NEW DELHI:Finance Minister Arun Jailtey-led Goods and Services Tax (GST) council, on Friday, again failed to reach out atconsensus on contentious dual control or cross empowerment issue that deals with assessee jurisdiction. The meet failing to find any common ground on the issue has raised serious concerns about GST’s April 1 implementation date while the Finance Minister said that he was trying his best.
“I am trying my best (on deadline of April 1). I don’t want to hasten the process of discussion and don’t want to delay the implementation,” Jaitley said at a press briefing after the 7th GST Council meet ended.
“There was no issue raised on dual control today as we were working on legislations,” Jaitley said.
The council, however, agreed to a revenue sharing formula for compensating states losing out on incomes out of several state taxes.
“Center Goods & Services Tax (CGST) and State Goods & Services Tax (SGST) will be a reflection of one another. States will be compensated 100 per cent loss for 5 years,” Jaitley said while announcing that the council has also approved Central GST and State draft laws.
Jaitley said that the two principle issues that still remain before the Council are Integrated GST (iGST) and cross empowerment.
“In iGST, definition of territory of states is pending. And the division of authority between assessing authorities of Centre and states is pending. The two issues will be taken up together at the next meeting on January 3-4,” he added.
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NEW DELHI: Demonetisation and uncertainty over the continuation of incentives for local production under goods and services tax are turning out to be a double whammy for smartphone makers, forcing them to slow down capacity expansion and pushing those considering fresh investment to the ringside.
The worry is primarily over the tax incentives that enticed them to build local capacities to make the maximum of the opportunities thrown up by the world’s fastest growing smartphone market.
Demonetisation was an unexpected and painful twist, but the companies expect the demand drought due to the current cash crunch to be temporary. Top Indian smartphone makers such as Lava, Intex and Micromax, which have moved a substantial portion of assembling capacities to India from China by investing hundreds of crores here, could be the worst hit if the duty differentials backing local production are discontinued under GST, said industry insiders.
“There is a stalling of investment in the mobile assembly space … players who were planning capacity expansion have stopped (proceeding with the plans), including us,” said Sunil Vachani, vice president of the Consumer Electronics and Appliances Manufacturers Association.
Vachani’s company, Noida-based Dixon Technologies, makes LED TVs, mobile phones and washing machines for brands such as Panasonic, Intex, Gionee, Godrej, Haier, Phillips and Anchor.
“The impact of demonetisation is temporary, but if differential duty is not there, there will be huge job losses, investments will go away and people who want to come for making components will also stay away,” he added.
Smartphone manufactures were among the first to respond to the government’s call for Make in India. The differential duty structure — tax on imported mobile devices is 11.5% more currently than that on locally made ones — created the bedrock for these companies to manufacture here. But there is no clarity now on how differential duty would be integrated with GST, the new all-encompassing indirect tax system which is expected to be rolled out in April.
The government has yet to give exact rate of tax on mobile phones under GST, like it has for white goods (28%) and cigarettes (40%). Manufacturers have approached the government seeking at least a 10% difference in duties under the GST structure to keep the investments flowing in.
International players that have set up factories in India, such as Foxconn, Flextronics and Salcomp, said investments were on, but according to company insiders, component suppliers that they were pursuing to come to India for creating a viable ecosystem were holding off their bets.
“Component makers in China that supply us are waiting for clarity on current developments,” said Sasikumar Gendham, managing director of Salcomp, the world’s largest maker of phone chargers with three plants in India. Hold-offs come at a time when the industry battles a sharp slowdown in demand, has been forced to cut production and benched or laid off employees due to demonetisation which forced people to put off discretionary spending.
Smartphone makers in India said they have no choice but to keep investing and expanding — albeit at a slower pace than before. They are telling suppliers to play the waiting game. “We may not meet our initial deadline of mid-2017 for the new plant but we’re not so worried because there isn’t that outlying massive demand to meet — for which the factory would be required — primarily due to demonetisation,” said a top executive at a leading Indian handset maker.
