Banks, insurers and telcos cite lack of rules, watch step on profiteering

MUMBAI: Banks, insurers and telecom operators, which dominate business-to-consumer (B2C) services, are treading cautiously to stay clear of anti-profiteering pitfalls as there aren’t any clear-cut guidelines yet on how to account for gains they may make from the introduction of the goods and services tax. The principle is outlined in Section 171of the GST Act: “Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient (consumer) by way of commensurate reduction in prices.”

GST has increased the scope for input tax credit for banks, insurers and telcos, which account for about half the B2C services sector. They can seek tax credit even on capital expenditure — there was no such concept earlier for services — and use that to offset their GST liability. Besides uncertainty over anti-profiteering norms, firms are also unsure if they can offset input tax credit against higher compliance costs.

Experts said capital expenditure for setting up new branches or investing in telecom towers, for instance, will get credit. Companies can set off these expenses completely or partially against future tax liabilities. Banks, insurers and telecom operators are busily consulting tax experts to determine whether they might in breach of the rule as they expect the proposed anti-profiteering authority to scrutinise their accounts at some point.

ET reported November 15 on the establishment of the authority, guidelines for which are likely to be announced in the first week of December. “There has certainly been an increase in the input tax credit quantum for service providers such as banks, insurers and telecom (firms),” said MS Mani, partner, Deloitte India. “The quantum of increased credits would depend on the capex and opex (operating expenditure) levels which would vary depending on the industry and specific business plans.”

Telecom firms are among the major beneficiaries of the new regime, experts said. Some companies had put expansion plans on hold until GST was rolled out July 1 to benefit from input credit, according to them. The impact won’t be uniform across companies and industries.“For already-established banks, there is not much change,” said a tax adviser at a top consultancy firm. This is because their capital expenditure will be minimal. “The new-age banks that just have got licences and plan massive expansion will incur capital expenditure. But these banks are still in a building mode and their revenues are not in place, so they will first like to stabilise the operations and revenue streams before thinking of passing on the benefits to customers.”

COMPLIANCE BURDEN
In fact, many banks may not want to pass on the benefits of the increased tax credits to customers, experts said. This is because the compliance burden for them has gone up under GST. “Given that the single-registration and half-yearly return regime is replaced with a multiple-registration and monthly-return regime, banks and insurance companies will first have to check how much additional cost they are incurring for complying with GST,” said Sachin Menon, national head, indirect tax, KPMG India. “Banks will have to consider how much tax cost they are saving due to increased input GST credit, that could be passed on to customers but only after removing the additional compliance costs.” Experts say financial services companies are evaluating their offerings.

“Like other sectors, financial services companies are evaluating their product offerings. In the long run, given the competitive nature of the industry, any resets in the context of GST should be passed on to customers,” said Sameer Gupta, leader, financial services, tax and regulatory, at EY India. Under the current situation, experts said it would be tough for the government to pull up a particular company for profiteering with no methodology having been prescribed to guard against the practice. This means that even if banks, insurance and telecom companies want to pass on benefits, there is no way of determining how much prices can be slashed, according to the experts. “The mandate of the law is that even increases in the input tax credit are required to be passed on to consumers,” Mani said.

“However, the methodology for the same is yet to be prescribed. In this situation, it is difficult for service providers to determine how the increased credits are to be passed on.” In their current form, the anti-profiteering rule could be challenged in court if any demands are made, experts said.

Source: https://economictimes.indiatimes.com/news/economy/policy/banks-insurers-and-telcos-cite-lack-of-rules-watch-step-on-profiteering/articleshow/61745912.cms

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *