Centre will compensate loss of Rs. 2,600 crore per annum for 5 years
Levy 5% GST on budget hotels, say stakeholders
PANAJI: Small-hotel owners called on chief minister Manohar Parrikar on Thursday urging him to ensure that a low tax rate of 5% was levied on budget hotels under Goods & Services Tax (GST) instead of the 18% that is likely to be levied on the service sector.
The hoteliers, backed by the Federation of Indian Chambers of Commerce and Industry (FICCI), said that a low tax rate would ensure that the tax burden was not passed on to the customer.According to industry stakeholders, budget category hotels, which charge a tariff of less than Rs 2,000 per room night comprise 80% of Goa’s hotel market.
“We want to be a part of one-nation-one-tax regime. We just don’t want it to happen at the cost of our business – there is no way the budget hotel industry will be able to sustain a high GST slab,” said Randhir Thakur, proprietor of Sodder’s Renton Manor.
The Union government has invited representations to hear concerns and feedback from the industry ahead of a critical discussion on GST during the third week of May.
Hoteliers stated that low tax rates will significantly increase foreign and domestic travel in India and that budget hotels are a source of gainful employment for thousands of people.
Series of lessons on GST for twin city traders
Noida: With the Goods and Services Tax (GST) regime set to roll out from July 1, the Federation of Trade, Industrial and Jewellers Association (FTIJA), Gautam Budh Nagar, an umbrella body of traders and jewellers in the twin cities, will start a series of workshops for traders and market owners across Noida and Greater Noida this week.
Titled, ‘GST Ki Pathshala’, the series aims to educate traders and market owners about the benefits of GST and the adjustments that they will have to make during the introduction of GST. The workshop is also designed to address the concerns of traders from at least 50 markets across Noida and Greater Noida.
“The GST regime is set to usher in smoother transactions. In these workshops, we will explain how businessmen of different categories are going to benefit from GST. Small set-ups with a turnover of less than Rs 20 lakh are exempted from GST; but those who fall under its regime should know the subtle details of utilising various benefits and concessions in the regime,” Sushil Kumar Jain, chairman, FTIJA, said.
Jain said the traders could significantly increase their profitability by implementing the GST norms in their business. “The mid-level businessmen are yet to understand the practical consequences of the GST implementation,” Jain said.
What to Expect When GST Rates Are Announced
While details have not been announced, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
The Goods and Services Tax (GST) will be levied at several rates ranging from 0 to 28 percent. GST Council has finalised a four-tier GST tax structure of 5 percent, 12 percent, 18 percent and 28 percent, with lower rates for essential items and the highest for luxury and ‘demerit’ goods that would also attract an additional cess.
Service tax will go up from 15 percent to 18 percent.
While details have not been announced, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
The lowest rate of 5 percent would be for common-use items – usually items of mass consumption.
There would be two standard rates of 12 percent and 18 percent into which the bulk of goods and services would fall. Most commonly used items as well as household items would fall under these two categories.
The highest tax slab will be applicable to ultra-luxuries, demerit and sin goods (like tobacco and aerated drinks). The demerit goods will attract a cess for a period of five years on top of the 28 per cent GST.
The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat Cess and Krishi Kalyan Cess and the Education Cess. Only the Clean Environment Cess is being retained.
The collection from the GST cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.
The principle for determining the rate on each item will be to levy and collect the GST at the rate slab closest to the current tax incidence on it.
In addition to compensating the origin states for any loss in revenue that may incur on account of the introduction of GST, it is proposed to levy a 1 percent additional tax on the interstate sale of goods for a period of two years (or such other period as may be recommended by the GST Council). This levy is not in line with the objectives the GST regime seeks to achieve, i.e. fungibility of input credits and removal of tax cascading.
Commodities to not fall under GST
Alcohol for human consumption will not fall under the purview of GST in India at present.
Petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel etc. will not attract GST.
Electricity has also been kept aside from the purview of GST at present.
The Central-GST and Integrated-GST Bills passed by the Lok Sabha extend to the whole of India, except J&K. Article 370 of the Constitution grants special autonomous status to J&K and Parliament has power to make laws only on defence, external affairs and communication related matters of the state. The J&K Assembly will have to pass a legislation saying the two laws are applicable to the state.
Will GST lead to profiteering?
The GST law contains an anti-profiteering clause that mandates that a manufacturer and others in the supply chain have to pass on the benefits arising out of input credit and lower taxes to consumers or face penalty.
