The government will soon start the process of matching returns and invoices under the goods and services tax (GST) as the GST Network, the IT infrastructure needed to assess tax claims on individual taxpayers under the new indirect tax system stabilises.
Under the GST system, returns filed under forms such as GSTR-1 and 2 have to be matched with the GSTR-3 to ensure that the claims made by taxpayers are correct.
As the GSTN backbone overcomes starting troubles and becomes more user friendly, tax authorities will start assessing the full scope of the reform measure, including the taxes due and taxes actually paid.
While the government’s post GST revenue position is reported to be comfortable, it is yet to realise its full potential as taxpayers either evade or understate transaction amounts.
At the same time, the government has also lined up several steps hand-hold the taxpayer and make the new tax system more user-friendly.
Under the GST system, returns filed under forms such as GSTR-1 and 2 have to be matched with the GSTR-3 to ensure that the claims made by taxpayers are correct. This process is yet to get over as the deadline for filing of returns itself has been extended several times as taxpayers complain about technical glitches at the IT backbone – the Goods & Services Tax Network (GSTN).
The GST Council has taken several measures to ensure stability of the system and has been pressuring technology and service provider Infosys to fix the glitches.
However, revenue flow under GST is yet to stabilise despite a steady rise in the number of returns being filed every month.
Besides steps taken to smoothen the GST Network, the GST Council had, earlier this month, announced sharp cuts in rates applicable to nearly 200 items to ease the burden on both businesses and consumers.
However, total revenue collection under the goods and services tax (GST) for October 2017 (till 27 November) stood lower at Rs83,346 crore, down Rs11,785 crore compared to the Rs95,131 crore collected in the previous month.
About 5.01 million from among the 9.59 million registered taxpayers have filed GST returns for October till 26 November, figures released by the finance ministry showed.
Of the 9.59 million registered taxpayers 1.51 million are composition dealers who are required to file returns every quarter, according to the ministry release.
The total number of GSTR 3B returns filed for the return period July, August, September and October 2017 (till 26 November) stood at 5.87 million, 5.89 million, 5.73 million and 5.01 million, respectively.
Minister of State for Finance Shiv Pratap Shukla today asserted that GST will become a “good and simple tax” in the matter of few months, as issues regarding the new tax regime have been addressed by the government.
Addressing the 116th annual session of the Merchants’ Chamber of Commerce and Industry here, Shukla said by March, the GST will be simple enough for everyone to comprehend.
“It will be so simple that even children will able to understand,” he said.
“Even in a country like Singapore, it took four years for GST to get stabilised. I am proud that our government has responded to the issues so quickly. Post the Guwahati meet, tax rates on many products were reduced to 18 per cent from 28 per cent, which was rejoiced by businesses,” Shukla said.
Among other things simplified in the Goods and Services Tax, he said even monthly returns had been changed to quarterly returns to ease filing.
To a question, the minister said the micro, small and medium enterprises sector continues to be the focus of the Central government.
On capital infusion in banks, Shukla said recapitalisation from the government cannot be treated it as a regular practice.
Leading watchmakers and retailers in India have lowered their prices by 7-10% following the reduction in tax rates under the goods and services tax (GST).
The GST Council on 10 November reduced the tax rates on 178 items, including watches, to 18% from 28%. Passing on the benefits of reduced GST to consumers, companies like Ethos Watch Boutiques, Titan Co. Ltd and Timex Group India Ltd have lowered the prices on all the existing stock (across all price segments) by 7-10%, top executives of these firms said.
“We immediately cut the prices on all our watches (starting at Rs2,000) by 8%. With this rate cut, most watches in India have become cheaper than anywhere in the world. That’s a huge positive for the industry. Additionally, watch smuggling will come down,” said Pranav Saboo, co-founder at Ethos Watch Boutiques, the authorized retailer of more than 60 luxury watch brands including Rolex, Omega, Cartier and Rado.
While Timex has planned a reduction of 7-10% in prices for all existing stock as of 15 November (and bought on or after 1 July), Titan is lowering the price by 7-8%.
“We have given instructions for reduction in price by 7-8% across all SKUs (stock keeping unit), which corresponds to the reduction in the GST rate from 28% to 18%. It will initially be given in the form of a discount until we change the prices for the watches in the course of time,” said Subbu Subramaniam, chief financial officer at Titan Co., which sells watches at a starting price of Rs6,000, going up to Rs7.5 lakh for crafted watches.
