https://plus.google.com/100789863972538583352/posts/Y8pWW6e4u5z
SUMMARY
As it stands now, GST is neither good nor simple. GST has not been good because it has lowered GDP growth in the first 2 quarters and not brought the hoped-for 2% premium on GDP growth. (Edit: signs of higher growth from 3rd quarter onward). GST is not simple because it fails to meet expectations of business in terms of straightforward input tax credit relief. Business has also complained about complex new procedures and IT systems failures. Govt has misgivings over large tax credit claims, many of which are bogus.
Uncertainty over input tax credit, bogus claims, IT systems inadequacies and confusion over 2 standards rates, have not only hurt govt revenues but also created administrative delays, inconsistencies and compliance issues.
The author believes that input tax credit should be given for all genuine business expenditure. To this end, govt should implement workable anti-avoidance measures which will overcome its misgivings on bogus claims. Invoice matching seems to give that assurance. The author believes simplification will make tax regime easier to administer and improve India's ranking in Ease of Doing Business. This can be done by merging standard rates of GST (12% & 18%), simplifying GST returns, upgrading GSTN (incl admin tools to improve responses and standardise advanced rulings) and improving internet coverage.
COMMENTS
Previously govt was under political and revenue pressure. But as the situation improves, govt can revert to its original plan with improved measures, procedures and support. GST 2.0 should be able to deal with most outstanding issues.
It makes sense to rationalise high rates for commonplace items (like building materials and household appliances). Fuel excise duty should be allowed as an input tax credit (within broad limits, as the expenditure itself can be disallowed if not used for business).
This does not mean moving to a single nationwide rate. Special rates for some items are not difficult to administer except that vendors will have to prepare supporting documents. For example, cars & jewellery can easily be tracked. Fuel can be charged in the same way as cigarettes and alcohol. For example, the manufacturer or importer pays an upfront fixed duty and then applies standard excise duty.
UK taxation on fuel can be a template for India
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Fuel duty is a fixed tax collected by approved motor fuel suppliers -- who are also responsible for record keeping and full accountability. UK taxation is actually quite complex, as it varies depending on "proposed or actual use of fuel". In other words, fuel duty is not applied to agricultural motor fuel or heating oil, but the system ensures leakages are prevented, eg agricultural fuel is coloured (called "red diesel").
UK fuel duty text:
"The Fuel Duty rate you’ll pay depends on the proposed or actual use of the fuel and the type of engine. For example, if a substitute or additive will be used as road fuel in a diesel engine, you’ll pay the rate for diesel for road use. You’re also responsible for record keeping and accounts."
"Fuel Duty will be due if any of the following happen:
-- the fuel is sent out from registered premises
-- the fuel is used as motor fuel
-- the decision is made that the fuel will be used as a motor fuel"
---------------------------------------------
FULL ARTICLE
GST: A bold reform, fix the small chinks
see below
SUMMARY
As it stands now, GST is neither good nor simple. GST has not been good because it has lowered GDP growth in the first 2 quarters and not brought the hoped-for 2% premium on GDP growth. (Edit: signs of higher growth from 3rd quarter onward). GST is not simple because it fails to meet expectations of business in terms of straightforward input tax credit relief. Business has also complained about complex new procedures and IT systems failures. Govt has misgivings over large tax credit claims, many of which are bogus.
Uncertainty over input tax credit, bogus claims, IT systems inadequacies and confusion over 2 standards rates, have not only hurt govt revenues but also created administrative delays, inconsistencies and compliance issues.
The author believes that input tax credit should be given for all genuine business expenditure. To this end, govt should implement workable anti-avoidance measures which will overcome its misgivings on bogus claims. Invoice matching seems to give that assurance. The author believes simplification will make tax regime easier to administer and improve India's ranking in Ease of Doing Business. This can be done by merging standard rates of GST (12% & 18%), simplifying GST returns, upgrading GSTN (incl admin tools to improve responses and standardise advanced rulings) and improving internet coverage.
COMMENTS
Previously govt was under political and revenue pressure. But as the situation improves, govt can revert to its original plan with improved measures, procedures and support. GST 2.0 should be able to deal with most outstanding issues.
It makes sense to rationalise high rates for commonplace items (like building materials and household appliances). Fuel excise duty should be allowed as an input tax credit (within broad limits, as the expenditure itself can be disallowed if not used for business).
