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Centre: Robust GST will help states give up compensation

The trend of robust goods and services tax (GST) revenue collection of 1.51 trillion a month on average in the June quarter brings states’ GST revenue receipts closer to the level of revenue protection they seek, according to the revenue secretary Tarun Bajaj.

The Centre gave states GST compensation for five years till 30 June to meet the gap between their actual revenue receipts and their assured revenue in the GST regime—a 14% annual growth in revenue over the base year of FY16. However, this revenue protection scheme has ended, and discussions in the GST Council on states’ demand for an extension remain inconclusive.

“Our average GST collection is 1.51 trillion. If somehow we reach 1.55-1.6 trillion, then the compound annual growth rate itself becomes close to 12% from the base year. This year, we are going to give a compensation of more than 1 trillion. About 87,000 crore has already been released this year. We will give around 20,000-30,000 crore more,” Bajaj said in an interview.

The average monthly GST collection of 1.51 trillion is an improvement of 37% over what was collected at the same time a year ago. GST collections in FY22 of 14.8 trillion is an improvement of over 30% from what was collected in FY21, a trend that gives the central government confidence that states will be able to manage without GST compensation.

Bajaj expressed confidence in meeting the revenue collection targets in FY23 in spite of the reduction in excise duty on petrol and diesel.

“We will meet the target. Yes, excise duty has been cut sharply. We are working on GST. This time, first-quarter GST collection has grown by 37%, and the average for the first quarter is 1.51 trillion,” Bajaj said, indicating a possible 25-30% annual improvement in GST collections in FY23. The government will also get some revenue from the cess imposed on crude oil and the export of petrol and diesel last week. The Centre’s direct tax receipts are also strong. Net direct tax collections have seen a 49% improvement in FY22 from the year-ago. Up to mid-June this fiscal, net direct tax collection rose 45% to 3.39 trillion from a year ago.

For the Centre, an improvement in tax revenue receipts will be a shot in the arm, as it helps compensate for tax cuts on auto fuel and any slippage in meeting disinvestment targets.

There are, however, uncertainties. “We keep our fingers crossed. The world economy should keep doing well, the Russia-Ukraine (conflict) should get sorted out, prices of commodities including petrol and diesel should come down,” Bajaj said.Last month, the Council decided to withdraw several tax exemptions and correct tax anomalies to improve efficiency in the GST system. The revenue secretary said the decision to withdraw the tax exemption on certain pre-packaged and labelled items and place them in the 5% slab was based on feedback from states that they had lost out on revenue collection when they shifted to the GST regime.

The Council’s decision was to prevent the abuse of the arbitrage offered by the tax exemption on unbranded items. Several entities used labels on their pre-packaged products to take advantage of the exemption available to the unbranded products.Bajaj explained that there was feedback that states were getting taxes in the value-added tax (VAT) regime on these items. Because there was an arbitrage between branded items and the rest in the GST regime, a lot of people who would otherwise have used brand names started using this route to avoid taxes. “Some states gave us revenue figures which they were getting under VAT regime. These were very large figures. It is not that these companies never paid taxes,” Bajaj said. The withdrawal of tax exemption will also prevent litigation in addition to simplifying the tax system, Bajaj said.


Five years on, GST still has a long way to go

While the GST landscape has matured, there’s room to make the tax system more tech-driven, equitable and simpler

 A single common GST for India, first given a go-ahead in 1999, finally became a reality on July 1, 2017, five years ago. The enacted legislation was a welcome step toward streamlining the indirect tax system, a mammoth task given the federal structure of the Indian government system.

The last five years of the GST have seen many policy changes along with procedural and technological overhauls, some of which have completely changed the face of the tax system.

E-invoice: The introduction of the e-invoice system in India on October 1, 2020 was an ambitious change, requiring the assessee to validate every tax invoice through the GST government portal before issuance. The government took a segmented approach toward the law, starting with companies having turnover above ₹500 crore.

Currently, all companies with a turnover above ₹20 crore are included, giving the law wide coverage. While initially the companies faced technology-related issues, the law has been accepted as a way of doing business in India.