“The slash in tax rates by the GST council was a welcome move for businesses, especially small and medium enterprises. Revised GST rate and tweaking in rules will relieve the watch parts suppliers and small vendors, which will in turn reduce import from China and other countries, thereby encouraging Make in India initiative,” said Sharmila Sahai, managing director at Timex Group India, which sells watches at an average price of Rs4,000.
According to market research firm Euromonitor, the watch industry in India was estimated at Rs8,185 crore (at sales value) in 2016, growing (between 2012 and 2017) at a compound annual growth rate (CAGR) of 13.9% (accounting for inflation). Between 2016 and 2022, the industry is expected to grow at a CAGR of 4.3% (at constant prices).
If a real estate developer or an infrastructure contractor is incurring more cost due to the goods and services tax, should the consumer pay him for that? Why not, ask developers.
In what is exactly opposite of anti-profiteering, real estate contractors have dragged the government of India and the GST Council to Delhi High Court, demanding that their losses due to GST be made good.
The problem is due to what they call a discrepancy in GST rates for contractors and subcontractors.
While the government has fixed 18% GST for under-construction properties, it has allowed deduction of land value by the developer, making his effective tax rate 12%. But the subcontractor has to pay full 18%.
Now, this difference in tax rate cannot be passed on to the developer and thereby to the final consumer, the contractors said in a writ petition filed in the Delhi High Court on Wednesday.
So they want the government and GST Council to fix the anomaly and bring parity in GST rates charged from contractors and subcontractors, or provide a mechanism to make good their losses.
If there is an anti-profiteering mechanism to ensure tax benefits are passed on to consumers, then why not the opposite, they ask.
“There is a clear case of discrepancy, unintended perhaps, in the GST rate for contractors and subcontractors and this would lead to additional cost for the subcontractors of infrastructure and real estate projects when the prices are fixed,” said Abhishek A Rastogi, partner at law firm Khaitan & Co.
Subcontractors now want the additional 6% GST they pay to be reimbursed.
“There should be a mechanism, in line with anti-profiteering, where if loss is incurred due to GST rates it has be made good,” said Rastogi who is an advocate on record for subcontractors. He hoped that the anti-profiteering authority formed by the government will address a “reverse anti-profiteering” situation when a business-to-business supplier is at a loss due to GST.
Industry experts pointed out that almost all the infrastructure projects and many real estate projects are partly or fully constructed by subcontractors.
Nayan Shah, president-elect at realty developers body CREDAI-MCHI, called for bringing down goods and services tax on consumer contract to single digit, between 6-8%, which would ensure that there is no revenue loss to the exchequer.
Exporters have claimed refunds of Rs6,500 crore in the first four months of GST rollout, the government said on Wednesday, while asking them to file claims in proper form with matching shipping bills to facilitate early settlements.
The government also said that businesses can upload the final sales return for August in GSTR-1 on GST Network (GSTN) portal from 4 December.
In a statement, the finance ministry said: “It is clarified that the quantum of IGST (Integrated GST) refund claims as filed through shipping bills during the period July to October, is approximately Rs6,500 crore and the quantum of refund of unutilized credit on inputs or input services, as per the RFD-01A applications filed on GSTN portal, is to the tune of Rs30 crore.”
The Central Board of Excise and Customs (CBEC) had last month started refunds for exporters of goods who have paid IGST and have claimed refund based on shipping bill by filling up Table 6A. Earlier this month, it allowed businesses making zero rated supplies or those who have paid IGST on exports or those want to claim input credit to fill Form RFD-01A.
It asked them to approach chief commissioner of central tax and the commissioner of state tax for refund claim. The ministry said that of the IGST paid on goods exported, a majority of refund claims for exports made in July have been sanctioned.
“Refund claims of IGST paid for exports made in August, September and October 2017 are being sanctioned seamlessly wherever returns have been accurately filed,” it said. Exporters should file GSTR-3B, Table 6A of GSTR-1 on the GSTN portal and shipping bills on Customs EDI System,” it said.
However, the statement said, instance of errors are noticed in shipping bill number in GSTR-1, mismatch of invoice number and IGST amount paid and wrong bank account, which is delaying the refund process. “These errors are the sole reason for delay in grant of refunds, or rejection thereof. While information has been made available to Exporters on the ICEGATE portal if they are registered, they may also contact jurisdictional customs authorities to check the errors they have committed in furnishing information in GST returns and shipping bill, and rectify them at the earliest,” the ministry said.