This does not mean moving to a single nationwide rate. Special rates for some items are not difficult to administer except that vendors will have to prepare supporting documents. For example, cars & jewellery can easily be tracked. Fuel can be charged in the same way as cigarettes and alcohol. For example, the manufacturer or importer pays an upfront fixed duty and then applies standard excise duty.
UK taxation on fuel can be a template for India
Fuel duty is a fixed tax collected by approved motor fuel suppliers -- who are also responsible for record keeping and full accountability. UK taxation is actually quite complex, as it varies depending on "proposed or actual use of fuel". In other words, fuel duty is not applied to agricultural motor fuel or heating oil, but the system ensures leakages are prevented, eg agricultural fuel is coloured (called "red diesel").
UK fuel duty text:
"The Fuel Duty rate you’ll pay depends on the proposed or actual use of the fuel and the type of engine. For example, if a substitute or additive will be used as road fuel in a diesel engine, you’ll pay the rate for diesel for road use. You’re also responsible for record keeping and accounts."
"Fuel Duty will be due if any of the following happen:
-- the fuel is sent out from registered premises
-- the fuel is used as motor fuel
-- the decision is made that the fuel will be used as a motor fuel"
FULL ARTICLE
GST: A bold reform, fix the small chinks
see below
1
1
- FULL ARTICLE
GST: A bold reform, fix the small chinks
GST has dismantled inter-state trade barriers and converted India into a unified market of 1.3 billion citizens. With the government placing emphasis on curbing black money, GST can significantly complement this effort, being less intrusive, more self-policing, and hence a more effective way of reducing malpractices and rent-seeking.
Incentive schemes, devised as a tool to attract investment by state governments by granting tax exemptions, have been found unsuitable under GST, prompting the government to move to an alternate scheme in the form of a cash refund. The Union government too has dispensed with the area-based exemption schemes. This resulted in the elimination of mushrooming exemptions, tax cascading and the tax-induced distortions.
The GST revenue trend largely has been in line with the expectations. Indications of April-May’18 promise a monthly GST mop-up touching Rs 100,000 crore in the current fiscal year. The GDP’s GST dividend, estimated at 2%, appears a far-cry as things stand now; however, Q4FY18 and Q1FY19 figures indicate things could get better.
The elimination of the multi-layered indirect tax structure, introduction of uniform GST rates across the country and GST registration, which facilitates cross verification of income tax returns, have the potential for increasing compliance in the coming times.
Invoice matching (still in nascent stage) has driven the parallel economy to join the national mainstream. Over 40 lakh new taxpayers have obtained registration under GST to avail the benefit of input tax credit and to levy GST on supplies. The number of return filers and collections under income tax also have shown a significant increase, of 26% and
17%, respectively.
Limitation in GSTN functionalities, poor IT connectivity and multiple return filing requirements have caused initial challenges for business and tax authorities. The government, with a view to addressing the apprehensions of the business, proactively relaxed the return filing process. However, this, in turn, necessitated suspension of credit matching and return validation process, which formed the fundamental pillar on which the GST roll-out plan was based.
Simple periodic filing procedure is an essential feature of any simple tax regime. The government has been quick to notice this deficiency; corrective actions are on the anvil, and it is expected that the revised, simpler filing process would be implemented towards the third quarter of the current fiscal year. Certainty is the cornerstone of a sound tax form. Divergence in views among Advance Ruling Authorities calls for a suitable alternate mechanism. Leaving out genuine business expenditures (rent-a-cab, employee insurance, food and beverage, construction, etc) from input tax chain doesn’t augur well, especially as the stated objective is to remove tax cascading. Issuance of administrative instructions and circulars conflicting with statutory provisions and time tested principles would dwindle the confidence of the business community. This requires urgent attention of the policymakers.
Follow-up actions are required to consolidate the gains and address the concerns of the stakeholders. Convergence of four-tier GST rate slabs into three by merging 12% and 18%, would help reduce dispute on classification, tax rate and check evasion. It is the appropriate time to examine the need of integrating petroleum and power sectors into GST. Energy, petroleum (transport fuel), construction and real estate, textile, fertiliser industries and exporters are reeling under inefficient input tax credit mechanism, archaic valuation rules, inverted tax rates, delayed refunds, etc, and that requires immediate attention.
The government deserves compliments for the bold initiative to introduce this much delayed fiscal reform. Course-corrections would act as a catalyst in achieving the aspiration of taking India to the first 50 countries in ‘Ease of Doing Business’.REPLY 36w
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