An anti-profiteering authority in a GST regime is not unique to India (Australia and Malaysia also have it) but clarity on the calculation, time-frame, penalties, etc. is awaited. Officials have clarified that this will be a transitional mechanism that will be required in certain sectors, which can tend to be oligopolistic.
How will tax holidays be treated under GST?
GST does not have any provisions for tax exemptions and the central government and individual states will have to reimburse the exemption amounts under extant excise and VAT exemption schemes.
How will goods move under GST?
Under GST, e‐way bills will need to be issued before goods are dispatched. It would be important to carry e‐way bills for the goods in transit as an authorised officer could intercept the conveyance/trucks to verify e‐way bills. This will ensure that unaccounted/non-tax paid goods are disallowed and restricted from moving easily.
As the name suggests, an e-way bill is an online bill that will be used for inter-State supply of goods under GST. It will provide details of the consignor and the consignee as well as the origin and the destination of the cargo. Eventually, to eliminate the physical checks, the Ministry has suggested using the ‘Vahan” and vehicle registration number databases as well as RFID tags to establish the identity of the vehicles.
What is the treatment of pre-GST goods?
The draft GST rules has clarified that as a part of transitional provisions, full VAT credit balance will automatically become part of the opening balance availed under GST. Further, for goods lying at warehouses on which excise duty is paid, excise duty so paid would become part of the opening GST balance. However, if the excise value is not ascertainable then 40 percent of CGST otherwise payable on goods will be considered for the purpose of opening the GST balance.
How will GST be levied on services?
There is still ambiguity about some areas like GST on services as consumption of services can be at a different location. An individual from Maharashtra can always avail of banking services in Delhi. Over time, we hope to clarify such finer points as well.
GST to help drive new-age warehouses for India Inc’s ambitions
MUMBAI: New-age warehousing and logistics in India would be midwifed by the Goods and Services Tax (GST), which also aims to transform the South Asian nation into an integrated market for the first time since Independence.
Small and often ill-equipped storage space in the country would now give way to neatly stacked, air conditioned warehouses, with higher levels of automation, as India ushers in the biggest tax reforms since 1947. And driving the change in India’s supply chain landscape are the consumer goods companies, such as Hindustan Unilever, Glaxo Smithkine, and Johnson & Johnson.
These companies are now putting out tenders for consolidating their supply chain operations into bigger warehouses. The new facilities will now cover about 450,000-500,000 square feet of space, almost five times the biggest warehouses in India right now. Logistics majors such as DHL, Allcargo and Mahindra Logistics are leasing bigger logistics spaces, while real estate developers such as Everstone Group’s IndoSpace are investing billions in building bigger storage facilities.
Big Investments, Bigger Facilities
The Indian supply chain arm of the Deutsche Post DHL Group, the world’s largest logistics company, is investing EUR150 million in more than doubling its warehousing space in the country to 7 million square feet. IndoSpace, India’s top builder of such facilities, is investing $1 billion to set up 30 million square feet of warehousing space in the country. IndoSpace is a venture of the Everstone Group and Realterm Global. Mahindra Logistics is leasing 1 million square feet of warehousing space: Avvashya CCI Logistics, the joint venture of the group that owns Allcargo with CCI Logistics, is almost doubling warehousing space to 5.5 million square feet in the next few years.
“There is a major spell of consolidation in the warehousing segment right now,” Pirojshaw Sarkari, CEO of Mahindra Logistics told ET in a recent interview.
“Historically, all warehousing was based on tax laws. That meant that in nearly every state, a company needed to have a warehouse, which was more of a godown. Otherwise it would have to pay central sales tax and state sales tax. Post GST, with a uniform tax structure, large-format modern warehousing will come up in a big way. And they will be closer to consumption centres,” he added.
The historic tax overhaul announced by the Narendra Modi government last year seeks to replace at least seven indirect tax heads including countervailing duty, special additional duty of customs, excise duty, service tax, central sales tax, value added tax, octroi and state cesses with one tax on goods and services.
One Nation, One Tax
Under the new tax regime, a centre and state GST will be levied on a common base of goods and services and an intergrated GST will be levied on inter-state transactions. It seeks to obliterate the multiplicity of taxes, mitigate cascading tax impact, do away with multiple check-posts thus ensuring smoother transportation, make for seamless credits and rationalize the warehousing structure in the country, while improving cargo transportation standards.
FMCG companies are taking the lead on the warehousing side. Mahindra Logistics recently won a bid to manage a 250,000 square feet of warehousing space at Vapi, Gujarat, for Hindustan Unilever, said Sarkari. GSK and Johnson & Johnson have put out tenders to consolidate warehousing functions, he added.
