nationwide goods and services tax (GST), are inherently regressive. They hurt the poor more than the rich. GST is a consumption tax. For the poor, almost their entire income (or more) is spent on consumption, and is hence subject to the tax. The rich have a big share of their income go into savings, which is not taxed (or even subsidized). With the widening of GST, and higher tax slabs, the unfairness of the indirect system becomes more acute. The global average rate for consumption taxes is 16%. Most Asian countries have rates of 10-15%. But India’s modal rate is 18%. This hurts the poor much more. To reduce the regressivity inherent in GST, most items consumed by the poor are taxed at a low 5% or 12%. It is claimed that most of the CPI (consumer price index) basket is taxed at these lower rates, or some items are completely exempt (e.g. foodgrain). This nobly intended classification brings its own distortions, disputes, lobbying and corruption. The ultimate aim of converging to a single GST rate becomes a distant dream. Consumption taxes are less distortionary, easier to administer and monitor, are applicable to every transaction, and can be buoyant even with slight tweaks. Consumption cannot be hidden, unlike income or savings. Hence despite being unfair and regressive, they have become more popular worldwide. Renowned tax expert John Kay recently observed that the share of income tax in OECD (Organisation for Economic Co-operation and Development) governments’ revenue had fallen, whereas consumption tax share had gone up. This is a matter of great joy and success for the tax collector, but a matter of great dismay to the economist. We even have strident demands for reduction in income-tax rates, as a supply-side stimulus for pushing up GDP growth rates. What is to be done then? The initial collection figures for GST in India already show higher than expected revenue. As implementation gets streamlined, and registration becomes complete, with interlocking incentives and completely computerized returns, GST revenue will grow handsomely. In fact, GST will race ahead of income taxes. How then to make it more fair? Is it possible to have a progressive GST? The short answer is no. The long answer then is to focus on correcting the unfairness and skew, with greater redistribution. This could be through greater spending on public goods, including primary health and education. Or it could be through larger redistributive transfers aided by superior targeting through Aadhaar, or as universal transfers. Without these antidotes, the skew will only get worse.
Goods and Services Tax IT backbone will take time to stabilise, says GST Network chairman AB Pandey Hurt by glitches from the start, the private company running the IT software for tax collection is still shaping up. From the day it was launched on July 1 , the implementation of the Goods and Services Tax has faced two sets of challenges. The first set of problems emerged from the fundamental flaw of having multiple tax slabs instead of a simple two-or three-tier tax system. The other set of difficulties emerged from the need to file multiple tax returns and the cumbersome accounting most people engaging in the sales of services or goods are required to undertake. These troubles were accentuated by the online system through which all users have to file their returns. The software and IT system for GST is run and maintained by the Goods and Services Tax Network, a non-profit company in which the Union and state governments hold a 49% share. Formed in 2013, the company and its operations have faced a series of controversies, including misgivings about the fact that the country’s indirect tax database has been handed over to a non-government entity. The company contracted Infosys to build the IT backbone on its behalf for GST. But as the tax regime was launched, many people filing returns complained of glitches with the network. A body of traders accused Infosys of failing to deliver on its contract, and the GST Council set up a five-member team headed by Bihar Deputy Chief Minister Sushil Kumar Modi to look into technical problems being faced by the GST registration and tax filing portal. Alongside, a debate raged about whether the Comptroller and Auditor General of India could audit the Goods and Services Tax Network company. Ajay Bhushan Pandey, chairman of the Goods and Services Tax Network, spoke to answer some queries on these counts. What problems that people faced with filing returns through the Goods and Services Tax Network have been resolved, and what issues issues remain pending for resolution? Let me clarify, many of the the issues which cropped up at the beginning have been addressed. We are also seeing the results now. As of December 2, the number of tax returns filed for the month of October are 5.25 million. For the month of September, in comparison, 4.8 million returns were filed. There is a marked increase of 450, 000 returns on a month-to-month basis. This shows that more and more people are finding it convenient to file their returns. The people who filed monthly returns for October and the previous months in November went up to eight million. From the day the Goods and Services Tax was launched, the total number of returns filed has gone up to 31 million. This clearly shows people are able to file returns. There could be some cases still, where, because of individual circumstances, people may be facing some difficulties. For example, some people want to do internet banking and it is not working [because], say, someone has got locked out by putting in the wrong password three times – that can happen in any IT-based system. People may be facing some similar problems and we shall address those too. The last day to file the returns for October was November 20. On that day alone 1.8 million people filed returns. But, the total potential people assessed to file monthly