GST Newsletter. Corporate India Advisors LLP 29 th May 2015

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1 Corporate India Advisors LLP 29 th May 2015 GST Newsletter The Constitution Amendment Bill has been passed in the Lok Sabha and presently lying with the select committee of Rajya Sabha. We may expect it to be passed in July session of Parliament. The discussions and developments on the Bill as well as other aspects of proposed GST regime, during the month of May 2015, have been captured in this newsletter. Lok Sabha passed Bill on 6 th May The Bill sent to Rajya Sabha select committee Government looking at passing the Bill in July The Lok Sabha on 6 th May, 2015, passed the Constitution Amendment Bill to empower the Centre and the states to levy and collect GST. The Bill, on 11 th May, 2015, sent to a select committee of the Rajya Sabha. The committee will table its report in the upper house on the last day of the first week of next parliament session. The 21-member committee is headed by Bhupender Yadav of the Bharatiya Janata Party (BJP). The select committee is scheduled to submit its report to the Rajya Sabha on the first week of the monsoon likely to begin sometime in July. The constitutional amendment after July will then have to go to states immediately because more than 50% of states have to ratify, and parallely the IT backbone has to be ready. The FM said that the next challenge is that we simultaneously have to keep the three other bills in readiness but those bills have to be approved and the only timeline we have for those bills is either monsoon session or winter session. The three Bill are Central GST Bill (CGST), State GST (SGST), and Integrated GST (IGST). FM bullish about rollout of GST from April next year GST Rate FM is still optimistic that GST will not miss the deadline of April 1, 2016 despite legislative process pushed back for at least two months. I am still hopeful, in fact very hopeful that we will be able to achieve, he said. The GST rate will be "much more diluted" than the speculated 27 percent and the final rate will be worked out by the GST Council, FM said. He clarified to the House that the number was not given by the government or the GST Council but by a particular organisation in its own internal assessment. Revenue Secretary, Shaktikanta Das has also assured India Inc that the GST rate that will be finally imposed on industry will be 'moderate.'

2 Page Page 2 2 GST Newsletter Report of sub-group on IGST EC Consensus on imports, registration and IT network The sub-group on IGST has suggested that the Centre will levy the inter-state tax and give it to the states while the extra 1% levy will be collected by the states themselves through the common IT platform. Similarly, on the dual control, the report says that the taxable limit for both goods and services would be Rs 25 lakh while the threshold for the states would be below Rs 1.5 crore and that for the Centre would be Rs 1.5 crore and above. The EC considered the report of Joint Committee on Business Process Covering -- Registration, Returns and Refund and approved the report on registration. On returns and refund, the EC requested the Joint Committee to review the reports after taking the suggestions from state finance ministers. On imports, GST EC Chairman K M Mani said that - "We have considered the Report of the Committee on innovative way of handling Inter State Transactions and GST on Imports. After detailed deliberations, we have approved the report and the recommendations made by the committee". On IT platform, he said, "We are confident that the required IT platform will be ready by the time GST is introduced. This is the most crucial work." There is also an agreement to share the cost of GSTN by the states and Centre on 50 per cent basis. The modalities of payment by the states are to be decided by the sub-committee proposed to be constituted for this purpose. Andhra Pradesh apprehensive of present form of the Bill Andhra Pradesh Finance Minister Yanamala Ramakrishnudu is of the view that the Constitutional Amendment Bill for introduction of Goods and Services Tax may go against the spirit of fiscal federalism if passed in the present form by Parliament. He demanded that the State governments should be empowered to administer the GST Tax on inter-state trade and commerce levied under Integrated GST (IGST). He said that the proposed amendment Bill would empower the Centre to levy tax on tobacco and tobacco products in addition to the GST. However, the same power was denied to the States and it would result in substantial revenue loss to the States. Similarly subsuming advertisement tax, betting and gambling tax would have adverse impact on revenues of local bodies. Uttar Pradesh seeks more powers for states in new GST council The Uttar Pradesh government has sought reduced powers for the Centre and more powers to states in the proposed goods and services tax (GST) council, which will recommend tax rates, exemptions lists and threshold limits among other functions. The state government wrote to finance minister seeking the reduction of the Centre s powers in terms of weightage in the decision-making.

