On GST, Centre must reach out to states to settle differences

“A lot will depend upon the outcome of the deliberations at the GST Council meetings scheduled for the first half of November”

Will the GST era begin on April 1 2017 ? A lot will depend upon the outcome of the deliberations at the GST Council meetings scheduled for the first half of November. There are three crucial issues on which consensus has to be reached before we can take up the model law to be passed by the Parliament and state assemblies.

One, the GST rate structure. We are yet to start discussing the rates. We have moved away from the rather futile debate on the revenue neutral rate, the estimates of which range from 12 per cent to 24 per cent. Instead, now the approach is to start from an approximate structure of rates, say, 6 per cent, 12 per cent, 18 per cent and 26 per cent. All the existing commodities will be distributed to each of the above rates on the basis of the proximity of the existing combined burden of current Central and state taxes. This data will enable the estimation of potential tax revenue of the Centre and the state and the rates may be tweaked to arrive at a structure which would ensure revenue neutral receipts.

The most controversial is the upper rate of 26 per cent. The commodities included in the higher bracket currently suffer 14.5 per cent VAT and it makes no sense to reduce the SGST to 13 per cent. Besides, these commodities suffer Central excise duty of 16 per cent and above; commodities such as SUVs attract excise rate as high as 34 per cent. There are other taxes currently subsumed under the GST such as octroi, entry tax, cesses and service tax. Besides, one has also got to account for the cascading impact of tax prevalent in the existing system.

The logic of reducing the tax incidence on consumer durables and demerit goods to 26 per cent makes the GST severely regressive. It may also be noted that around 200 commodities that suffer no Central excise currently but have only lower VAT rate of 5 per cent are proposed to be included in the lower bracket of 6 per cent. The present rate structure raises tax on necessities and reduces the tax on luxuries. The distributional impact of the proposed structure is not acceptable to the states.

The chief economic adviser’s report had recommended the demerit goods rate of 40 per cent. It should be reintroduced in the structure and the states should be given flexibility in determining the demerit goods. The attempt of Kerala to introduce a fat tax on a few branded food products had initiated widespread debate on the efficacy of the move. It will be a retrogressive step if the fat tax has to be given up with the introduction of the GST. Besides, the upper rate of 26 per cent must be raised to at least 30 per cent. It should enable us to reduce the tax rate on necessities so that the GST rate structure is rendered more progressive.

How will the resources required for compensating the states be mobilised? The current thinking of the Central government is to impose a cess on tobacco, pan masala and some of the upper rated commodities such as aerated drinks. Now the secret is out. The upper rate has been pegged at a lower rate so that the Central government has the option to impose the cess as and when necessary — of course, with the concurrence of the GST Council. This is not acceptable to the states. They are being deprived of their legitimate revenue so that compensation can be mobilised by the Centre.

It may be remembered that when the VAT was introduced in 2005, the then Union finance minister, P. Chidambaram, had proposed an additional cess of 1 per cent on the VAT rate. It was not agreed to by the states. The Centre was forced to find a compensation amount from its other elastic sources.

The Centre today still has direct taxes, customs and income from the sale of assets like spectrum or borrowing from which it can easily draw the required resources. The only cess the states were willing to concede was the additional tax on tobacco and the clean environment cess on coal which the Centre was constitutionally entitled to impose. The estimated compensation was only Rs 50,000 crore of which over Rs 43,000 crore would be met by the above two taxes. It was only a matter of Rs 7,000 crore that stood in the way of a consensus at the GST Council.

Finally, there is the vexed question of the role of the states and the Centre in administering the GST. In the first GST Council, deliberations moved to an agreement where the services would be handled by the Centre, the GST on goods below Rs 1.5 crore turnover would be in the domain of the states and those above Rs 1.5 crore turnover concurrently by the state and the Union.

We had objected to composite dealers active on goods and services, the dealers in services in deemed goods such as works contract and the new service entrants being included to the Centre’s net. But, now all these conclusions has been thrown overboard by the new data that has been made available.