E-way Bill: The government introduced the E-way Bill System on April 1, 2018, to track the movement of goods by the issuance of an electronically generated document. The concept of tracking of movement of goods by way of a document was not a new feature and the electronic generation of the same was seen as a positive development in the right direction.

The IT backbone for the generation of e-way bills, after certain teething issues, has been able to sustain and the country has seen a steady increase in the number of e-way bills.

Reconciliation of input tax credit with vendor GST filings: In October 2019, the government introduced the legislative requirement to electronically reconcile the input tax credit to be availed by an assessee with the electronically generated records of the GST compliance undertaken by the vendor for the same transaction.

While this requirement was brought to encourage timely compliance by vendors (with added impetus from the receivers of supply), the same has added to the compliance requirements of the assessee under the GST legislation.

Rate rationalisation: One of the fundamental tenets of the GST legislation is a simplified rate structure. The government has made steady efforts in the rationalisation of rates with the number of goods in the 28 per cent and 5 per cent brackets coming down significantly in the last five years. However, the presence of multiple tax rates defies the government’s objective of a simplified tax structure.

More streamlining needed

The GST landscape of India has matured significantly over the last five years due to the various legislative and technological changes brought about by the government. However, there are still some issues that require consideration and attention of the government:

Simplification and strengthening of the GST compliance system: The GST in India continues to be compliance heavy with multiple filing requirements and lengthy return formats. This has led to high compliance costs and efforts. The need of the hour is to have a streamlined and limited compliance requirement with ample scope for corrections/amendments to ensure that accurate disclosure can be made with little or no difficulty/time cost.

Further rate rationalisation: A uniform and simplified tax rate structure is a fundamental feature of any successful GST legislation. While the GST legislation has made some progress on this front, much work is required to achieve this goal.

Clarity on historical issues: While GST legislation was built on the service tax and value added tax frameworks, various historical issues like those about intermediary, real estate, etc., continue to persist even today.

The clarity about historical issues along with clear instructions to the tax authorities for resolution of the same would provide much-needed relief. Given that most of the issues date back to the erstwhile regime, the government may consider amnesty schemes under service tax and excise to provide an option to the assessees to close on the past litigations.

Constitution of the GST Appellate Tribunal: Even after five years of GST implementation, the GST Appellate Tribunal is yet to be constituted. This has led to piling of litigation, leading to high interest costs and GST refunds being stuck. Further, in the absence of an alternative remedy, High Courts are flooded with writ petitions. Immediate constitution of the GST Appellate Tribunal and a fast-track adjudication process may provide relief to the assessees and the judicial system.

Increased investment in technology: With technology touching all aspects of business, increased investment in technology for streamlining user interface and making it easier to use especially for small and medium enterprises may help keep Indian GST at par with the rest of the world and to fulfil the larger goal of ease of doing business.

The GST legislation has come a long way since 2017, inching towards the legislation envisaged in 1999, but there is a long way to go before we reach the ideal “one nation, one tax”.


GST Council Likely To Discuss Changes In Tax Rates On 14 Items, Ease Compliance

The GST Council, which is scheduled to meet next week in Chandigarh, is likely to discuss changes in tax rates on 14 items recommended by the Fitment Committee, according to a CNBC-TV18 report. The Council was earlier reported to have sought the views of states for increasing rates on 143 items, including handbags, perfumes/deodorants, chocolates, chewing gums, apparel & clothing accessories of leather, and walnuts, among others.

The Fitment Committee, which comprises revenue officials of both Centre and States, rejected rate change on 113 goods, deferred on two goods, and recommended rate change on 22 services, the report said.

The GST Council is likely to waive the requirement for filing refund claims by condoning the two-year period between March 1, 2020, and February 28, 2022, in view of the disruption caused by the COVID-19 pandemic, according to a report by CNBC-TV18 quoting sources. It might also permit tax authorities to file appeals against erroneous refunds by not considering the two-year COVID-19 period.

The Council is also likely to extend the timeline for filing GSTR 4 for FY22 without late fees by composition dealers to July 28 from the earlier deadline of June 30, 2022. It may also extend the due date of filing of FORM GST CMP-08 for composition taxpayers for the first quarter of FY23 from July 18 to July 30, 2022.

