GST No ease of doing business V S
GST – No ‘ease of doing business’ V S Datey
Trailer is good – picture not so good The idea of GST was initiated to create a national market and to avoid cascading effect of taxes. However, the final shape of GST that has come on 1 -72017 is not good at all. In fact, some of GST provisions are ‘terrors’. Most certainly the compliance costs are heavy and there is absolutely no ‘ease of doing business’.
Achievements National Market – about 70% achieved Avoid cascading effect of taxes – about 70% achieved Problems due to overlapping of Vat and service tax – practically eliminated Uniform GST Law all over India – 95% acheived
Unique features of GST as introduced in India Concept of IGST is a unique idea – nowhere else tried GST on supply and not on manufacture or sale. This changes entire structure of tax Dual structure is unique Distinction between goods and services considerably reduced – avoiding overlapping of taxes Uniform law on goods and services all over India Heavy compliance cost
Special features of Indian GST Invoice and debit/credit note matching on such a grand scale has nowhere else been tried Centre State Cooperation at unprecedented level. All decisions so far in GST Council by consensus and not by voting Most complex GST law in the world No concept of ABC analysis in trying to bring every transaction under GST
Basic philosophy behind GST Law All taxable persons and crooks and rascals The taxable persons are not trust worthy and they are out to cheat Government On the other hand, all tax officers are saints and honest people Most unfriendly tax administration
Brain Hard Disk has to be formatted GST conceptually different from excise, service tax and Vat Many concepts like captive consumption, invoice at the time of clearance find no place in GST No basic exemption of 20 lakhs in GST The old concepts have to be completely wiped off Not easy to get out of hangover of the past
Mandatory Registration In some cases, even if service is exempt or under reverse charge, if some taxable service is supplied, then registration mandatory Education services, hospital services – even Advocate Services Petrol pumps selling lubricants and other products Once registered, reverse charge applies – no exemption of 20 lakhs
Avoidance of dual control Principle of avoiding dual control is laudable. If such bifurcation is done on random basis, it will lead to chaos to taxable persons having multi-state businesses. Taxable persons having multi-state businesses (including telecom, insurance) and those in export and import should be under control of Central Government. Problems for consultants also - Some of their clients may be under State Government Control while others may be under Central Government control.
CGST/SGST paid when IGST was payable and vice versa Interpretation of provisions of ‘place of supply’ and ‘fixed establishment’ are critical in determining whether IGST is payable or SGST/CGST are payable. A taxable person who has paid CGST/SGST on a transaction considered by him to be an intra-state supply, but which is subsequently held to be an inter-state supply, shall be granted refund of CGST /SGST (in SGST Act). This means that he will have to pay IGST and then claim refund of SGST/CGST paid. There is Parallel provision in IGST Law also. Really, there should be adjustment between State and Centre. If the receiver had availed input tax credit, refund will not be admissible.
Valuation provisions copied from excise and service tax law Some Valuation provisions copied from present service tax and excise law e. g. ‘related person’ and ‘price is sole consideration’. Issues like patterns, dies and tools supplied by recipient, FOC material supplied can crop up Provision relating to related buyer are retained only when the related buyer is ultimate consumer – this is also done in case of stock transfer ‘Value’ includes interest or late fee or penalty for delayed payment of any consideration for any supply. GST payable on outward freight and packing
Post supply discounts and price reductions not eligible for deduction from value Giving trade discounts and price reductions during negotiations after supply of goods and services is very common in business. However, if such post supply discounts were not anticipated at the time of supply, it is not allowed to be deducted from value. This provision completely ignores business reality. as post supply negotiations and price reductions are common in business. Further, if payment is not made within 180 days, then input tax credit is to be reversed. This is double whammy.
Artificial disallowances of input tax credit disallowing input tax credit on rent-a-cab service makes no sense, as this service is used for legitimate business purposes. In fact, no definition of ‘rent a cab’ Some services like food and beverages and beauty treatment are legitimate business expenses for some kinds of businesses. In those cases, these should be allowable. Interpretation of term – ‘for personal consumption’ Construction related services not eligible even if in relation to business. Input tax credit of legitimate expenditure like telecom towers and pipelines outside the factory is being denied.
SGST and CGST paid in one State Can credit of CGST and SGST paid in one State be availed in another State? For example, hotel or rent bill in another State, can ITC be availed? Can be done through ISD, then why not direct?
