GST: Tax Headache in India Is a Bonanza for Global Accounting Firms

What is taxing for some in India has become brisk business for others.

With seven weeks to go before the nationwide Goods and Services Tax is implemented, Indian companies are rushing to bring in experts to help prepare their accounting and information technology systems for the tax-system overhaul. That’s created a windfall for international professional services firms, including PricewaterhouseCoopers LLP and KPMG LLP.

Providing advice on everything from taxation regulations to business finance will generate as much as 150 billion rupees ($2.3 billion) in extra consulting fees, according to a council member of India’s accounting regulator, the Institute of Chartered Accountants of India. PricewaterhouseCoopers said it’s pulled in a specialist from Australia to help bring Indian companies into compliance with the new taxation regime, which starts July 1.

“We are helping our clients’ transition to GST in phases,” said Pratik Jain, a partner leading the firm’s indirect taxes arm in India, in a telephone interview. The firm has a team focused on GST-driven demand that’s drawing on advice from abroad “plus a pool of international experts when needed,” he said.

Representatives from Ernst & Young LLP and KPMG said they are also fielding calls for help from businesses struggling to assess the impact of the GST’s implementation and how best to implement computer-based systems to manage their supply chain, procurement and accounting processes.

KPMG India

KPMG India has a team of more than 1,100 people with skills across GST, IT and supply chain management to support about 400 clients from a wide range of industries transition to the new tax system, said Sachin Menon, a partner and the firm’s national head of indirect taxes. International experts have also been drawn in to help clients, he said.

The complex process of converting an economy with more than 1 billion consumers into a unified, common market has bolstered demand for enterprise resource planning, or ERP, said Ashish Mittal, co-founder of EasemyGST, an IT service provider in Gurugram near Delhi.

“We are in touch with 1,000 companies of which half have agreed to go with us,” Mittal said. About 200 inquiries were from medium to small businesses, he said.

Helping companies be fully compliant with the new system is difficult, as detailed guidelines aren’t yet available to provide the necessary clarity, PricewaterhouseCoopers’ Jain said.

“Corporate clients want more detailed guidelines and illustrations based on specific sectors,” he said. So far, clients have indicated that guidelines for getting credit for taxes paid are more restrictive, and lack of clarity on registration of taxpayers with multi-state operations is “a huge issue” under the new system.

More Clarity

Rules and specific rates of taxation aren’t yet finalized, according to the council member of the Institute of Chartered Accountants of India, who asked not to be identified because only the institute’s president is authorized to speak to the media. Without more granular detail, it will be impossible for organized industries to comply from July 1, let alone India’s 40 million small-scale enterprises, 70 percent of which are unorganized and haven’t started the process of readying their businesses the member said.

India has about 300,000 sales-tax accounting practitioners who help mostly small businesses file returns and comply with tax laws. In addition, there are 150,000 chartered accountants employed in India of which 80,000 need to be trained, the member said.

Businesses with more than 10 billion rupees in revenue typically spend 6 million-to-10 million rupees on accounting services, representatives of two accounting firms said. This cost will probably double at least in the first year of the GST’s implementation, they said.

Assam Assembly Passes GST Bill

Guwahati, May 11 () Assam Assembly today passed the GST Bill, paving the way for introduction of single taxation system by eliminating levies by multiple authorities.

The Assam Goods and Services Tax Bill, 2017, which had been tabled on Monday, was passed unanimously by the Assembly in a three-day special session to pass the bill.

“The GST will be a win-win for all the three stakeholders — country, state and consumers,” Assam Finance Minister Himanta Biswa Sarma said.

Presently, inflation was likely to fall by 0.5 per cent and after fourth year, the state’s revenue would increase substantially and stabilise possibly after 10 years, he said adding that five/six taxes would be abolished.

Corruption was likely to go down with introduction of GST as everything would be computerised and manual interference would almost be abolished, the minister said.

Former chief minister Tarun Gogoi said that Congress supported the GST Bill, but there were some concerns like the fate of local small industries on the face of free flow of goods from outside after withdrawal of entry taxes.

Chief Minister Sarbananda Sonowal termed the day as historic.

“Today is a historic day for Assam as the GST Bill has been passed in the state assembly which will go a long way in promoting the spirit of cooperative federalism in the country,” Sonowal said at a programme outside the Assembly.

This would also ensure transparency in governance and lead to economic growth, he said.

Andhara Pradesh State ready for GST: Commissioner

Centre will compensate loss of Rs. 2,600 crore per annum for 5 years

Andhra Pradesh is geared up to migrate to the Goods and Services Tax (GST) regime expected to be rolled out on July 1 from the existing Value Added Tax (VAT) system, according to Commercial Taxes Commissioner J. Syamala Rao.

Addressing a press conference here on Wednesday, Mr. Rao said the AP was one of the top States in terms of preparedness for the GST with 92% of traders enrolling themselves to migrate to it.

There were 2.5 lakh dealers registered with the government. Of this, about 70,000 dealers had turnover less than Rs. 20 lakh.

The dealers whose turnover was above Rs. 1.5 crore would be covered under the GST. About 5,000 dealers with turnover less than Rs. 20 lakh and were into the service sector would also come under its purview, he said.

The Commissioner said the government was expecting a loss of Rs. 2,600 crore per annum due to the regime. The Central government would compensate it for the next five years.

The loss would have been another Rs. 600 crore but for the State government’s efforts relating to taxation on territorial waters.

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.