A spokesperson of Hindustan Unilever said it had “no specific comment to offer”. Emails sent to GSK and Johnson & Johnson remained unanswered when the report was sent for publication.
“The consolidation will incentivize the holding of inventory at select locations,” said V Balaji, CEO contract logistics at Avvashya CCI Logistics. The exercise will potentially lead to a 15%-18% savings in logistics costs for a company, he said.
Balaji said FMCG companies currently have more than 60 warehousing facilities scattered across the country. Those will be clubbed to 12-16. Avvashya CCI currently has 23 warehouses in the country. That number will remain the same even though the space will increase two-fold.
Beyond Consumer Goods
Companies from other sectors are getting into it too. Vodafone, for instance, clubbed its entire warehousing functions of seven different circles in the western region to one mother warehouse in Pune, said Sarkari, whose company got the contract. In Vodafone’s case, the scope of the project also included redesigning the warehousing structure, which meant Mahindra and consultant Ernst & Young also had to map a whole new hub and spoke warehouse network, he added. Vodafone India didn’t respond to emailed queries.
Property developers were the earliest to sense the change in trend.
“As a company, we have always focused on a post-GST scenario and generally stuck to building large warehouses up to 500,000 square feet. Recently, we have seen a pick-up in demand for such facilities among our customers. What GST does is remove the punitive nature of the current structure and the biggest benefit will be in terms of reduced operating costs,” said Brian Oravec, CEO IndoSpace, which has 24 logistics parks across the country.
More companies in the automotive space are now looking at setting up stockyards to stack up vehicles instead of transporting them straight to the dealerships from manufacturing centres. The shift will lead to higher standards in automation with some investments towards robotics.
Goa Assembly passes state GST bill
Goa Assembly today passed the state Goods and Services Tax (GST) Bill with Chief Minister Manohar Parrikar expressing hope that the state would not face any major losses under the new tax regime.
The Parliament had on April 6 passed four legislations to pave the way for nationwide roll-out of GST from July 1.
“Goa will not face any major loss after the implementation of the GST. Even if we suffer any losses, the Union government will compensate for it,” Parrikar told the House, after tabling the bill.
Later, the bill was passed unanimously by the house, which convened a one-day special session for that.
The Chief Minister said Goa has reasonable or lesser taxes as compared to the rest of the country due to which the implementation of GST would become easier for it.
“With the implementation of the GST, the entertainment tax, value-added tax and additional Customs duty would be a thing of the past,” he said.
Admitting that there would be initial hiccups in implementing the GST bill, Parrikar said it is going to be a boon to several sectors including tourism, which is one of the prominent industries in the state.
Parrikar said he was lucky to be a part of the discussion on GST in the parliament during his tenure at the Centre as defence minister.
“I am lucky to participate in the discussions on GST in the parliament and also now in Goa Legislative Assembly,” he said.
He said during the first year of the implementation of the GST, Goa will gain around Rs 600-1,000 crore due to the implementation of the new tax regime.
The GST will force losses to the tune of Rs 700-800 crore on the state exchequer, but Goa will gain Rs 12,000 crore through new tax regime, he said.
“Goa will be a net gainer,” Parrikar said.
He said that nearly 18,000 small traders who registered with the state government would be educated about it (GST) by holding camps in June month this year.
Special camps for traders would also be held between May 15 and 22 this year, he said.
The opposition also supported the bill on the floor of the house.
“There will be teething problems in implementing this new tax but it is going to be a revolutionary movement for the state,” former Chief Minister Digambar Kamat (Congress) said.
The Congress party supported the implementation of GST bill but said the government should consider its financial implications.
http://www.moneycontrol.com/news/business/economy/goa-assembly-passes-state-gst-bill-2274427.html
Manmohan Singh introduced GST reform, says Congress
PORVORIM: While supporting the Goa Goods and Service Tax (GST) bill, 2017, Congress MLAs gave credit to former Prime Minister Manmohan Singh for getting GST bill.
During the discussion on GST bill, Navelim MLA Luizinho Faleiro said he support the iconic economic reform by the government of India. “In fact, in the 2006-2007 budget, this reform was introduced by the UPA government led by Singh and the main objective is to cut inflation and provide benefit to the common man,” he said.
He also said that the reform should have been passed 10 years ago, but the then NDA, for their own political reasons, rejected it. “The reforms could have earned the state Rs 20 lakh crore,” he added
Poriem MLA Pratapsingh Rane said that there are around 176 sections to the GST bill and “I doubt members have read it”.