The raising of the threshold limit from Rs Rs 10 to Rs 20 crore has resulted in the removal of 33 lakh proportion of goods taxpayers from the state administration. Besides, the Centre is getting access to 12 lakh dealers from the VAT net. With services and IGST entirely with the Centre, the Central government`s 40,000 workforce gains more dealers than states with five times more workforce than the Centre. The so-called conclusion reached in the first Council meeting has been abandoned by all states.

If the Central government adopts a more flexible stand, it should be possible to thrash out the differences and move towards the target date for the implementation of the GST. States are gripped with the fear of losing their financial autonomy after deletion of entry 54 and 62 from the constitution.

That fear has to be assuaged by reinforcing the commitment on the part of the Centre by agreeing to the states’ request of a vertical split up of service tax administration so that goods and services up to Rs 1.5 crore would be in the domain of states and anything above would be administered simultaneously by the Centre and the states.

The Indian Express, 29 Oct 2016

How The Promise Of GST Is Shaking Up India’s Zero Mile City Nagpur

When Indian retailer Future Group opened a warehouse on the outskirts of Nagpur three years ago to supply its supermarkets, the building was surrounded by dry, barren fields. Now it is only one in an expanse of distribution centres, storage depots and factories.

A dusty provincial city of 2.5 million, Nagpur is at the geographical heart – India’s “zero mile” marker, the centre of the country, has been located here since the British colonial era.

It is also at the heart of the action now as the government prepares to roll out the biggest fiscal overhaul since independence: GST, a national value-added tax that will replace a proliferation of local levies.

The Goods and Services Tax itself, due to be introduced in April next, could well see delays.

But Nagpur is already benefiting from a change that will allow companies to move goods across state borders without being hamstrung by local levies. Property prices have surged as companies from Amazon to tractor maker John Deere have set up central facilities in the city to cut down on transport costs.

“The advantage of Nagpur is simple. All metros (big cities) in the country are all about 900 km from there,” said Rakesh Biyani, Future Group’s joint managing director.

Consultancy Alvarez & Marsal, which specialises in turnarounds and performance improvement, estimates firms can cut logistics costs by 25 per cent if they consolidate their warehouses in Nagpur.

Future Group is quadrupling the land it owns at the edge of the city, with plans to turn Nagpur into its biggest warehousing facility supplying more than 250 of its Big Bazaar supermarkets.

Mahindra Logistics, part-owned by cars-to-IT conglomerate Mahindra Group, has accelerated plans to buy more land in Nagpur since the new tax was approved in August. E-commerce giant Flipkart and even guru-turned-businessman Baba Ramdev are setting up facilities in Nagpur or planning to.

Land prices are up by as much as a fifth since April, real estate agents say, as developers snap up farmland.

Viren Thakkar, managing director of warehouse manager Logistics Park India, said he was getting three enquiries a week about Nagpur, up from one a month a year ago. “I have started aggregating land parcels in the city, anticipating demand,” he said.

Nagpur has seen ambitious plans before. Almost a decade ago, India was promoting plans to build an international metropolis here – then the global financial crisis hit and plans for export-oriented special economic zones were put on ice.

But since then, India’s consumer goods market has blossomed, and so too has the pressure for better logistics hubs: the e-commerce industry, for example, has grown five-fold between 2013 and 2015, from $2.9 billion to $16 billion (around 19,300 crore to around 1.06 lakh crore), Deloitte estimates.

Nagpur is also in a rosy political spot. The city is home to the Rashtriya Swayamsevak Sangh or RSS, the ruling BJP’s ideological mentor and the local MP is India’s powerful transport and shipping minister, Nitin Gadkari.

Mr Gadkari has said the government has sanctioned Rs. 25,000 crore ($3.7 billion) worth of projects linked to the city since Prime Minister Narendra Modi came to power in 2014, including starting work on a new ring-road and acquiring land for a dry port with rail and road connections to Mumbai, India’s biggest city and largest port 825 km to the west.

