No GST News in Budget 2016 - still government working on GST?

With the GST implementation deadline of April 2016 becoming a non-event, questions are up once again on the fate of the Goods and Services Tax. In this year’s budget speech in the Parliament, there was not much ado on the GST. This was in stark contrast to the last year’s budget session when there was a firmness to move towards GST regime within a year. Is it that the government is resigned to the fact that they do not have a majority in the Upper house and till they get it, the GST bill cannot be passed?

No, the government does not seem to be sitting idle on the GST issue. A recent statement from the finance minister that he is in agreement that the highest rate of GST in India should not go beyond 18% had raised hopes that the bill may be passed in the budget session. However, the Congress party demand for a cap of 18% in the constitutional amendment bill was not heeded to. With the second part of the Parliament session beginning from the 25^th of April there is hope once again that the government is likely to push through the tax reform.

Another noticeable action that reiterates the government’s resolve to go ahead with the Goods and Services Tax is the focus on the administrative reforms on the tax front. The items that had been enjoying exemptions are being brought under the tax regime. This includes the jewellery items with the exception of silver jewellery and the branded apparel & clothing accessories with a retail sale price of INR 1000 and above. The reaction from the jewellers was an agitation where they said they were not willing for a 1% and 12.5% excise duty rates. The government is firm on its stand to bring this sector under taxation.

The concessional notification on the apparel and clothing accessories have been withdrawn and excise duty is proposed. It is very clear that the excise duty will be subsumed under the GST. The tax changes at this time are an indicator that irrespective of the passage of the GST bill in the parliamentary session, the government is busy with the groundwork for the reform. It is doing away with the concessions and getting more and more sectors under the tax ambit. It is now very clear to them that higher the number of concessions, more will be the Revenue Neutral Rate (RNR) of the GST.

Over the years, the Service Tax rate has also gone up. The government had upped the rate to 14.5% in the budget this year and a krishi Kalyan cess of 0.5% from June 2016 will take it up to 15%. This move is also an indicator that the government is bringing the service tax rate closer to the RNR rate of 17 to 18% in the GST. This will avoid a steep hike for the service tax rate when the GST is finally implemented.

The indicators from the government are firm and clear that it is going ahead with its GST reform process. They are utilizing the time delays to set the tax administration in order. The industry, trade and dealerships would do well to iron out their tax issues and gear up their infrastructure and resources for the biggest tax reform of the times, in India.

Cadre Restructuring to Set the Ball for GST Rolling

GST is one of the biggest indirect tax reforms to occur in India. On its way of economic integration of the country, the Finance ministry is keen to set the ball rolling as soon as possible and is thus, not leaving any stone unturned for the successful GST implementation.

Administrative restructuring is next on the radar to assist in smooth transition from the current tax regime. Preliminary work on reorganization of field offices of central excise and service tax has been initiated. The Central Board of Excise and Customs (CBEC) are gearing up for cadre restructuring of various officials of central excise and service tax. These officials are expected to take over once the new tax regime sets in.

The Government has instructed its officials to provide the annual turnover-wise assesses list for both Service Tax and Excise. It has also asked field formations to provide information on the number of State-wise and annual turnover-wise assesses of value-added tax as well as the existing organizational structure, appeal and review system for the State levy.

Further, nodal officers are proposed to be appointed to coordinate with the state governments in this regard. All this will help the administration to be prepared for a speedy and smooth implementation of the GST bill once all the legislative clearances have been taken. The GST bill is likely to come in effect either from June 1 or September 1

Is the GST delay a boon for setting right the supply chain?

The April 2016 deadline for the GST implementation has fizzled out without a mention in the first phase of the budgetary session. The next timeline that is being touted may be a good 15 months away. People are pinning their hopes on some positive developments in the second session of the budgetary session of Parliament that begins on the 25^th of April. However, it is for sure that people believe that GST is going to be a reality sooner or later. The question is, do we sit idle during this time or make use of it effectively?

The delay in the GST offers a golden opportunity for the industry to set its house in order and gear up for the inevitable change. Although the action on this front can already be seen in many proactive industries, the biggest area that should be targeted is the supply chain and logistics. The industry that is heavily dependent on this area can reap the benefits of the Goods and Services Tax  in a big way. The planning and action must start now, in order to avail the benefits at the time of the GST implementation.

