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Tax Insights
Issue 11
June 2017
In this issue
e
Life after GST: The industry
ndustry
gears up for the BIG change
A big bang approach for system
implementation
Editorial Board:
Geeta Jani
Jayesh Sanghvi
Keyur Shah
Nilesh Vasa
Rajendra Nayak
Shalini Mathur
Sushant Nayak
Program Manager
Jerin Verghese
Program Support
Pushpanjali Singh
Creatives
Jasmeet K Jaggi
“When you go in for reforms, and the authorities to turn this initiative into
success. Malaysia faced the inevitable teething
you must never blink. If you problems with systems and documentation,
blink you get derailed.” im]ja]k Yf\[gehdYaflk!^jge[mklge]jk
and initial investigations from the revenue
It is with this ambitious and upbeat sentiment that
Foreword
Industry view — Rajendra Khandelwal, Head Taxation and Planning, ICICI Bank Ltd.
Industry views — Sanjeev Madan, DGM HMEL, and Ashish Purwar, DGM GAIL
Special contribution
GST rollout from 1 July
We present an analysis of the key
th
highlights from the 17 GST Council
Meeting and its impact
Harishanker Subramaniam, National
06 Leader – Indirect Tax Services, EY India
10
Ö]paZd]
Venkatesh Narayan, Leader DigiGST™
solution
Features
32 44 new
36 46
Global news EconoMeter
GST rollout from
1 July
After a long wait for the Stabilization of the supply chain by
implementation of this transformative July/August would be critical as
tax reform, GST will be a reality the festival season starts from and
on 1 July 2017. The Government maximum sales happen during this
and the GST Council deserve to be period — also one of the reasons why
complimented for forging consensus on deferment of GST to September would
complex issues such as laws, rules and have been a problem.
rates within a short period of time for
this reform to be implemented.
The GST Council’s decision
While there are and there will be to defer transaction-level
several issues that need redressal and \]lYadkÕdaf_g^gmloYj\
[dYjaÕ[Ylagf$Yk]ph][l]\afYj]^gje
and inward supplies for the
of this magnitude, it is important
that the Government works with the month of July and August till
industry to minimize and manage September with an interim
disruptions during the transition period arrangement for aggregated
with responsive guidance as and when
return will provide some
issues arise.
relief for the industry and
The reform has already affected compliance facilitators.
behaviors in the value chain, with
inventory levels coming down
This was a serious concern for the
ka_faÕ[Yfldq&@go]n]j$kge]j]\j]kkYd
industry and service providers with
of transition credits with the industry
return formats undergoing a change on
assuring distributors/dealers of
3 June. It is critical for GSTN and the
margin protection, including offers
af\mkljqlg`Yn]km^Õ[a]fllae]lgl]kl
of discounts in select sectors, will
l`]aj=JH\YlY^gj?KLJÕdaf_kZ]^gj]
hopefully improve the throughput of
the process as envisaged in law gets
goods and services in June and July
underway.
Yf\fglaehY[lkYd]kka_faÕ[Yfldq&
The Council also approved several and its users. Clarity around how
rules, the most important of which area-based excise incentive refunds
Yj]l`]Yfla%hjgÕl]]jaf_jmd]k&Log will work, besides state incentives, is
committees are expected to be set kladdmf[d]YjYf\j]imaj]kaee]\aYl]
up to examine such representations attention, as a large of number of
Yf\Õdl]jl`]e$Yf\l`]jmd]keYq sectors will be affected.
be for a period of two years. These
rules and mechanisms need proper E-way bill has been an area of concern
understanding. The statement that for the industry, especially in the
Yfla%hjgÕl]]jaf_hjgnakagfkYj]egj] manner in which it was being proposed,
a deterrent is welcome, but this view though an agenda item for GST Council
needs to be implemented in that spirit consensus is still awaited. Several
on the ground. The period of two states have expressed reservations,
years, if it is correct, is long and needs so we might have to wait longer and
revisiting considering global practices. beyond 1 July for a resolution. The
statement that till then the current
The industry’s expectation that some system may exist makes one wonder
of its representations around rates whether check posts will continue
will be heard will now have to wait for and the industry’s aspiration of free
some time. The hospitality industry’s movement of goods in one India will
concern was, however, addressed with remain a dream.
the 18% rate now being applicable for
room charges up to INR7,500 and This is a reform that we as a country
restaurants in hotels attracting 18% have waited patiently for long and it
on par with other AC restaurants. is at our doorstep. Every stakeholder
Another issue that was addressed was — the Central and state governments,
that of allowing credit on IGST paid on the GST Council, the GST Working
import of ships against GST payable Committee, the industry and their
on output supplies of the importer. advisors — has worked tireless hours for
The vehicle leasing industry’s issue of months to get ready for this milestone
getting excise credit against GST on and it is time for all to collectively
leases at the underlying vehicle GST embrace this reform and manage this
rate remains unaddressed and may be massive change with hopefully limited
a huge problem for both the industry disruption.
L`akYjla[d]oYkÕjkl^]Ylmj]\afEafl!
Issue 11 7
Malaysia
GST
The story so far…
@]j]afEYdYqkaY$o]`Yn]j][]fldqhYkk]\l`]
second anniversary of the introduction of the
Goods and Services Tax (GST). What a ride it
has been so far, and something for India to look
forward to!