“Nagpur is the zero mile, where you can manufacture and distribute in the country and the logistics cost is less. There are huge opportunities,” Mr Gadkari said in an interview at his office.

Mr Gadkari said he wants to accelerate construction of a long-delayed international cargo hub and expanded airport, spread over an area the size of 4,000 football fields, so that it provides 50,000 jobs by 2019, compared to 9,600 staff today.

What is not clear is how quickly these ambitious projects will be completed. While a new expressway to Mumbai has been approved, critics say construction will mean acquiring land from reluctant farmers – a slow process.

Mr Gadkari’s international cargo hub has been partly constructed and some tenants have arrived. But the airport expansion has stalled, although a tender for the project is likely to be launched this year.
There is little question India needs an efficient hub. It is hampered by creaking infrastructure, with many roads and rail links dating to the colonial era. It has few cold storage networks, and cross-country transport is at glacial speeds.

Fractured tax systems among India’s 29 states and seven other territories have hardly helped. Goods trucks wait days at checkposts at state borders for clearance and payment of local taxes before they can proceed. That has blocked movement of goods and encouraged firms to operate multiple warehouses across the country.

Mahesh Y Reddy, director general of the Infrastructure Industry and Logistics Federation of India, said it was sometimes cheaper to send goods from Mumbai’s port to Dubai than to Nagpur, less than half the distance away, because of delays in shifting goods onto trucks and then the slow haul through the interior of the country.

“Ultimately, it’s because of these inefficiencies that the likes of Nagpur do not become industrial hubs,” Mr Reddy said. “They remain as they are.”

NDTV,27 Oct 2016

Ways out of the GST maze

“The GST Council should stick to the original mandate of a uniform, simplified rate structure and uniform tax administration”

Centre gets cold feet

It is important to remember that States lose their fiscal autonomy under the GST. They will now have limited powers to raise their own revenues and will be entirely dependent on transfers from the Centre. The GST Council guaranteed that States would be compensated for any shortfall in their tax revenues for a five-year period. Essentially, this implies that the Centre will now bear all the risk of tax revenues under GST. This has made the Centre very nervous. In a bid to hedge its risk, the Centre proposed that there be an extra cess on ‘luxury’ goods equivalent to the difference in the current tax rate and the maximum GST rate of 26 per cent. If this is implemented, this would mean six different cess rates on nearly 40 different goods, ultimately leaving us with 10-12 different tax rates in the country.

Finance Minister Arun Jaitley argues that multiple rates are necessary in an unequal society such as India. Wasn’t India as unequal when he pitched GST as ‘one nation, one tax’ just three months ago? If the very premise for States to sacrifice their fiscal autonomy was in the larger interest of a ‘one nation, one tax’, the cess proposal is a betrayal of that promise. NITI Aayog Vice-Chairman Arvind Panagariya has defended the cess proposal by saying “there is no tax theorem that two tax rates are better than four”. This seems to question the very premise for a GST since there is then no proof for the theorem that ‘one nation, one tax’ is better than ‘one nation, 29 States, 25 different tax rates’ either.

A cess-infested GST would neither be a “Good and Simple Tax” nor would have “Good Sense Triumphed”, as former Finance Minister P. Chidambaram put it. The States have rightly rejected this idea.

Questions that need quick answers

The GST Council is now faced with a few big questions ahead of its next meeting on November 3. What tax rates will maximise revenues and minimise inflation?

The committee headed by Chief Economic Adviser Arvind Subramanian has long agonised over optimum tax rates to arrive at an 18 per cent recommendation. It is best to stick to this structure and have one slab below and one slab higher than this standard rate, other than a 0 per cent rate for some essentials. Leave the rest to the promised buoyancy of tax revenues under the GST regime.