Industry experts said assembly of phones from imported semiknocked-down kits is the first stage that sets ground for higher value manufacturing in subsequent stages. But if incentives that created the basis of Make in India are removed, future progression will be equally deterred, they warned.
“If there is no assurance by the government that duty differential on mobile phones will be continued in the GST regime, there is a possibility of a serious setback to Make in India for mobile phones,” said Bipin Sapra, an indirect tax expert at EY. Any future investments potentially being planned by foreign players may also not come to India, he added.
An international contract manufacturer told ET that GST was its “primary concern”, which needed to be resolved on priority. Since introduction of the 11.5% duty differential between mobile phones made locally versus those imported, handset production in India nearly doubled to Rs 54,000 crore in 2015-16. Over the past 12 months, about 40 mobile phone manufacturing units have come up, which is set to raise local production by 75% to Rs 94,000 crore in 2016-17, the Indian Cellular Association has estimated.
In contrast, the high levels of import of mobile phones — the reason behind introducing Make in India — have come down by 4% last fiscal year to Rs 56,000 crore.
New Delhi: An impending delay in implementing the Goods and Services Tax (GST) reform from its earlier deadline of 1 April is unlikely to impact India’s hope for a better World Bank Doing Business ranking.
This is because while for most indicators, the deadline for implementing reforms is 31 May, for tax reforms, the deadline is 31 December, or seven months prior to the deadline for other reforms.
This would mean that the GST reforms, whether implemented in April or September, will be considered only in the Doing Business report, which will be released next year.
“It does not matter if the GST is delayed from April to September as we have time till end of December to implement it to get the benefit next year in the World Bank ranking,” a DIPP official said on condition of anonymity.
Doing Business records the taxes and mandatory contributions that a medium-size company must pay in a given year as well as the administrative burden of paying taxes and contributions and complying with post-filing procedures.
The World Bank included the “post-filing index” criteria for the first time last year under the “paying taxes” parameter. It measures what happens after a firm pays taxes, such as tax refunds, tax audits and administrative tax appeals.
India scored abysmally low on “post-filing index” criteria, scoring 4.27 out of a maximum score of 100. This has kept India’s “paying taxes” ranking unchanged at 172 among 190 countries, limiting its overall improvement in ranking to just one rank to 130 in this year’s ranking.
After the GST is implemented, the “post-filing index” for India is expected to significantly improve as instead of paying 14 indirect taxes, businesses will pay only a single tax with minimal scrutiny and quicker refunds.
“My target is to put GST drafts in Budget session of Parliament,” he said.
He further added that the government is making efforts to make the society more tax compliant. He said that the lower tax rate in Budget 2017 is so that more and more people are to be incentivised to pay taxes.
““If you leave 56 lakh salaried taxpayers, then only 20 lakh people declare their income and pay taxes voluntarily. Even for a non tax compliant society, State needs resources, and of course, resources would come from the affluent,” he said.”
Addressing a post-budget interactive session with industry associations at Vigyan Bhawan he said while the country has so many doctors, lawyers, consultants, business persons, many choose not pay taxes. Hence, they are looking to make the country into a more tax compliant nation as there is a need for resource for the State.
He further spoke about the decision to reduce the cash donations for political funding he said, “In past we tried to cleanse political funding by giving tax exemptions to both donor and political party if payment by cheque. But it has not worked.
“Our taxation approach is absolutely clear. Cap of Rs 3 lakh for cash transaction is to curb black money. We are hopeful that GST will make generation of black money itself difficult,” he said.
Jaitley further said that it is time to abolish Foreign Investment Promotion Board (FIPB). “We intend listing several public sector units (PSUs) to make their functioning more transparent. We have much higher target for disinvestment as insurance sector companies are also included,” he said.
“Our priorities are very clear- Agriculture, rural India, infrastructure, social sector. We are constrained by fiscal prudence, but we have not cut expenditure to maintain fiscal deficit,” he said