The biggest advantage of GST will be that India will become one large market where the goods will move seamlessly across the state borders. The difference in VAT rates and the Octroi duty payable for state entry will all be done away with. To save on the CST a large number of industries have opened warehouses in every state and were moving goods there as a stock transfer. This is the time to take stock of the situation and decide the locations where the company warehouses need to be kept.

A 10 to 20 per cent reduction in the number of warehouses can mean huge savings for the company. Depending on the type of the industry it may translate to a 5 to 10 per cent reduction in the inventory cost alone. Then there will be savings in the warehouse rental/maintenance cost. With the smart city concept taking shape and the road network getting an impetus it would be the right time for the companies to strategize their warehouse locations and also reduce their numbers.

Another transport experiment that was in the limelight recently was by the use of waterways. In the coming times, the transport by sea route and railways will become a viable option in addition to the road highways. With the GST coming in, the sourcing supply chain will also need to be visited. With the seamless travel across the states in place, a source in Chennai may turn out to be a better alternative than a source in Jaipur for an industry in the National Capital region.

Since the strategically located warehouses may have to cater to a larger number of customers, their IT upgrade, inventory management and people training may have to be looked upon. The companies may also consider sending bigger container loads of material to the new strategic warehouses to save on logistic costs. The companies can hire consultants or work with their own experts, to work out the blueprint for their supply chain now, in order to benefit from the anticipated GST tax implementation in 2017.

Ecosystem workshop; connect startups with GST Tax

As the GST era is approaching, the government has started its preparations to help the country adapt to new policies.

The training and transition are two of the major concerns with GST regime. To overcome them and to help businesses adapt to new regime, the government has taken an initiative to link the start-ups to the GST platform from the very beginning. In order to assist start-ups connect their products as well as small and medium sized enterprises (SME) to GST, the Goods and Services Tax Network (GSTN) plans to organize an ecosystem workshop in Bengaluru this Friday.

The workshop will aim to help start-ups in connecting their Application Programming Interfaces (APIs) to the GST system. APIs are nothing but tools and protocols used for creating software applications. These generally specify how different software components should interact with each other.

Further, it will emphasize upon the need of building ecosystem around these APIs. The workshop will also educate software developers and service providers about the kind of data that will be made available to them post-GST implementation and how to manage the scale of it. The purpose is basically to make things easier for existing software users when GST comes into force.

These kinds of workshops will help a section of businesses to adapt to GST from the day one of its implementation. But how the government is planning to mitigate the transitional risk as well as training of its own staff? This is the question that still needs to be answered………Waiting for some more announcements and hoping for the best.

GST Implementation will have likely effect on the digital India economy

We in India are influenced by what is happening in the foreign world especially when it is the US, UK, Europe and Australia. The GST itself has its bearing in the UK, Europe and Australia and has been implemented there. We have been struggling with the GST implementation in India for a decade but the serious action has been there in the last two years.

In the beginning of 2015, the European Union extended its consumption tax to include broadcasting and electronic service providers based on the location of their customers. The digital downloads and services sold to European retail consumers are taxed at VAT rates of up to 27 per cent. Thus, the digital retail economy is a significant source of tax revenue there.

In Australia the local digital product and service providers have to charge the GST on retail sales. They were at a disadvantage as compared to the overseas suppliers who were not liable for taxation. In the 2015-16 budget the Australian government has extended the GST to offshore intangible supplies to Australian consumers. This will come into effect from July 2017.

Not to be left far behind the CBDT panel in India has recommended the imposition of 6 to 8 per cent tax on certain digital services. The private biggies like Amazon and Flipkart were a part of this panel which worked on the taxation of e-commerce. The panel has identified thirteen digital services for a levy of this tax which is being termed as an equalisation levy.

The services offered digitally like online collection of payments, website hosting, design and creation of websites, email, blogs, radio and television advertising may attract the equalization levy. In future, the online sale of goods and services that include software, movie and song downloads, books and games, and even online consumption of news may be brought under the ambit of this levy. At present, the B2B transactions may only be taxed and the individual consumers may be spared.

Before the GST is implemented in India the country seems to be following the footprints of the developed world in taxing the digital economy. These proposals will affect the entities like Google and Facebook but the start-ups that rely heavily on digital marketing will also be affected.