returns was pegged at 7.5 million? So far as October returns are concerned, the total number of people who are supposed to file it and are not under the composition scheme [which allows simpler taxation and compliance for small businesses] is pegged at 7.7 million. Out of this 5.25 million have filed their returns. Now, there is also the statistics that approximately 40% of these returns are zero-tax returns. One has to find out why the remaining 2.5 million people have not filed their returns and whether they had any business activity or not. If you see the pattern from the time the Value Added Tax was imposed, usually 60% of those supposed to file returns used to actually do so. Now, out of 7.7 million, 68% have filed and the returns are still coming in. We want to make the online filing system more friendly so even smaller dealers file their returns by pressing a few buttons. That work is undergoing. How many of the problems in the GST network have arisen because the rules have been constantly tweaked and the software has had to be altered to incorporate them? How long will it be before it really stabilises? No large software system has been designed to become fully operational on Day One. Nowhere in the world has it happened. Over the next few months, or few years, it has to go through adjustment. The system has to be flexible for changes to be made. In the case of GSTN, the software system was launched on July 1. It is a very large system. If you remember, at that time we had to [bring] on board 6.5 million to 7 million people. Systems of all states, the Central Board of Excise Taxes and the Service Tax system had to be integrated. In such a large and complex system lots of changes were bound to happen. Over the last three to four months, whatever changes we have suggested by way of operational requirement, or for the convenience of people, or because of changes in rules – all those had to be accommodated. By when do you think the GSTN system will be stabilised and work efficiently? We are moving up along the improvement curve. There are some issues that we need to further respond to. The software systems for filing 3B returns [monthly returns detailing sales and purchase of inputs] is stabilised. But then there are certain issues regarding the refunds for exporters – here some work needs to be done and we are at it. We are also trying to ensure that people should not suffer while we work behind the scenes to fix things. For that we have given workaround methods. There cannot be a situation where we say ‘we are working on the system’ and people face difficulty. So we have provided methods to work-around, particularly for the refunds. And what about the issues that many people are facing about matching invoice inputs against the goods sold? Invoice matching is a very important element of the GST system. The question is how do you match it and at what frequency. The council has set up a committee to look at the simplification. When it comes out with a suitable recommendation, the changes will be incorporated into the system for further improvement. You have now asked for a black box review to identify how vulnerable the system is to an attack from outside or inside the system that could violate the confidentiality, integrity and availability of GST systems. What is this for? As is true for any large system, what we need is to ensure that the system should be safe from attacks from the outside and inside as well. The security process required for that is being followed, and a system for detecting vulnerabilities is being deployed. This has not been done before? The system has been in place for a while. But the fact is that the vulnerabilities change dynamically and we have to constantly adapt and build a firewall against changing threat perceptions. It is for that purpose that this exercise is being undertaken. This has to be done continuously to remain ahead of the threats. We understand that the Comptroller and Auditor General of India is now going to audit the GSTN. What is their exact mandate for the audit? We have said the entire working of GSTN can be audited by any independent agency, and the Comptroller and Auditor General is that agency. It is independent as well as a statutory authority. What are the terms of reference of the CAG audit? Are they checking the resilience of the network and software or the financial accounts of the GSTN company, or both? The CAG audits to find out whether public money – after all GSTN is run out of public money – has been spent in the manner it had to be spent, and spent efficiently. CAG will look into this. It has a very well-defined process. Their audit will help us improve as well if there is scope for it. We will get audited by an auditor empanelled by the CAG. If they wish to do more after that they can always do so. Infosys is your main contractor to set up the Goods and Services tax Network. The Confederation of All India Traders has threatened to take Infosys to court and has demanded a CBI inquiry into the contract with GSTN, alleging failure to deliver. Did Infosys fail to deliver against its contracted obligations? Infosys is our important partner. When you develop any large project you have to work closely with the agency that is going to implement it. There will always be some mismatch between the timelines that we set and their delivery. There are professional ways of managing such mismatches and differences through discussions and meetings. All those things are being done. That is how, through the past three months, there has been a lot of improvement. Was it just a delay in the deadlines that was of concern, or the capabilities of the agency to deliver? It would not be right on my part to arrive at any such conclusion. Right now our focus is to get the work done and make the system more robust and convenient for the people.
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