3 Page 3 Page 3 Indirect Tax Newsletter The Centre, however, is not in favour of accepting the above view. They say that - Their suggestion makes the entire exercise of the council a one-sided process while as per the Centre s formula it is neutral. The Centre will not accept the suggestion. The council will be chaired by finance minister and will have the Union minister of state in charge of revenue or finance as member, along with the finance ministers or any other minister nominated by each state. No GST in Kashmir 370 has its fringe benefits New GST regime divides Jammu, Valley traders The Jammu and Kashmir government, in which BJP is a partner, indicated that it may not implement the GST regime being pushed by the central NDA government, saying it will compromise the state s special position. Jammu and Kashmir is unlikely to implement GST regime as it compromises its special position. J&K is the only state that has the authority to legislate on all taxes and this will go with the new GST regime, state s Finance Minister Haseeb Drabu said. The GST issue has exposed a deep regional divide between the business communities in the Jammu region and the Kashmir valley. Trade bodies in both regions are on opposite sides over the issue. President, Kashmir Chamber of Commerce and Industry, Sheikh Ashiq said - We will oppose the Bill at any cost. Our priority is to safeguard special status of Jammu and Kashmir. GST will erode financial autonomy of the state. We have made our stand on the issue clear to the government a number of times. Jammu CCI president Rakesh Gupta expressed surprise over the stand of the PDP-BJP government in the state. He said the new tax regime would do away with archaic taxes and turn out to be good for expansion of trade and industry. We do not believe in any special status if it hurts business. The economy of Jammu and Kashmir is already deeply integrated with the rest of India. The GST regime is good for the state and should be implemented. It will reduce prices of goods and services in the long run and improve the efficiency of services, he said. FMCG Companies unhappy with GST in current form While extending kudos for Goods and Services Tax (GST), some consumerrelated companies have raised concerns over its current format and possible repercussions on various consumer businesses. Their key concern pertains to Clause 18 of the Bill that proposes to impose an additional tax of 1% over the GST rate for supply of goods in the course of inter-state trade/commerce, and stock transfers. Industry is of the view that it's a point that worries companies and clearly reduces the objective/efficiency of GST and needs to be addressed. Another area of concern is the GST rate of around 27%, which could be inflationary when

4 Page 4 Page 4 implemented next year, though the FM has said that this is a very high rate and actual rate would be much diluted. Logistics Industry on GST Even as logistics players are looking forward to the execution of goods and services tax (GST) at the earliest, they feel some gaps need to be filled before it is rolled out nationwide. Due to GST, change in the logistics need would be in terms of the number and size of warehouses. From the current system of having at least one warehouse in each State, the companies may be looking for lesser number of warehouses say warehouses across India. As cargo gets consolidated, there will be a spurt in demand not just for bigger warehouses but also for bigger trucks. There will be more demand for tonne commercial vehicles, instead of 9-10 tonne trucks. In fact, as cargo consolidation happens, there is likely to be an inter-modal shift to rail and ships. There can be other challenges in the transition to GST, which could take about two-three years, before the lower costs trickle down to customers. Further, when goods are moved by road inter and intra-state, a large number of transporters are common carriers or service providers. These will have to be registered as common carriers under the Carriage by Road Act, 2007, similar to the TIN number for traders. The challenge for the industry is to restructure its operations and also changes in the compliance administration to align with the GST scenario. As people wait for clarity about the time frame and exact nature of GST, they might face issues in the short run, when they transition their IT and ERP (enterprise resource planning) systems as per the new format. Most companies do not have as-is-where-is processes. They will have to change their sourcing patterns. Film Industry and GST Several leading film personalities met the I&B Minister to discuss issues related to the film industry such as taxation and certification of movies. In the meeting matters related to entertainment tax and service tax were also mentioned. Sources said the government took note of the concerns of the film industry and mentioned that attempts were on to bring a Goods and Service Tax (GST) based system.

5 Page Page 5 GST Indirect Newsletter Tax Newsletter Corporate India Advisors LLP MUMBAI Sanjay Lunia Sanjay@cia-llp.com Phone: DELHI RohiniAggarawal rohini@cia-llp.com Pankaj Goel pankaj@cia-llp.com Phone: About CIA CIA is an indirect tax specialist firm. CIA is run by eminent professionals having a niche experience in all realms of indirect taxes in leading multinational consulting firms. The services comprises of Service tax, Central Excise, Foreign Trade Policy, Customs, Value Added Tax, Central Sales Tax, Anti-dumping / Subsidy Measures and Goods and Services Tax. CIA has Wide spectrum of network on PAN India basis and provides best value for money proposition. CIA leverages upon its strong knowledge base, research and professionals with distinguished background For Private Circulation Only CIA does not assume any responsibility for the information given under the document. While every effort has made to avoid errors or omissions in this publication, it is suggested that to avoid any doubt the reader should cross-check all the facts, law and contents of the publication with original Government publication or notification or judgment. CIA neither accepts nor assumes any responsibility or liability for any act undertaken by any reader of this publication in whatsoever manner.