What should the Central government do if GST collections fall short? It is clear that the Central government has to fulfil its obligations to States in terms of revenue compensation in full earnest. If there is a shortfall, the Centre will have to bite the bullet and indulge in additional borrowing. This borrowing can be considered an exceptional item and excluded from the calculations for the Centre’s fiscal responsibility goals under the Fiscal Responsibility and Budget Management Act. This will ease the pressure on the Centre which can then issue bonds to raise additional financing from both domestic and international sources to fulfil its GST obligations. To be sure, this solution is a mere technicality and will put additional short-term pressure on monetary policy and crowd out corporate credit. In the impossible trinity of guaranteeing revenues for States, clean GST and fiscal discipline, something’s got to give! Which goods and services will fall into which tax slabs across the country?

Luxury goods and essential goods

This is perhaps the toughest task of the GST Council complicated by the stark economic diversity of India’s States. Six States account for as much economic activity as the remaining 23 States of the country. The average household in Bihar and Tamil Nadu consumes the same amount of cereals every month. However, the average household in Tamil Nadu consumes twice as much eggs, fish and meat as its Bihari counterpart. A majority of households in Kerala use branded toothpaste, possess a television in their homes and eat branded biscuits but not in Uttar Pradesh or Rajasthan. What may be luxury goods in one State may be essential goods in another. The GST is an indirect tax and will affect the poor and rich equally. Protecting the poor from an unduly heavy tax burden can perhaps be best achieved through a low uniform rate for most goods except ‘elite’ and ‘sin’ goods.

Who will collect these taxes: the States or the Centre or both? The promise of a GST is not only a uniform rate structure but also uniform tax administration to enable better compliance. This means that taxpayers should as best as possible have just one interface for their integrated goods and services tax administration. Since GST is a destination tax, collection of these taxes is best left to the States. Perhaps audit and enforcement functions of a GST regime can rest with the Centre.

The GST Council shoulders India’s nearly Rs.10 lakh crore indirect tax burden. It is an enormous responsibility to carry along extremely diverse States and transition smoothly to a unified ‘one nation, one tax’ regime. In that sense, this is not very different from the gargantuan task that our founding fathers faced in unifying 565 princely states into the Republic of India. Let this weight of history be the motivating factor for the GST Council in its future meetings, not Arthur Laffer and his paper napkin!

The Hindu, 28 Oct 2016

GST Speculation Slows Luxury Car Sales

“Carmakers prune estimates as people defer buying decision expecting a lower rate”

There isn’t much to celebrate for luxury car companies this festive season.

At the time of the year when sales usually peak, these companies are dealing with a large number of prospective customers who are postponing their buying decision. The reason: continuing uncertainty over the rate of goods and services tax.Many industry executives are now pruning their sales estimates, which widely were for double-digit expansion this year.

Discussions on fixing the tax rates remain inconclusive with the GST Council set to meet again in the first half of November. The expectation is that the GST would be set at 26% for the auto sector, which in theory should reduce the prices of luxury cars that at present attract as much as 52% in taxes under various heads. But the uniform rate is likely to come with a caveat: there are proposals to impose a cess on luxury goods to the extent that the new indirect tax system doesn’t hurt government revenue that would mean no change in the price that the buyer pays.

People are delaying their buying decision until they have clarity on the levies, said industry insiders. An executive at a super-luxury car company said many potential customers had declared unaccounted cash under the government’s recently closed income declaration scheme (IDS), and don’t have the money to splurge now, or are cautious on spending. Many others are avoiding big-ticket purchases to stay off the taxman’s scanner, he added. For makers of luxury cars and SUVs, these developments mean slow sales this Diwali season, and come as a double whammy . A Supreme Court ban on the registration of large diesel vehicles in the National Capital Region had already hurt their sales in the first half of 2016 -that ban has now been lifted, with the court imposing a levy on such vehicles.

Enquiries from prospective buyers are still high, but their conversion into sales is taking much longer, said Roland Folger, managing director of Mercedes-Benz India. “There are lot of uncertainties regarding the future of diesel as a fuel in luxury cars and the impending GST tax structure, so one expects the growth forecast for Q4 to be slightly lower with customers deferring purchase,“ Folger told ET.