Payment of GST on advances received Receiving advance from customers is common. However, GST is proposed to be payable when advance is received, even if supply of goods and services is to be made at a later stage. This will throw the accounting out of gear. Input Tax Credit will not be available when GST is paid on advance received. Interestingly, if you term the amount as ‘adjustable deposit’ in separate account, GST is not payable, though Company Law issues will arise.
Reversal of input tax credit if payment not made to supplier within 180 days If payment of bill and tax thereon is not made within 180 days, input tax credit is required to be proportionately reversed with interest The purpose seems to be to avoid bogus invoices. However, since tax has been received by Government, there is no loss to Government when transactions are genuine. It is not clear why Government is acting as recovery agent for supplier. Some deductions from invoices, discounts are common in business. In construction industry, retention of 5%/10% amount for one or two years is common. In such cases, reversal of ITC will be required.
GST on fringe benefits to employees Employer and employee have been defined as ‘related persons’. Hence, fringe benefits provided to employees will be subject to GST. It will be similar to fringe benefit tax, which will lead to tremendous litigation. Gifts upto Rs 50, 000 to employees may be exempted. However, reversal of input tax credit may be required.
Electronic way Bill E-way Bill is required to be generated if value of goods exceeds Rs 50, 000 Transporters have to prepare fresh e-way bill if goods are transhipped (from one vehicle to another) Transport time one day upto 100 Kms Presently postponed but will come in 3 -4 months
Reverse charge if supply received from unregistered person There is provision of payment of GST under reverse charge if procurement is from unregistered person. This will create tremendous accounting and record keeping challenges – exemption of Rs 5, 000 per month makes no sense In many cases, this will be revenue neutral exercise as input tax credit will be available. Heavy compliance cost in maintaining records of petty expenses and preparing invoices
Composition Scheme - traps Reverse charge if supplies received from unregistered persons Exemption upto Rs 5, 000 per dayse GST payable on exempted goods also Hence, separate partnership firm Supplies uploaded by supplier have to be accepted to prove supplies received from registered person
System is the master not human being There is not likely to be human touch in many aspects of GST – registration and refund also computer based This is particularly in case of input tax credit where human will be helpless against system Mismatches, adjustment of payments on FIFO basis – all at mercy of system Huge amount of data uploading and date crunching required – 300 crore invoices per month If system fails, whole mechanism of input tax credit fails. IT Infrastructure highly insufficient to take this load
Bill to ship to transactions Very simple and good provision If goods are supplied at instructions of third party, then it will be presumed that the third party has received the goods Registration at each place not required
Confusion about place of supply and location of supplier Place of supply only determines whether IGST is payable or CGST and SGST payable Place of supply does not mean registration required at that place Registration only if a person has fixed establishment at that place Casual Registration is not mandatory Renting, erection and commissioning, repairs
Customs and Foreign Trade Policy Duty drawback will be mostly restricted to customs portion IGST payable at time of imports by EOU Advance Authorisations, Duty Credit Scrips, EPCG only for basic customs duty IGST on value plus basic customs duty plus education cess Imports to be uploaded in GSTR 2 and credit will be matched by customs GSTIN number and Invice Number in shipping Bill Refund of duty paid at the time of exports after ship or aircraft leaves If no payment within one year, then export benefits to be reversed Bond/LTU but no ARE 1
Transitory provisions Many questions – few answers If no duty paying document then only 40% /60% credit – only for traders – not for manufacturers or service suppliers or works contracts Service tax paid after 6 -7 -2017 e. g. cash basis or reverse charge – GST should be paid – but how to file return Textile – can deemed credit of excise be availed? Works contract – credit of excise on steel, cement Delay June 2017 return of Central Excise
Anti profiteering measures Benefit of input tax credit and reduction in tax rates should be passed on to customer Political gimmick but good source of harassment to taxable persons – no penalty provisions Show should be made of price reduction when GST comes After some time, bring prices to normal
Accounting challenges GST on advance – correlation when actual supply made Reversal of input tax credit if payment not made in 180 days Bill entry and passing system has to be changed Provisional entry when goods despatched by supplier to take ITC Bill should be passed in full and then issue credit/debit note – otherwise no invoice matching
Many more critical issues What we have discussed in only tip of iceberg. Many more complications would arise in due course. No worry about job security to persons in GST department and consultants of GST Let us hope that GST, as it finally comes out is ‘Good and Sensible Tax’.
Thanks Wish you happy and safe journey in jungle of GST Website – www. dateyvs. com
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