Amidst the pressure of a declining trend in the Indirect tax revenue and the growing need for simplified GST compliance, the GST Council, headed by Finance Minister Arun Jaitley, held its 25th meeting on January 18, 2018. Considering the key discussion areas and recommendations, it is very clear that the government is positively considering the issues faced by trade and industry and various steps are being taken towards encouraging greater GST compliance with simplified law and processes, with an aim to improve fiscal revenue.
The key message is that the council is receptive to industry representations, as it recommended reduction of tax rates of 29 goods and 53 categories of services with effect from January 25, 2018. The key gainers being petroleum, education, reinsurance, healthcare and construction industries.
As part of rationalisation of exemptions for the transport sector, the GST Council has recommended to extend the exemption to transportation of goods to outside India by air / sea vessel with input tax credit. It was the need of the hour as the Indian logistics and shipping companies were losing business as international freight businesses were shifting out of India. Despite having the delivery destination outside India, freight payable on export consignment initiated from India were subjected to GST, leaving the Indian freight business less competitive; resulting in the shift of the international freight business outside India. However, it is surprising that this exemption has a sunset clause restricting it up to September 30, 2018. The exemption shall be permanent if we want international freight business to grow in India.
The GST Council has also recommended certain amendments in law to bring in clarity in interpretation. One of them being amendment in rules to clarify that ‘exempt supply’ to be considered for reversal of ITC shall not include the value of deposits, loans or advances on which interest or discount is earned. It is a fact that many corporates invest their surplus funds in financial instruments and the resulting interest earned is used to be significant part of revenue which is exempted from GST. Though companies do not require any tax paid inputs to do such investments, the input credit rules require the taxpayer to reverse the input credits in the ratio of the interest income to the total revenue. Hence, by redefining the “exempt supply” to exclude interest and discount, the government addressed this issue effectively. In a similar manner, the GST Council has also recommended to simplify time of taxation and valuation of transfer of TDS against constructed property, thereby giving time to the TDR transferor to deposit tax till construction is completed and property is handed over.
Another sector that was a key beneficiary of the recent recommendations was the healthcare sector. The recommendations include exemption to services provided by senior doctors hired by hospitals irrespective of their employment, treatment of retention money as healthcare service, and clarification that food supplied to in-patients shall be part of healthcare services. These exemptions/clarifications would put to rest the haunting long-pending litigations for hospitals and similar establishments and at the same time bring in clarity on past legal interpretations.
Further, recognising the technical glitches faced by the assessees while filing the GST returns, late filing fee for GSTR1, GSTR 5A and GSTR 6 have been reduced to ?50 per day. Also, to ensure tracking of goods movement and greater GST compliance, the nationwide E-Way Bill system for intra-state as well as interstate goods movement has been initiated on a trial basis from January 16, 2018.
In addition to the above, the industry had also sought the rolling back of some provisions of place of supply rules with respect to taxability of cross-border transactions wherein the samples or goods are made available for further work, testing or research or inspection purposes. Similarly, intervention was also requested in case of taxability intermediary services and relaxation in input tax credit availability etc. These negative provisions in the GST law are leading to export businesses to move out of India and hence need urgent attention. However, it appears that these discussion points were not taken up for discussion. The industry is hopeful that in the upcoming GST Council meetings similar representation areas shall be taken up for discussion in order to promote India as a favoured investment destination and reduce avenues for future litigations.