He added that one clause surprises him which gives unlimited powers to any officer to enter premises and search if they suspect anything improper.
Ponda MLA Ravi Naik asked what would happened to entertainment tax collected from casinos once GST is implemented. Chief minister Manohar Parrikar replied that Naik is concerned about entertainment tax as Naik gave the most licences during his tenure as home minister.
Quarterly filing of returns not workable under GST: Arun Jaitley
NEW DELHI: Finance Minister Arun Jaitley on Monday said that the quarterly filing of returns under the Goods and Services Tax (GST) was not workable for taxpayers above Rs 50 lakh turnover.
“For all tax payers it is not workable to have quarterly return because input tax credit has to be given every month,” Jaitley said in a letter to All India Congress Committee general secretary Digvijaya Singh.
Only small taxpayers, whose turnover is below Rs 50 lakh per annum under the composition scheme, can avail of filing quarterly returns. But these will not be able to avail of input tax credit.
Singh in a letter to the Finance Minister questioned the requirement of submission of 37 forms in a year by a taxpayer under the GST, which would hamper the ease of doing business.
Currently the taxpayer needs to file only four forms in a year — one every quarter.
“You (Jaitley) would agree that instead of reducing the number of returns you have increased it by nine times. Would it improve our global ranking in ease of doing business which your government has been promising,” Singh wrote. Jaitley noted that the taxpayer needs to file only his initial return on the 10th of every month, while the other returns on invoice matching and availment of input tax credit are auto-populated.
“The model of invoice matching for eligibility of input tax credit of the recipient has been adopted in the GST design after much deliberation in the GST Council. One of the most important advantages of adopting this model is for curbing the possible tax evasion on account of fake invoice frauds,” Jaitley said.
“Though inward returns and monthly returns will be auto-populated, still the taxpayer will have to validate these details before submission and add additional information like GST paid under reverse charge mechanism, details of credit notes etc.,” GST expert Pritam Mahure told IANS.
Further, putting onus on buyers (that vendor should file returns) to enable claim of input tax credit would be found cumbersome by small businesses, Mahure added.
GST scheduled for July 1 rollout: Arun Jaitley
Hailed as the biggest tax reform since India’s independence, GST will replace an array of central and state levies with a national sales tax, thereby creating a single market and making it easier to do business in the country.
The Goods and Services Tax (GST) is on schedule for implementation from July 1 and will not lead to any significant increase in prices of goods although cost of some services may see a marginal hike, Finance Minister Arun Jaitley said today.
Hailed as the biggest tax reform since India’s independence, GST will replace an array of central and state levies with a national sales tax, thereby creating a single market and making it easier to do business in the country.
Addressing CII-Kotak investors’ round table here, Jaitley said that the GST Council, headed by him and comprising representatives of all states, will in the next few days finalise the rates of tax for different goods and services and the country is on track to roll out the simplified indirect tax regime from July 1.
“The current indirect tax structure in India is fairly complicated…those who transacted in either goods or services would have to deal with multiple authorities.
“The whole country was divided into multiple markets. So a free movement of goods and services was not possible. Now, the idea of GST was that let there be just one tax in the country,” Jaitley said.
He added that tax rates on goods may go down marginally under the new indirect tax regime while services may see some increase.
The GST Council, which had previously finalised a four- tier tax structure of 5, 12, 18 and 28 per cent, is scheduled to meet next week to put different commodities and services in the decided tax brackets.
Demerit and luxury goods will attract the peak tax rate plus a cess.
Tax rate closed to the existing incidence of total central and state levies will be chosen as the slab for a good or services.
“As far as goods is concerned, the tax is not likely to increase at all. If at all, it may marginally come down because of the cascading impact not being there and therefore, it is not likely to be inflationary.
“As far as services is concerned, obviously, they will go up marginally and therefore, there will be some impact on this. So, goods and services may react a little differently,” Jaitley said.
Asked if GST would stoke inflation, he said: “I don’t anticipate this to happen significantly. If at all, this may be a transient impact.”
At a separate interactive session on ‘India’s Business Environment: Reforms and Opportunities’ organised by CII, Indian Embassy and Japan Chamber of Commerce, he said after the Constitution was amended by Parliament and supporting legislations passed, state legislatures are approving the respective State GST law.
“Currently, that process is on. I see no difficulty in it,” he said adding GST rules have been framed and tax rates will be fixed at the GST Council meeting on May 18 and 19.