It asked exporters to ensure that there is no discrepancy in the information furnished in Table 6A of GSTR-1 and the shipping bill. It said that since customs system automatically grant refunds without involvement of any officer by matching information that is furnished on GSTN portal and customs system, the onus is on the exporters to fill in all the details accurately.
“Exporters may, therefore, take due precaution to ensure that no errors creep in while filing Table 6A of GSTR-1 of August 2017 and onwards,” the ministry added. In case exporters have committed errors in filling up July claim forms, they can make changes by filling up Table-9 of GSTR-1 of August returns, it said.
For claiming input tax credit (ITC), the ministry said exporters will have to ensure that all the necessary documents are submitted along with the Form RFD-01A for timely sanction of refund. “Exporters are advised to immediately file Table 6A and GSTR-3B, for processing of IGST refund; RFD-01A on GSTN portal for refund of the unutilized ITC on inputs or input services used in making exports; and GSTR-1 for August 2017 for amending details provided in July GSTR-1,” the ministry said.
The government has taken various measures to alleviate the difficulty of exporters and is fully committed to provide speedy disbursal of refunds due to them, it added.
The government on Tuesday appointed the chairman and members of the Anti-Profiteering Authority tasked with ensuring that the benefit of reductions in the tax burden under the goods and services tax (GST) reaches consumers and is not pocketed by businesses and traders.
B.N. Sharma, a senior revenue department official, was named chairman of the authority, which will try to make sure that wherever the tax burden has come down by way of rate cuts or rebates, there is a corresponding reduction in prices.
If not, the body can ask businesses to cut prices and return the “undue benefit” to consumers with 18% interest.
The members of the authority who are selected from the tax administration or from tax tribunals are J.C. Chauhan, Bijay Kumar, C.L. Mahar and R. Bhagyadevi.
The creation of the body signals the resolve of central and state governments to ensure that revenue forgone by way of tax reduction, which impacts the state’s ability to spend on development, goes to the intended beneficiary.
With the compensation paid by the central government for the shortfall in revenue, states have been able to meet their tax collection targets in the GST regime so far, while the Union government’s revenue estimates have fallen short of target in the August to November period, the finance ministry said on Monday. The below-expected revenue in the GST regime is on account of tax cuts, including in the highest bracket of 28% which the GST Council has announced over the last few months.
Under pressure from traders and businesses, who found the new tax regime more rigorous, the GST Council has also temporarily suspended some of its sophisticated features meant to ensure strict compliance.
“As its first chairman, B.N. Sharma is expected to give a direction to the Authority in boosting the confidence of consumers that GST is a ‘Good and Simple Tax’ in the overall national interest,” the finance ministry said in a statement.
Experts said the task before the authority is to evolve norms to identify instances of “anti-profiteering” for different sectors as defined in GST laws.
“The appointment of the chairman of the anti profiteering authority signifies that the government is very keen to begin taking steps to ensure that rate reductions and input tax credit benefits are passed on to consumers. It is essential that the methodology to determine profiteering in various businesses is prescribed at the earliest. Many businesses have already passed on the benefits and the rest would now follow,” said M.S.Mani, partner, GST, Deloitte India.
The authority has a standing committee at the national level and state-level panels which will accept complaints from consumers. The watchdog will be assisted by the Directorate General of Safeguards in the central government for investigations into suspected cases of profiteering.
Oil minister Dharmendra Pradhan on Tuesday made a strong case for inclusion of natural gas in the goods and services tax (GST) regime, saying that if polluting coal can be included, then the environment-friendly fuel certainly deserves a place in the new regime.
“Coal has been included and levied with 5% tax but gas is outside GST, how fair is that,” he said at the KMPG Energy Summit in New Delhi. Crude oil, petrol, diesel, aviation turbine fuel (ATF) or jet fuel and natural gas are not included in GST, which has amalgamated over a dozen indirect taxes including excise duty, service tax and value added tax (VAT) since it kicked in from 1 July. Hence, while various goods and services procured by the oil and gas industry are subjected to GST, the sale and supply of oil, gas and petroleum products continue to attract earlier taxes like excise duty and VAT.
Unlike other industries which can take credit for any tax paid towards the furtherance of business, no credits on input GST will be available to the oil and gas industry leading to the huge additional indirect tax burden.
Pradhan’s ministry had previously written to the finance ministry to consider including natural gas in GST. Industry body Federation of Indian Chambers of Commerce and Industry (Ficci) has also pitched for the inclusion of natural gas in the new indirect tax regime so as to help producers contain cost and aid in moving towards a gas-based economy.