DISAPPOINTING SALES

In the first nine months of 2016, the luxury car market is estimated to have expanded 3-5% to about 26,000-28,000 units, largely driven by double-digit growth at BMW, Jaguar Land Rover and Volvo which were aided by new launches. The top two, Mercedes-Benz and Audi, have posted flattish to low single-digit growth. In 2015, sales in the luxury segment totalled 36,000-37,000 units.

Rohit Suri, president of JLR India, said he was expecting the market to grow in double digits, but now fears purchase deferrals on account of GST uncertainties in coming months to pull down the growth rate to a single digit.

It isn’t unusual for consumers to wait and watch when they expect major changes in taxes, especially when it comes to the purchase of big-ticket items such as luxury cars, said Gaurav Vangaal, senior analyst at IHS Markit Automoti ve. But the problem this time is that it is happening at the peak festival time.

UNCERTAINTIES HURT

The festive season typically accounts for 30% of annual car sales, as many Hindus believe it is auspicious to acquire assets at the time.Companies chip in by launching new models and making attractive offers to entice buyers. The macro environment, too, is seen favourable this year, with low interest rates and stable fuel prices, as well as more money in the hands of government employees due to a recent salary revision. These factors are indeed helping mainstream car companies, but for those selling luxury vehicles, the bene fits are offset by the indecisiveness over the GST rate.

“There are market uncertainties currently and (that) are attributed to the recent diesel ban and GST speculation,“ said Tom von Bonsdorff, managing director at Volvo Auto India. But Volvo is on track to post 15-20% growth this year, he said, thanks to the availability of sub-2 litre diesel options across the range -the court ban in NCR was on diesel cars and SUVs displacing 2 litre and more. But if not for the uncertainties, conversion of enquiries to sales could have been even faster, von Bonsdorff added. Industry players are now hoping that the final tax rate doesn’t create any major roadblock to the demand situation.

The Economic Times,27th Oct 2016

India’s Ease Of Doing Business Rank Doesn’t Fully Reflect Changes On Ground: Industry

They observed however that the position may improve significantly with the proposed rollout of the GST from next April as well as the Insolvency and Bankruptcy Code, likely to be implemented by coming December.

India being ranked 130 by the World Bank’s latest ‘Doing Business’ report does not fully reflect the significant transformation in the overall business environment following government reforms, industry bodies said on Wednesday.

They observed however that the position may improve significantly with the proposed rollout of the Goods and Services Tax (GST) from next April as well as the Insolvency and Bankruptcy Code, likely to be implemented by coming December.

“The World Bank’s Ease of Doing Business rankings are incompletely reflective of the significant transformation in the overall business environment in key areas such as openness to FDI, online procedures, MSME facilitation and so on,” CII director general Chandrajit Banerjee said.

The Narendra Modi government, he said, has undertaken a strategic and comprehensive reform package over the last two and a half years which has greatly contributed to strengthening investor confidence.

“Certain reforms such as legislation of the GST, the Insolvency and Bankruptcy Code, and others may not have come within the World Bank’s deadline of June 1. I am sure that the EODB rankings will align with the actual simplification and changes on the ground from next year onwards,” Mr Banerjee said.

In the World Bank’s latest ‘Doing Business’ 2017 report, India’s place remained unchanged from last year’s original ranking of 130 among the 190 economies that were assessed on various parameters. But the last year’s ranking has been revised to 131 from which the country has improved its place by one spot.

“Though the government has made several path breaking changes in legal framework and policy prescriptions like Goods and Services Tax, changes in insolvency law, liberalisation of FDI limits and rules in a host of sectors, the impact on the ground is generally visible after a lag,” said Assocham president Sunil Kanoria.

“Going forward, as these measures along with fast movement towards electronic governance kick in, India should be a far better place for the global investors to do business,” he added.

He pointed out that while the indices are important, the ultimate test lies with the investors, both domestic and international, suggesting that the Centre along with states should continue to further remove the bottlenecks in the business environment.