The fitment panel, which comprises officers from the Centre and states, has recommended a hike in GST rate on cut and polished diamonds to 1.5 per cent from 0.25 per cent, as the reduced rate on cut and polished diamonds was causing duty inversion, according to a livemint report. The final decision was left for the group of ministers (GoM) on the rate rationalisation to examine.

The fitment panel has also proposed reducing GST rates to 5 per cent from the current 12 per cent on ostomy appliances, according to the report.

The GST Council’s 47th meeting will be held during June 28-29 in Chandigarh. The Council-appointed group on ministers (GoM), headed by Karnataka Chief Minister Basavaraj Bommai, has already conducted its meeting to discuss various, including changes to tax slabs and rates. The GoM will submit its report before the GST Council meeting.

The GoM reportedly discussed issues like tax slabs and rates on Friday but was unable to reach a consensus. The report said the Group of Ministers will, however, present a status report to the GST Council on the consensus that was arrived at the previous meeting of the GoM on November 20, 2021. The panel, which was set up in September last year, last met in November 2021.

In a major ruling last month, the Supreme Court has said the GST Council is only a recommendatory body and its recommendations are not binding on the Centre or states. The court held that the recommendations of the GST Council will have a persuasive value. The Court also held that both Parliament and the state legislatures can equally legislate on the matters related to GST.

Currently, there are four GST slabs — 5 per cent, 12 per cent, 18 per cent, and 28 per cent. The 18 per cent slab has 480 items, from which about 70 per cent of the GST collections come. Apart from this, there is an exempt list of items like unbranded and unpacked food items that do not attract the levy.


GoM proposes removal of many GST exemptions

A group of ministers (GoM) reviewing goods and services tax (GST) rates has proposed removal of exemptions on a host of services, including for stay in relatively cheaper hotel rooms, hospital rooms above a tariff threshold and services provided by financial sector and food safety regulators.

In line with a mandate to raise the revenue neutral rate (RNR) from a little above 11% now, the group headed by Karnataka chief minister Basavaraj Bommai also proposed raising the GST rate on electronics waste steeply from 5% to 18%. Also, a rate hike is proposed for goods and services related to exploration of petroleum and coal-bed methane. These activities are now taxed at the lowest GST slab of 5%.

The GoM also proposed removal of exemptions for reinsurance of exempted insurance schemes such as weather-based crop insurance schemes and the GST Network services to the government. A few proposals aimed at correcting residual cases of inverted duty structures have also been made.

These changes are proposed even as the GoM is yet to firm up its views on GST slabs restructuring. An overhaul of the GST slabs – mainly four now, 5%, 12%, 18% and 28% – is expected to lead to a reduction in the number of slabs and an increase in the RNR.

The proposals will be considered by the GST Council, which comprises the Union finance minister and state finance ministers, as it meets in Chandigarh on June 28-29.

The slabs recast, however, is likely to get delayed in the wake of persistently high inflation. The restructuring with the objective of raising the RNR will inevitably lead to rate increases on a large number of goods and services and thereby stoke inflation.

The GoM, which met virtually on June 17, decided to seek more time from the GST Council to finalise its main report concerning restructuring of the GST slabs.

Sources said the GoM suggested levying GST at the rate of 12% on hotel accommodation below Rs 1,000, a move that would bring a large segment of the hotel industry under the GST purview. Currently, no GST is levied on hotel rooms with tariff below Rs 1,000, while the tax is 12% on rooms with tariffs between 1,001 and7,500, and 18% on more expensive rooms.

Similarly, while all hospital services are currently exempt from GST, the GoM has suggested a 5% levy without input tax credit on hospital rooms with a daily tariff of `5,000 or above. The move is in view of the fact that high-end hospitals are now providing premium accommodation to patients. However, ICU-related room tariff will continue to be exempt.

Another hospital services provided by cord blood banks may be covered under the tax net as well. The rate could be either under 5% or 12% bracket.

The exemption provided to business class travels from airports in the north-eastern states will end soon if the Council accepts the GoM proposal to cover it under the tax net. Currently, GST is levied at the rate of 12% on business travel by air in rest of the country.