Jaitley sees no problems in rolling out GST from July 1.
“Hopefully, from July 1, one of the largest tax reforms in India since Independence — a simpler, more efficient and cleaner taxation system would be introduced in the country which itself would ease the very processes of doing business,” he said.
At the investors’ meet, he said there would be no cascading impact of tax on tax under GST.
“GST being a more efficient tax, evasion will become difficult. In the current system, there is large evasion,” he said.
Jaitley said the constitutional amendment gives time till September 15 for introduction of GST but the target date has been kept at July 1.
“So, we have a cushion of two-and-a-half months but it looks like we will be able to begin on schedule,” he said.
Also, a simple IT network has been put in place and there is no multiple forms for filing tax returns, he said.
GST would be a “transformational” system, he said, adding “there could be some small hiccups in the beginning but I think it’s understandable. We will be able to get over this”.
GST with a far more efficient system, Jaitley said, that will increase trade, tax collection and improve ease of doing business.
How will GST impact the Indian real estate sector
The Goods and Services Tax (GST) is beyond doubt the most revolutionary tax-related reform to be seen in India in several decades, since it will eliminate the conflicting and cascading taxation structures which have confounded several industries over the past few decades. It will most certainly have a profound effect on India’s economic prospects.
A single indirect tax which covers all goods and services will, in the long run, increase tax collection by making it easier for retailers and several other businesses to comply and also moderate overall taxation levels. That said, it should be remembered that the favourable effects of this new taxation regime will become evident only within 2-3 years of its implementation.
Though the goods and services tax (GST) tax structure has been announced, there is still a lot of conjecture about which tax rate will be applicable to the real estate and construction industry.
The tax rate is not decided yet and it would be premature to comment on it at this point. The expectations are for real estate to be in the 12% bracket. However, the GST rate is not the only important factor. The abatement rules as applicable under the service tax regime and the input tax credit facility for developers will determine if the effective tax incidence on real estate is lower or higher under GST.
Effectively, the composition scheme allowing for abatement against cost of land to the extent of 75% of the house cost for residential units priced under INR 1 crores and less than 2000 sq. ft. makes the effective rate at 3.75%. In other cases, the abatement goes down to 70%, making the effective rate at 4%. This will go a long way in determining whether GST is tax neutral or tax adverse for real estate.
The Government has offered some clarity on the abatement rules for under-construction houses and input tax credit benefits for developers.
Impact on Residential Real Estate:
If we look at the residential property sector, sales are not just impacted by tax rates but also by sentiment, and also on account of the trust deficit which the Real Estate Regulation & Development Act – or RERA – now seeks to address. That said, if costs do go higher under GST, the lower prevailing current home loan rates could assuage the impact to some extent.
Buyers and investors as well as developers are understandably worried that the final ticket size of homes will increase even if the Government levies GST at 12%, when compared to the existing service tax rates. Developers are still awaiting further clarity on this, but they know that it is in the interest of their business to keep ticket sizes range-bound. Evolving market dynamics have already brought about a change in the manner in which developers work. Staying customer-centric and delivery–focused to create a differentiated identity will be the most logical and likely method for them to adopt.
Impact on Rental Housing
Other doubts pertain to the rental housing market, which would naturally be impacted if the Government were to tax residential leases under GST. The common apprehension is that if this were to happen, the rental housing segment may see a huge slump over the medium-term, since residential leases are currently not taxed at all.
Here, it is pertinent to note that residential leasing is an inherent demand which will not evaporate merely by higher taxes. Certainly, we may be looking at a rental stagnation or marginal decline as the market readjusts to the new dynamics which GST will infuse. However, rental housing demand is sticky and end-user-driven in nature, so we are definitely not looking at a major slump in this segment because of GST even if it does tax residential leases.
That said, rental yields in major cities could certainly moderate if GST is levied on rental housing. In India, rental yields in housing are quite modest at around 2-4% on an average. Rents may either hold steady or decline marginally due to increase in housing stock. However, it is also true that most investors in the residential sector do not invest for rental yields but rather for the capital value appreciation, so reduced rental yields would not independently impact sentiment.
Impact on Commercial Real Estate
When it comes to GST’s impact on the commercial office real estate market – with the existing service tax for commercial leases at 15%, GST would be likely neutral overall (at 12% slight savings, and at 18% slight increase).
Impact on Affordable Housing
Affordable housing is currently exempt from service tax. It is likely that the government may come out with a clarification regarding the applicability or continuing exemption under the GST.