The rankings are based on ten parameters – starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

Earlier in the day, expressing disappointment at India’s rank remaining low in terms of ease of doing business, Union Minister Nirmala Sitharaman said the efforts and reforms undertaken by the Centre and states have not been adequately captured in the ranking released by the World Bank.

“Wide ranging reforms have been undertaken in the last few months, that have led to improved investment climate as is evident from increased FDI inflows,” said industry body Ficci.

“Ease of doing business is key to competitiveness of a business and the approach adopted by the Government is in the right direction,” Ficci president Harshavardhan Neotia said.

“States need to deepen the reforms in specific areas for improving the rankings further,” he added.

Grant Thornton said the country’s ranking has improved “only marginally in spite of the big ticket reforms” and the government’s intentions “indicating clearly” that the impact of these is yet to be felt at the operating level.

NDTV Profit,27 Oct 2016

 

A GST rate that can unlock India’s potential

“By next April, India aims to introduce the dual GST to provide a common nationwide market for goods and services”

By next April, India aims to introduce the dual GST to provide a common nationwide market for goods and services. Under the proposed indirect tax reform, both central and state governments will have concurrent taxation power to levy tax on the supply of goods and services. The proposed regime is expected to improve tax collection and minimise leakage.

Though Parliament passed the GST Bill this year and began working on implementing it, there are many teething troubles, one of them being the revenue neutral rate (RNR), which is the rate at which there is no revenue loss to the Centre and states.

The tussle over RNR

The states want the RNR to be high, above 20%, to ensure they do not lose revenue, while industry wants it to be around 18%, implying that higher tax will hurt them.

So far, a range of rates have been proposed. Earlier, a National Institute of Public Finance and Policy report suggested a revenue neutral rate of 27%. In 2009, a task force of the 13th finance commission suggested a GST rate of 12% (5% central GST and 7% state GST). However, 27% is considered too high and 12% too low even by international standards.

A survey of 132 countries by KPMG International Cooperative’s Corporate and Indirect Tax Rate Survey in 2014 showed that the highest GST rate was 27% in Hungary and the lowest 1.5% in Aruba. The 10 highest rates ranged from 27% to 18%.

The government at some point will have to make a tradeoff between collecting enough revenue and not overtaxing people. Moreover, a high tax can trigger inflation. An RNR with a lower rate of 12% and a standard rate of 22% would increase inflation by around 0.3-0.7%.

Today, the overall tax rate totals to around 26%, 12% excise duty and 14% VAT on goods. And since the tax rate now for services is nearly 15% with the Swacch Bharat cess, if the RNR is greater than 15-15.5%, the rate for services will be in the 20-22% range, making the GST seem like a considerable tax rise. So what then should be the ideal tax rate?

Optimum tax rate

Ideally, the tax should be levied comprehensively on all goods and services at a single rate to achieve the objectives of simplicity and economic neutrality. But that may not be viable politically due to concerns over the distribution of tax burden (e.g., food) or because of administrative and conceptual difficulties in taxing certain sectors. This then leads to exemptions.

This explains why the Centre has proposed a four-slab rate structure for GST, ranging from 6% to 26%. The structure proposes zero GST on many goods and services, such as food, health and education, and slabs of 6%, 12%, 18% and 26% on remaining goods and services with the highest tax on luxury items such as fast-moving consumer goods and consumer durables. It also proposed a cess over and above the GST rate on ultra-luxury items and demerit goods, such as big cars and tobacco products.

But multiple rates increase the costs of administration and compliance. They lead to classification disputes, require more record keeping and create opportunities for tax avoidance through misclassification of sales.

International experience

The GST regime has been most successful in countries, with the exception of a few Scandinavian nations with the rate of around 25%, which had a broad base and a modest tax rate in the beginning. For example, the New Zealand GST was introduced at the rate of 10%, with a base consisting of virtually all goods and services (with the exception of financial services).

