Indian banks approached government to amend the draft GST law

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Under the current structure, transactions between two branches of same bank will trigger a tax, which could prove to be cumbersome. Indian banks have approached the government to amend the draft Goods and Services Tax (GST) law under which transactions between two branches of a bank will trigger a tax.

This tax could be cumbersome because of the enormous number of financial transactions being carried out and because it will be impossible for banks and finance institutions to value services provided by one branch to another and then pay GST on that. Banks have written to the government to amend the GST law involving such `self-supply’ of services. According to people in the know, the government may be looking to make this change within a month.

The problem is this: if a bank branch located currently in Mumbai provides a service, or is perceived to provide a service to another branch in New Delhi, GST will be applicable on such a service. So, if a Mumbai resident withdraws money from a New Delhi ATM, the bank would first be required to value this service and then pay GST on that. This, will be impossible to comply with.

“The valuation of supply of services can trigger dispute, prone to misinterpretation and promote corruption. If the provision remains, branch to branch transactions in banks or similar transactions in other sectors need to be valued and should be taxed,“ says Sachin Menon, national head, indirect tax, KPMG India.

Experts point out that the support provided by the head office to a regional office or a branch and vice versa or sales and after sales support will have to be valued first. GST will be have to paid on this value.

It is impossible to identify intra company transactions and value them and then carry out compliances, say experts.

“There are thousands of branches and sales offices in case of some of these service providers and the interaction between establishments is numerous,“ said Uday Pimprikar, partner, tax & regulatory services, EY India. Industry experts point out that the current GST law suggests that supplies between two registrations of the same entity should be liable to GST.

“There is no need to levy GST on inter-branch supply of services. To distribute credit, there is already a simpler concept of input service distributor,“ says Dharmesh Panchal, India West Indirect Tax leader, PwC.

Banks including, SBI, ICICI and HDFC, have approached the government to modify the GST framework involving self-supply of services, say people in the know. In a written communication to the GST committee, banks have claimed that they would not be able to comply with such a regulation as it’s impossible to value such services.

The Economic Times, 31 January 2017
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