The GoM also recommended that services provided by the Reserve Bank of India to banks and financial institutions, IRDAI to insurers and intermediaries and Sebi to companies be brought under the tax ambit. It also suggested withdrawing exemption on services provided by FSSAI to food business operators. While the rate at which these will be taxed is not yet clear, most services attract 18% GST now.

“While the progressive removal of exemptions under GST has been one of the stated objectives, it is essential to implement such removal of exemptions in a phased manner without having any adverse consequences on the impacted businesses, which are recovering from two years of business uncertainty and supply chain challenges,” MS Mani, partner, Deloitte India, said.

Retail inflation eased to 7.04% in May from a 95-month high of 7.79% in April. It still breached the upper band of the central bank’s medium-term target (2-6%) for a fifth straight month. The RBI is still widely expected to go for a third round of rate hike in August but the moderation in inflation substantially reduces the possibility of any out-of-cycle rate action in between.


SME owners say GST enabled uniform taxes but call for lower rates, easier compliance norms

The implementation of the goods and services tax (GST) in 2017 led to uniform tax rates across country but issues including the need for lower tax rates and easing compliance norms for tax filings need to be tackled to further strengthen the framework, small and medium (SME) business owners told Moneycontrol.

“Compliance framework for service providers is very complex requiring two returns to be filed every month in every state where they have operations despite all operations being under the same legal entity,” MS Mani, partner at Deloitte India, told Moneycontrol.

“Input tax credit depends on the vendor’s payment of GST over which the buyer has little control. Also, matching data on the GST portal with financial records is quite complex, especially for smaller businesses,” he added.

What owners say

Business owners say the rolling out of GST has enabled them to broaden their network of services.

Manoj Munot, owner of Shilpa Furniture, which has three outlets in Jalgaon, Maharashtra, says the tax problems he faced before the GST regime have reduced.

“GST is good for businesses, but the tax percentage charged for various items as per the HSN (Harmonized System of Nomenclature Code), that should be practical. It should not be intolerable, and rates should be reduced by 50 percent,” Munot said.

“I have been doing business for over 40 years. Earlier, my limitation was that I used to sell only in my district, but now I have no barrier as I can sell my goods online. I can do business anywhere due to uniform taxation, it provides more chances,” he added.

“If the tax rate is 18 percent, then throughout country it is 18 percent. If it is out of my state, then I have to mention 18 percent on my tax invoice. If it is within Maharashtra, I have to mention 9 percent tax to the state and central governments each. It is never like if I want to do business in Tamil Nadu, then I will be charged an extra 1 percent or 2 percent tax.”

However, goods classified as furniture attract a tax of 18 percent (the second highest GST slab), Munot said, adding that furniture must be considered an essential item.

Shailesh, a Mumbai-based small electrical parts wholesaler who goes by one name, says the GST system has computerised the processes, making it easier to file taxes.

“The process to file taxes is computerised so there is no challenge. The cost of items has not increased due to GST but due to inflation. As a business owner I have no problem with implementation of GST,” he said.

Anshu Tiwari Shukla, a Mumbai-based senior corporate law professional and GST consultant, says that the GST compliance systems have developed over time. “Earlier, applicability of GST was not easy for the government as well as for users. As a professional, I went through with so many difficulties at the initial stages of implementation like lengthy registration procedures and other problems in filing different tax returns,” Shukla said.

“Overall, GST has reduced the burden to file many other taxes, we just have to be up to date with filing. Yes, it will add up in monthly operational expenses but if you check annually, the cost for compliance will be less,” she added.

GST in numbers

Total GST revenue in May stood at Rs 1.40 lakh crore, up 44 percent on a year-on-year (y-o-y) basis, as per latest Union Finance Ministry data. Collections were Rs 1.40 lakh crore or more for the third consecutive month, reflecting increased tax coverage, it said.

Further, as per a Deloitte survey including feedback from 234 CXOs and CXO-1 level individuals, 90 percent of industry leaders view the transition to GST as largely positive.

A total of 59 percent business leaders said they were happy with the present GST regime while 31 percent had neutral views and 10 percent had a negative GST experience.