The Singapore GST was introduced at 3%, which has now been increased to 7% as inefficient excises and customs duties have been eliminated. On the other hand, in Europe, the regime is not as efficient as the taxes have been levied at multiple rates.

What govt panel says

In December 2015, a government committee, chaired by Arvind Subramanian, chief economic adviser, recommended an RNR in the range of 15-15.5%. It said the average standard rate for comparable emerging market economies was 14.4% with the highest standard rate being 19% and even in the high-taxing advanced economies, the rate was 16.8%. The committee said, an RNR of anything beyond 15-15.5% will possibly result in a standard rate of about 19-21%, making India an outlier among comparable emerging economies.

The GST has the potential to make taxes more simple, raise compliance, and increase the GDP growth rate by about 1-2%. For instance, in Canada, the GST that replaced the federal manufacturers’ sales tax resulted in an increase in potential GDP by 1.4%. In New Zealand, when the GST was introduced in 1987, revenues jumped by 45% due to improved compliance.

Therefore, as international experience shows, only a single-rate GST with a large base can transform the economy.

Hindustan times,26 Oct 2016

Income Tax notices to 82 brokers for client code changes

“Dept finds tax evasion in unique client code modifications worth Rs 55,000 crore on NSE in cash equity, equity derivative and currency segments in March 2010”

The income-tax (I-T) department has issued notices to 82 stock brokers after completing its long-drawn assessment in the case involving tax evasions by brokers through client code modifications on National Stock Exchange (NSE) in March 2010. The tax department has shared the information with the stock market regulator, Securities & Exchange Board of India (Sebi), to initiate action against these brokers.

In March 2010, unique client code modifications worth Rs 55,000 crore were made on NSE by 82 brokers in cash equity, equity derivative and currency segments. As the finance ministry and the revenue department along with Sebi investigated the matter, the stock exchange failed to explain a large number of client code modifications. According to sources, the I-T department has completed its assessment on most of the brokers involved in the case, while the remaining would be completed by December.

D S Saksena, former chief income-tax commissioner who retired on September 30, Said, “We have shared all details with Sebi on client code modifications by brokers. We have found tax evasions by them. Now, Sebi will take action on these brokers since it comes under their jurisdiction.” “With the help of Sebi, we gathered information on all the brokers and their client code modifications. The number is so large and which is why it is taking so much time to conclude the case,” said Saksena.

When contacted, NSE replied in an e-mail, “We are not aware of I-T department’s initiative/ findings, etc. Therefore it is difficult for us to comment.”

A questionnaire sent to Sebi did not elicit any response. On NSE, client code modifications had seen a sudden jump during January to March in 2010. A source said, “Most of the client code modifications on non-institutional clients raised the alarm at I-T department.”

Another source close to the development said, “These clients are mainly from Ahmedabad, Rajkot, Mumbai and Kolkata. So, the department has to coordinate with regional offices and it takes to time to complete such cases.

It is very difficult to crack this case because some brokers have wound up their businesses or started businesses in other names.”

Modification of the client code is an integral and operative feature of the stock market system, which is consistent across all segments of the market. It is permitted by both Sebi and the stock exchanges so as to take care of human error that occurs during the entry of client code while placing orders. The errors in the client code entry could either be due to the broker or the client’s mistake. The error at the client level could occur when the client is issuing transaction instructions on behalf of his family accounts or trading accounts of affiliated companies forming part of a group or a foreign institutional investor (FII) representing various sub-accounts or mutual fund representing various schemes.

DNA India,25 Oct 2016

GST will be catalyst for investment inflows: Christophe Sirugue, French MoS for Industry

On quantum of French investments in India

France is the third largest investor in India. French investment stock is well over €20 billion. French companies in India have a significant and diversified presence: most sectors of activity are represented through more than 1,000 entities spread over the Indian territory, employing over 3,00,000 skilled workers. French companies are set to bring in more than a billion euros annually in new investments over the next few years. French companies invest in India and they innovate in India, through more than 25 R&D centres.
On sectors attractive to French investors under Make in India initiative

Make in India programme offers tremendous opportunities for French companies, which have understood this well and incorporated it in their projects. The areas in which French companies are well-known for their expertise and in which India has immense needs, such as the development of Smart Cities, sustainable modes of transport, renewable energy, have particularly promising potential.