In a letter to finance minister Arun Jaitley, Ficci said that keeping natural gas out of the GST is causing hardships and having an adverse impact on the producers as it is increasing their costs. Gas sales including compressed natural gas (CNG) and piped gas supplies attract VAT ranging from 5-12%.
Garment exporters demanded the restoration of duty drawback and Remission of State Levies (ROSL) rates to pre-GST levels, claiming that a whopping six million jobs may be lost in the sector if urgent remedial measures were not taken.
India’s apparel exporters are facing intense competition from countries like Bangladesh, Pakistan and Vietnam, owing to lower competitiveness.
“The average duty drawback that we were getting per-GST was 11.5 percent and the Remission of State Levies (ROSL) was an average of 3.5 percent. Post GST, the average drawback has come down from 11.5 percent to 2.25 percent.
“Last week, the government has been very magnanimous in increasing the ROSL from the 0.39 percent which was announced in July to 1.7 percent, but we are still short of the 3.7 percent which we were getting earlier,” said Sudhir Sekhri, Chairman, Garment Exporters Association.
Addressing a press conference, garment exporters alleged that the government was “making it difficult” for them to run their businesses and they had to incur additional compliance costs due to the “tardy implementation” of the Goods and Services Tax.
“We had a decline of 41 percent in (garment exports) in October. There may be a 30 percent decline in November. April-October there is a downfall of 5.8 percent. If this trend continues, for the entire fiscal it could be 15-20 percent,” said Vinod Dhawan, President of Apparel Exporters and Manufacturers’ Association.
Ready-made garment exports dipped by about 40 percent to USD 829.44 million in October.
The garment exporters fear that 6 million jobs may be lost in the sector, which is currently giving direct employment to 12.9 million people, going by the fall in exports.
The exporters also demanded speedy conclusion of a free trade agreement with Europe for India to regain its export competitiveness, as the industry had to pay 9.8 percent duty for shipping to Europe.
Besides, the garment exporters demanded clarity on the e-wallet mechanism, full refund of blocked taxes and that fabric and other inputs be made available to the garment industry at lower rates.
The government last week announced the post-GST rates for claiming a rebate of state taxes under the scheme for ROSL on exports of readymade garments and made-ups.
It also doubled the rates for incentives under an export promotion scheme — MEIS — to 4 percent for readymade garments and made-ups.
India’s Apparel exports rose to USD 17.5 billion in 2016 -17 from USD 16.8 billion in 2014-15.
The September quarter GDP growth data, which will be released on Thursday, is expected to show an acceleration in economic growth from 5.7% in the June quarter, the slowest in three years, but the data may be clouded by the goods and services tax (GST) rollout.
The introduction of GST beginning 1 July may make it difficult for government statisticians to measure growth in the trade and hotels segments, leaving room for inaccuracies to creep in. The trade, hotels and transport segments, as well as communication and services related to broadcasting as a group, contribute around 20% of GDP.
Trade includes wholesale and retail trade in all commodities whether produced domestically, imported or exported. A key indicator used for estimating gross value added (GVA) in the trade sector is sales tax growth. With the introduction of GST, there is no separate sales tax data available to the Central Statistics Office (CSO) to compute growth in this segment.
“Since 85% of trade activity happens in the unorganized sector, sales tax growth is used as a proxy. However, CSO now cannot use GST data for the same. There is also no base available for the GST data to get a growth rate for trade activity,” said former chief statistician of India Pronab Sen.
Sen said CSO may go back to the old system of using the value of trade in goods by combining agriculture, manufacturing and imported goods as a proxy for trade activity before the 2011-12 series.
“This used to give a reasonable estimate for trade activity under the old series and can be easily calculated even under the new series,” he added.
HSBC Global Research, in a report released on Tuesday, said fiscal second quarter growth should show how rapidly the economy is recovering from the disruptions that surfaced in the run-up to GST’s implementation.
“Unable to match its stellar performance in FY17, agricultural growth may moderate to its long-term average, due to low production of key crops and a drag from animal husbandry. Industrial growth could normalize to the north of 4% as manufacturing picks up pace, but only gradually, given 40% of the sector is still contracting and the other 60%, though growing, is performing much worse than before,” it said.
The report said services growth could edge lower due to expected weakness in the public administration, trade and transport sub-sectors due to GST’s implementation.