“As we complete half a decade since the implementation of GST, measures to unlock working capital blockage seems to be on top of the list of asks of leaders… GST continues to carry vestiges of the erstwhile regime in terms of credit restrictions… A majority of the leaders feel that removing restrictions of input tax credit will contribute to their sectors’ growth,” the survey said.


GST: Deadline To File Returns Under These Categories Ending Today

Goods and services tax (GST): Today (June 20) is the last day to file the monthly GSTR-3B return for May for taxpayers who are not under the QRMP (quarterly return filing and monthly payment) scheme, according to the Central Board of Indirect Taxes & Customs (CBIC). For non-resident GST taxpayers, June 20 is the last day for filing monthly GSTR-5 Return for the month of May.

“Attention GST Taxpayers who are not under QRMP Scheme! Today is the last day to File your monthly GSTR-3B Return for the month of May 2022,” the CBIC said in a tweet on Monday.

GSTR-3B is filed in a staggered manner between the 20th-24th day of the succeeding month.

” Attention Non-Resident GST Taxpayers! Today is the last day for filing the monthly GSTR-5 Return for the month of May 2022. Attention OIDAR Services Suppliers! Today is the last day for filing monthly GSTR-5A Return for the month of May 2022,” the CBIC said in other tweets.

GSTR-5 contains all business details for non-residents, (NR) including the details of sales & purchases. Information from GSTR-5 will flow into GSTR-2 for buyers. GSTR-5A is a return form to be filed by non-resident Online Information and Database Access or Retrieval (OIDAR) services provider for the services provided from a place outside India to a person in India to an unregistered person or non-taxable customers.

GST Collections in May hit an amount of Rs 1,40,885 crore, which was a 44 percent year-on-year jump. However, it was a drop of 16 percent as compared to the GST collections in April. The gross GST revenue collected in May 2022 was Rs 1,40,885 crore, of which CGST is Rs 25,036 crore, SGST is Rs 32,001 crore, IGST is Rs 73,345 crore (including Rs 37469 crore collected on import of goods) and cess is Rs 10,502 crore (including Rs 931 crore collected on import of goods).

The GST Council is scheduled to conduct its 47th meeting during June 28-29 in Chandigarh. The Council-appointed group on ministers (GoM), headed by Karnataka Chief Minister Basavaraj Bommai, has already conducted its meeting to discuss various, including changes to tax slabs and rates. The GoM will submit its report before the GST Council meeting.

During the 47th meeting, the GST Council, headed by Finance Minister Nirmala Sitharaman, is likely to discuss pruning the list of exempted items, plan to shift rate slabs, and proposal to correct inverted duty structure in textiles. It might discuss a proposal to shift rate slabs from the current five percent to seven or eight percent; and from 18 percent to 20 percent. The Council may also discuss the proposal to correct the inverted duty structure in textiles.

Currently, there are four GST slabs — 5 percent, 12 percent, 18 percent, and 28 percent. The 18 percent slab has 480 items, from which about 70 percent of the GST collections come. Apart from this, there is an exempt list of items like unbranded and unpacked food items that do not attract the levy.


Maharashtra: GST dept arrests construction firm director, looks for two others in Rs 50 crore ‘fraud’

The department is also looking for two other directors of the company, Ashok Mewani and Narendra Patel. The Metropolitan Magistrate Court has remanded Patel to judicial custody of 14 days.

The director of Jaatvedas Construction Company Private Limited, Hitesh Amrutlal Patel (42), was arrested by the Maharashtra Goods and Services Tax (GST) Department on Tuesday under a special operation carried out against tax-evading firms.

The department is also looking for two other directors of the company, Ashok Mewani and Narendra Patel. The Metropolitan Magistrate Court has remanded Patel to judicial custody of 14 days.

During an investigation against Jaatvedas Construction Company Private Limited, the GST department found that the firm has availed fake input tax credit of Rs 11.19 crore from bills, amounting to 50.88 crore in inward supply from various GSTIN of cancelled suppliers.


Rajasthan GST Officer Arrested For Allegedly Taking Bribe

A complaint was received alleging that CGST officer had threatened to register a case against a person and demanded a bribe of ₹ 10 lakh.

