Industry pitches for GST rate of 18 %

By | August 31, 2016

Companies on Tuesday pitched for a standard goods and services tax (GST) rate of 18 per cent and sought time to switch over to the new regime at a meeting with the empowered committee of state finance ministers chaired by West Bengal Finance Minister Amit Mitra on Tuesday. States, which are seeking a higher tax rate of 20 per cent, asked companies if they would pass on low rates to consumers. The finance ministers did not buy the argument of the e- commerce industry, which sought an exemption from the tax, that it merely provided a platform for vendors and customers and did not make money out of sales. This was the first meeting of the empowered committee of state finance ministers since the passage of the Constitution Amendment Bill for the GST in Parliament. The meeting discussed GST rates and the accountability of the goods and services tax network. Thirteen states have ratified the Bill. Telangana and Mizoram had the legislation approved by their assemblies on Tuesday. The Centre is targeting April 1, 2017 to roll out the GST, but industry said it needed more time to prepare. The Federation of Indian Chambers of Commerce and Industry (Ficci) said at least six months would be needed from the date of adoption of the GST law by the GST Council. Flipkart, Amazon and Snapdeal argued they provided service to vendors and were liable to pay the tax only on service income. They said the vendors selling goods on their portals should be liable to pay the GST. When Mitra questioned the billion- dollar valuations of some of these companies, e- marketplace companies said advertisement was their source of income. According to the model draft GST law, e- commerce will come under the ambit of the tax. The National Association of Software and Services Companies (NASSCOM) said in its representation e- commerce created huge job opportunities and allowed small industries to sell their products. “E-commerce brings in competition, but you are also adding some value. Else how are your companies generating so much valuation,” Mitra said, asking these companies to revert in writing what the tax structure should be for them. Pitching for alower GST rate, industry argued an 18 per cent standard rate would provide it a competitive advantage in the global market. It also sought a single centralised registration for service providers and no tax on freebies. “A maximum rate of 18 per cent should be the standard GST rate. A five- year guaranteed compensation will ensure that an 18 per cent rate is workable,” said Naushad Forbes, president of the Confederation of Indian Industry (CII). “For industry, which seeks to be competitive in the global marketplace, a standard rate of 18 per cent will be advantageous in order to boost exports and generate employment,” the CII said in its presentation. It argued the average standard rate of value- added tax in high income countries was 16.8 per cent, while that in emerging market economies was 14.1 per cent, although rates in China and Mexico were higher. Ficci said the standard rate should be such that “it checks inflation, and the tendency to evasion”. The industry associations pointed out a higher rate would push up inflation, affecting consumption, demand and, in turn, investment. A committee headed by Chief Economic Adviser Arvind Subramanian had suggested a standard GST rate of 17- 18 per cent and a lower rate of 12 per cent for essential goods. It has also suggested a “sin tax” of 40 per cent on luxury cars, aerated beverages, paan masala and tobacco. The industry bodies argued that since free supplies were of zero value, they should not be taxed. The draft model law provides these will be taxed. The chambers also pitched for allowing the use of input credits in this case because the value of free supply was embedded in the supplies for consideration. The model GST law provides benefits for after supply discounts will be allowed only if these are part of an agreement at the time of supply and specifically linked to relevant invoices. “For consumer goods and retail companies, where the transactions are voluminous, it is impossible to link after- supply discounts to invoices. The condition of linking discounts to invoices should be removed,” the CII said. – [31-08-2016]

Leave a Reply