Tax Experts react to GST Council announcements on June 3
The GST Council on Saturday, i.e. June 3, announced the GST rates for 26 Chapters with a new 3% tax rate for gold & precious stones and jewellery thereof. Significant progress was also made with finalization of Returns Rules & formats, as well as Transition Rules, thus reiterating the rollout from July 1. A Committee to entertain complaints relating to anti-profiteering would also be set up, consisting of Central & State officers. The Council would meet next on June 11, to deliberate on the pending GST Rules such as Accounts & Records, e-Way Bills, Advance Ruling, Assessment & Audit.
Anti-profiteering as a concept is a bad idea given the fact that prices are always dictated by the market.
What was subject to excise duty of 12.5% and VAT of 14.5% (28% after cascade) have moved to 28%. Goods that attracted 6% excise duty and 5% VAT (11.3% after cascade) have moved to 12%. It is true that some products have moved to 18%.
If one particular company gets benefits in terms of tax rates on account of GST, the supply chain would seek necessary price correction and the competition would ensure that the prices are corrected. Creating a Committee for compliance would only open the flood gates since random complaints would pour from all parts of the country. These complaints would be based on the GST literature and the GST publicity campaign available in the country which seem to indicate lower rates and single tax whereas the reality is different.
Business reforms would take time to set in and one cannot expect huge cost reduction based on restructuring of business. Any benefits on account of credits on inter-State purchases as against current CST as a cost would be offset by the interest costs on additional working capital due to higher inter-State purchase rates; taxes on advances; taxes on job work; taxes under reverse charge mechanism; technology costs; and compliance costs. Ideally, the Government should not even notify Section 171 at this point of time or specify the Competition Commission as the authority for implementation of Section 171.
GST Council meeting concluded today with reinforcement of implementation of the reformative indirect tax regime from July 1, 2017. Significant progress made with key GST rules on transition and returns being finalized, along with return formats. Although formats require detailed analysis for determining overall impact, it appears that these have been simplified to ease compliances for taxpayers. Final rates would be notified under the statute subsequently, but fitment of goods under GST tax slabs were announced across items like textile, garments, footwear, gold, packaged food items etc. It has been confirmed that a committee would be set-up for monitoring the anti-profiteering element, detailed rules on these aspects may also emerge later.
With assurance from state finance ministers and the GSTN on the readiness of implementing GST ready from July 1, onus now lies on the industry to prepare. Adequate information is now available in the public domain vis-à-vis return formats and rules, thus it is critical for the industry to gear up their IT systems for meeting reporting requirements for filing returns on the GSTN portal. Although there is no update regarding increase of deemed credit from 40 percent, planning business transition to GST with the help of transition rules should now be on the agenda for all businesses.
Stage now seems set for July 1 rollout as Government doesn't seem to be blinking amidst demand of deferment by couple of months.
On rates, largely the principle of equivalence vis a vis current rates has been followed. However, there seems to be a disconnect between the calculations of current effective taxes done by the industry and the government, particularly on sectors like biscuits and footwear. It is important that the government relooks at this in the next meeting scheduled on June11th.
Biscuit industry would have expected some differentiation between lower price point products and higher, in line with apparels and footwear but it finds itself at 18% category in entirely.
Increase in deemed credit to 60% for products in GST slab of 18% and more comes as a major relief to the industry and neutralises the loss on transition stock to a large extent. Also, allowing 100% credit in case of high value items (above Rs 25,000) based on tracking of the product, even without actual excise duty paying document could be a major relief to sectors such as consumer electronics, durables and automobile. The disruption in the trade, therefore, would be minimised.
A clarification that solar panel and modules would be taxed at 5% is also a welcome move and shows that Government is listening to the industry voices.
The GST Council appeared to take a more structured view towards the contentious issue of GST rate for textiles, gold, biscuits and footwear. While the industry was fearing a layered classification ridden rate structure, the Council prudently charged 18% on all forms of biscuits, irrespective of value/ brand nexus. However, they were constrained to maintain a value nexus (while removing brand) as the determinant factor for imposing GST on readymade garments and footwear. However, the best news is the reduced rate of 3% GST on gold! Overall, the decisions taken in the current GST Council meeting was more balanced than in the previous meeting where the broader rate structure was determined. The concession allowing 60% transition credits for items that are proposed to be taxed at rates higher than 18% is an additional and much welcome relief
Formation of a Committee to address anti-profiteering issues is a welcome step because it will ensure curbing of inflationary pressure in relevant situations and the businesses will have greater sense of responsibility towards price reduction. The certainty on the date of implementation is a big relief and even the MSMEs can start the preparation in this month. The finalisation of the rates for the remaining products today ends a lot of remaining uncertainty over certain important sectors. The government has scientifically fixed rate in all such cases and have ensured to include most of the products in the value chain. Lastly, the increased credits for goods attracting rates above 18% will be beneficial as few of the assessees would not shy away from procurements even in the month of June. Overall, a very positive development for every stakeholder.
The formats of return have been changed significantly. Taxpayers will have to review all the revised requirements in detail to make sure that no new data elements are required (as compared to the older formats). This will mean that taxpayers will need a longer lead time to get ready for compliances. With the go live date continuing to be 1 July, taxpayers will have to work overtime to deliver this revised expectation.
The Revenue Secretary has stated that accounts and record rules and e-way bill rules to be taken up in the next GST Council meet on June 11. With the go live date still being July 1, the industry will have very limited time to gear up and be ready with these requirements.
Clarity still awaited on the treatment of deemed exports and the refund procedure for supplies from excise free zones. The industry is keenly awaiting guidance and rules around the same
Anti – Profiteering Clause:
“The Finance Ministry made a limited statement that the GST Council will set up a committee to look into complaints regarding anti-profiteering clause. Thus clarity on how anti-profiteering provisions would be implemented at the ground level still remains elusive in the absence of detailed rules on the subject. "
Transactional Stocks:
The relief on transitional stocks is welcome. Though it may not completely address the concerns of the industry on account of loss that they would suffer on the transitional stocks, the quantum of loss would be reduced.
The rate structure for some critical left out goods has been announced today by the GST Council. The Government has also finalised the two pending Rules viz. the Return Rules and the transition provisions. Today's discussion did also found mention of the anti-profiteering committee and addressing complaints raised on not passing of GST benefits.
Substantial modifications have been made to the Return formats. While some simplification has been brought, however, industry need to again gear up to the revised format, a task to be achieved in 27 days. Critical is data enablement in the IT system changes and hopefully the fine print reading would not give surprises at this end. The GSTN will have to issue revised API's and hopefully the ASP's will gear up before the Return filing date. Interestingly, the credit mismatch report format issued mentions September with a filing period of 20th October indicating an extended time period either for return filing or invoice wise matching report requirement. If that be true, this would certainly relieve some pressure.
Another positive development is the transitional provisions offering further relief on the inventory lying at the cut off date. An interesting aspect of the transition rules is the transfer of credit by a credit transfer note. The fine print is awaited and the goods for which, and the conditions subject to which credit would be allowed would need to be analysed.
A committee will be constituted for anti-profiteering however there is still no clarity on the rules around it. There seems to be some gap on the industry understanding of the rate fitment and that of the Government and it would be relevant to see whether it would become a point of contention post GST.
July 1 date now seems inevitable. Not everybody and everything will get ready by the said date, and there is a broad understanding that the preparation will be in tranches. Let the invoice printing atleast happen on July 1.