Call to extend GST compensation

Opposition-led states, including Bengal, Kerala and Chhattisgarh, have demanded that the Centre pays GST compensation beyond June and the issue could dominate the GST Council meeting likely to be held later this month.

The recent Supreme Court judgment that the recommendations of the GST Council are not binding on the Centre and states and that the council as a body holds only persuasive values could result in states imposing taxes to meet the revenue demand.

Finance ministry officials said Rajasthan, Tamil Nadu, Chhattisgarh, Kerala, Bengal and Delhi have demanded an extension of the compensation for another five-year period as the states have not bounced back from the Covid-19 impact on the economy.

Amit Mitra, principal chief adviser to the chief minister and the finance department of the Bengal government, in a letter to Union finance minister Nirmala Sitharaman sought the continuation of the GST to the states for the next 3 to 5 years beyond June.

Mitra said the unforeseen battle against the pandemic has put the fiscal health of the states under huge stress. “On top of that, the massive inflationary pressures have severely aggravated and impaired the economies of states which today are struggling with massive fiscal burdens. The GDP has not yet reached the pre-pandemic level and is not likely to reach a desirable trajectory any time soon,” the letter said.

Speaking to The Telegraph, Mitra later explained that states have not reached the projected revenue generation which formed the basis of the compensation formula. In comparison to assumed 14 per cent revenue growth on the base year of 2015-16, the states have barely crossed 6-7 per cent, he argued.

Mitra said there are “ominous” signs that the Centre may not extend compensation. The Modi government, which usually lags in clearing compensation, has paid the entire dues as on May 31. “When the state and the Centre agreed to the formula, nobody could foresee the pandemic which is into its third year. Covid has put huge fiscal stress on states,” he said.

Seeking an extension of the compensation beyond June, K.N. Balagopal, finance minister of Kerala, told The Telegraph: “The GST law from inception itself is against the interest of federalism. Since the GST regime came into being, the Centre had been arbitrarily imposing its decisions on the states, affecting their revenue and forcing them to impose treasury restrictions.”

He said the recent apex court order has “upheld the freedom of the states in taxation which was important. It would pave the way for states to protect their rights.”

Chhattisgarh GST council member T.S. Singh Deo said several questions like sharing of revenue by the Centre, issues of producing states, continued encroachment of fiscal power of the states by the Centre among others would come under scrutiny.

While the Centre has stated that beyond June, the cess collected till March 2026 would be used to pay back the principal and interest for the borrowed sum, the states are expected to put pressure on compensation extension as revenue collection has been below expectations.

States had accepted to be part of the GST on the assurance that being given full compensation for the first five years of introduction of GST on the assumed revenue growth rate of 14% over the base year of 2015-16. And, any shortfall needs to be compensated by Cess.

States are demanding that the Centre continue to compensate them as the revenue buoyancy has not been as promised and the Covid-19 had a huge impact on revenue collection.

The SGST growth was at an average of 6.7 per cent during FY18-21, which is lower than the 9.8 per cent growth recorded by the taxes subsumed under GST during FY14-17, a report said.

“The share of state GST (SGST) in their own tax revenue (SOTR) during FY18-FY21 stood at 55.4 per cent, compared with 55.2 per cent during FY14-FY17 indicates that the growth in both SGST and non-SGST components of SOTR has been broadly similar. This means the GST implementation did not result in any incremental benefit to the SOTR,” India Ratings and Research said in the report.

Emphasising the need for the extension of the compensation as the tax buoyancy has not been as promised before the implementation of the GST,


Gujarat GST raids: Over Rs 11-crore tax evasion detected at hotels, resorts near Gir National Park

The Gujarat Goods and Services Tax (SGST) department conducted searches on hotels, resorts and booking agents operating in and around Sasan-Gir National Park and found tax evasion to the tune of Rs 11.97 crore.

The teams from the department searched 25 locations, including 17 hotels and resorts and offices of two booking agents in Ahmedabad. The hotels and resorts in Sasan-Gir were found to have recorded lower room tariffs, unaccounted services provided and paid tax under low slabs, said an official statement from the department Saturday.

The officers have asked the erring hotels and resorts to pay Rs 3.04 crore, which included pending tax and penalties. The department has already recovered Rs 2.14 crore, the release said.