The government is pushing through for digital payments to bring the money under the taxman’s scanner. This will also limit the flow of black money in the system. All people are now eyeing the GST bill which is a critical requirement for the tax reforms in this direction. Today, a large number of taxpayers do not use the ERP based systems for their financial transactions. With the digitisation campaign, it is expected that the e-disconnected taxpayers will be brought online at the time of GST implementation.

The government in office has announced the digital India reform. Suitable measures are being planned along with RBI to usher India into a cashless or digital economy. There have to be incentives for online transactions and taxes for cash withdrawals and payments.

To summarize, on one hand the government is bringing more and more digital services under the tax net and on the other it is promoting the use of digital transactions to bring them under the tax scanner. The delay in the GST is only giving them more time to enforce the digital economy in order to reap the benefits when the GST is finally implemented.

GST Implementation: Moving One Step at a Time

Implementation of GST regime and ensuring a smooth transition from the current regime is indeed a mammoth task for the Indian government. Nonetheless, the government is leaving no stone unturned.

Instead of taking one giant leap and imposing everything at one go, the government is trying to take small steps towards their ultimate goal.
In an attempt to create a conducive environment for the acceptance and implementation of GST, the government today hinted towards increasing the threshold limit of Service Tax exemption from Rs. 10 lacs to Rs. 25 lacs.

This would not only mean less compliance for small businesses but would also help in bringing their cost of services down enabling them to compete and survive in today’s challenging environment.

The step as proposed to be taken will not only boost small businesses and enterprises but would also mean moving a step ahead towards GST implementation as the increase in exemption limit will be in accordance with GST.

The move will further help authorities to get adapted to the new tax regime. It will also give time to the concerned authorities to focus on big tax payers.

Apart from Service tax, CENVAT also needs to be considered. It is required that it also be aligned to the GST limits for smooth functioning but that seems difficult before GST is implemented.

GST is likely to end the tax exemption

GST is a welcome change: At present, there is a general consensus among the industry which is largely in support of the GST. However, it is mainly led by the manufacturing sector as they expect a reduction in the taxation. There are many others sectors that are benefiting because of simplification in inter-state taxation and subsuming of many tax variants. The taxes including CGST, SGST, and IGST will all be payable online and process will be simplified. Keeping all this in mind the industry is welcoming the GST and wants it implemented.

Firm stance on exemptions: The surprise factor that is coming out the industry wants to continue with the exemptions. They want that keep on getting the incentives in future also. The government is very clear in its stance, “You cannot have the cake and eat it too.” The GST implementation and the continuation of exemptions cannot go hand in hand. The exemptions are responsible for breaking the CENVAT chain. There is a tax tag on certain items which the next man in the chain has to absorb. Why should he be doing it? The government is bent upon bringing the maximum industry under the ambit of taxation and doing away with exemptions. They believe this to be the right path for the smooth implementation of GST.

Process simplification: The government is also trying to sort out the rules that are complex and result in litigations. Examples of this are the CENVAT Rule 6 and Rule 7 that accounted for around 11 per cent of the litigations. The government has revamped and simplified these rules. The impact of this would be around 1000 Crores but the government is willing to take it as the cost of litigation was higher than the revenue earned through it. The Central board of Excise and Customs is also working on withdrawing all old pending prosecutions also. The logic behind all this exercise is to make the system simple for the tax payer and reduce the interaction with the tax department.

The basis of the Goods and Services Tax is not only to simplify the tax mechanism but also to bring the maximum number of sectors under the tax net. Only the manufacturing sector contributes around 17 per cent to the country’s GDP of 110 lakh crore. A large part of the industry is out of the ambit of taxation and this includes the small scale industries, textiles, and edible oil etc. On top of it, comes the area based exemption that is costing the economy around one lakh crore.

Similar changes are being worked out in the Customs Act. These will allow for removal of goods directly from the port without going through a container freight station. Also, deferment of payment of customs duty is being permitted. The purpose behind the whole exercise is to simplify the entire process of complying with the tax laws while getting the maximum industry, trading companies and dealerships under the tax net. The government wants to bring in the GST with a wider tax base and limited or practically no exemptions.