French companies account for 10% of India’s installed capacity in the solar energy sector. Besides they are present in the automobile industry, chemicals and pharmaceuticals, mechanical engineering, aerospace industry, services etc. Renault’s Kwid has met with great success among Indian consumers; Alstom Transport will build 800 electric locomotives in a “Make in India” unit in Bihar; Sanofi recently set up a vaccine production facility near Hyderabad.

On ease of doing business in India

Reforms initiated by Prime Minister Modi for facilitating FDI are going in the right direction: adoption of the GST is a very important step, which will help catalyse investment inflows. Raising the foreign investment rate in certain sectors, such as in insurance, has also contributed to India’s attractiveness. AXA has made a major investment to increase its share in the Bharti group.

The Economic Times,25th Oct 2016

Centre’s proposals on GST rates find favour with NITI Aayog

“NITI Aayog vice-chairman Arvind Panagariya on Monday defended the Centre’s proposal of a four-slab goods and services tax (GST) rate structure, beside a cess on luxury and ‘sin’ goods”

There is criticism in some quarters that the multiple rates would distort the structure of the proposed indirect tax regime.

Panagariya also said the April 1 target for rolling out a national GST was possible, though a race against time.

“The criticism that the relevance of GST would be lost due to the proposed four-slab structure is a bit overstated, Panagariya told reporters. One should note, he said, that while there might not be asingle GST rate for all items, each item would have a single rate panIndia. No tax theory, he added, said two slabs were better than a bit more. If GST would have only one rate or two rates, items attracting a levy of three or eight per cent would see much higher inflation. It is so as rates on these items would have to be stretched much more in that case. Those attracting three to eight per cent now are proposed to come under a six per cent GST rate. The other rates are 12, 18 and 26 per cent, plus a cess.

Panagariya said this gave predictability to the tax structure, as rates were not altered too much as compared to the present one. This would not have been possible if there had been a twin or single rates.

GST, he added, was a process. Hopefully, later, there would be gradual movement towards a single rate.

Giving historical perspective, Panagariya said former finance minister Yashwant Sinha had converged 11 excise rates to three — of eight, 16 and 24 per cent — in 1999-2000. There were two additional non-VAT rates on luxury goods.

On the proposed move to impose a cess over 26 per cent on luxury and sin goods, he said if this was replaced with another tax, the rate would be much higher than the cess, as 42 per cent of it would go to states. Beside, a cess could be temporary and be done away with, once its purpose to compensate states for revenue loss in the first five years of GST roll-out, is over.

The GST Council could not decide on the rates on Thursday as discussion on cess was inconclusive. If cess is decided, then tax rates could be fixed, finance minister Arun Jaitley had said. The next Council meeting on November 3-4 would try to evolve aconsensus on the rates.

Former Finance Secretary Vijay Kelkar, who headed the 13th Finance Commission (TFC) that gave recommendations on GST, recently said the proposed structure was disappointing, as it would rob the GST of efficiency enhancing potential. Hed also said the impact of the tax rate proposals on the economy would be only a fourth of the high potential impact the TFC had estimated.

Pratik Jain, partner with PwC, said multiple rates werent desirable but were perhaps the only realistic way for a consensus. “In particular, a six per cent band is necessary as many products, including food items, currently attract an effective rate of five to six per cent, and having those at a 12 per cent slab could have been inflationary,” he said.

However, he said, a cess on products under the higher slab was not a good idea. It would complicate compliance for business and could lead to cascading of taxes. “Instead, it might be a better idea to increase the tax rate nominally, if needed. In any case, the government might not need to compensate the states if there is revenue buoyancy,” he said.

Business Standard,25th Oct 2016