Issue 11 9
A big-bang The country is set for
GST implementation by
approach
Q
1 July 2017. Do you
think that the industry
for systems is ready to accept
and implement the
L`]?KL;gmf[adYhhjgn]\l`]ÕfYd
return formats in its meeting of 3
June. All the relevant rules for GST
_g%dan]`Yn]YdkgZ]]ffglaÕ]\&Alak
heartening to observe the unanimity
in the Council’s deliberations, with
not a single decision being put to
vote. While the revised formats are
designed for simplicity, it does turn the
clock back for us, considering that a
Q
are engaged in understanding the mfaim]$oal`Yd]Y\lae]g^d]kkl`Yf industry is facing?
revised formats and developing the Y^gjlfa_`lZ]^gj]l`]ÕfYdarYlagf
code as per the new rules. From the of all laws and rates of duty and the
perspective of the industry, systems go-live date of GST. At the time of Most of the perceived challenges are
need to be ready on 1 July to issue writing this, the next Council meeting the outcomes of the very short lead
invoices in new formats and with GST is scheduled for 18 June to close time available for implementation.
computation. So, one of the most h]f\af_akkm]kkm[`YkYfla%hjgÕl]]jaf_ At this point, perhaps the greatest
important actions at their end is to dYoYf\ÕfYdarYlagfg^\mlqjYl]k&Alak challenge is in getting the latest scripts
ensure that the latest patches from hoped that there would be no more from the software OEMs, implementing
the respective OEMs are installed and ka_faÕ[Yfl[`Yf_]kafl`]j]hgjlaf_ these patches on production systems
tested for at least a week. The industry formats between now and the go-live and doing some limited testing before
will thus have to keep pace with the date. In India, we have seen that some the go-live date. We are aware that
developments in the GSTN and put in industries, especially in the services GSTN is doing a commendable job
place a faster release management sector, have been relatively slow against the very stiff deadlines. As the
hjg[]kkl`YlakYdkgÖ]paZd]& in getting GST-ready, while others, ^gjeYlk`Yn]mf\]j_gf]Yka_faÕ[Yfl
especially in the manufacturing sector, change, GSTN has had to rework
have been keeping pace with the the earlier APIs, and it has started
developments in GSTN in terms of the releasing them to the GSP community
\YlYj]imaj]e]flkYf\j]hgjlaf_ZYk]\ in small sets, starting with GSTR 1 and
on APIs. That may be in part because *&O`ad]l`]kh][aÕ[YlagfkYj]`]dh^md
k]jna[]kk][lgjlYphYq]jk[mjj]fldqÕd] in coding the application, unless they
How much lead period only two returns in a year and that too are implemented on the GSTN sandbox,
their working cannot be tested.
would the industry need at the aggregated level.
Issue 11 11
Q
taxation. The treatment of existing objective of farming out capacity
area-based exemptions has also not How does the GSTN while maintain a tight control over
security through smaller numbers of
Z]]f[dYjaÕ]\af\]lYadafl`]?KLdYo&
On the registration front too, it can
work? trusted partners. GSTN is also creating
be seen that against an expected 80 an Excel-based utility for small and
lakh taxpayers, the number of GST medium businesses that can be directly
registrations is in the region of 65 An empowered group under the then uploaded on the portal. GSTN will
lakh. This could also be the result Chairman of UIDAI was set up by the Ydkghjgna\]ogjcÖgoYhhda[Ylagfk
g^l`]j]imaj]e]flkmf\]j?KLfgl previous UPA Government to identify to a large number of state tax
percolating down to all sectors. a suitable model for IT enablement administrations, enabling assessments,
of GST. The group considered issues audits, refunds etc. online. It would also
To sum up, I would say that the km[`YkYmfaÕ]\lYphYq]jhgjlYd$ provide a mechanism for Integrated
greatest challenges being faced by the services on a cafeteria approach to tax GST (IGST) settlement and tax
industry toward a smooth transition administrations and analytics. In order collection reconciliation by connecting
to GST continue to be in the areas of lgZjaf_afYf]^Õ[a]flYf\Ö]paZd] to accounting authorities, banks and
awareness of the law and information model of implementation, GSTN was the Reserve Bank of India.
technology. recommended to be incorporated as a
Section 8 (under the new Companies
9[l$fgl%^gj%hjgÕl[gehYfa]kYj]
governed under Section 8), non-
government, private limited company,
which was happened on 28 March
2013. The Government of India and
state governments hold a 49% stake What are the roles of
in the venture, while the balance 51%
akoal`fgf%_gn]jfe]flÕfYf[aYd
GSPs and ASPs?
institutions. Currently, the Center
and state indirect tax administrations
work under different laws, regulations, GSPs are service providers who
procedures and reporting formats, connect to GSTN over secure links
Yf\[gfk]im]fldql`]ALkqkl]ek Yf\Yj]YZd]lgkmZealYf\im]jq?KL
work as independent sites. GSTN has returns data from GSTN using APIs
addressed this problem by creating a published by GSTN. Essentially, they
common portal for all taxpayers and serve as a secure communication
following an API-based approach for channel between the ASPs and GSTN.
interfacing with external applications. All the tax functionalities — including
The API formats for returns etc. have upload of transaction data, validation,
been standardized using the Java reconciliation, dashboards and creation
Script Object Notation (JSON) format. of returns for digital signing — are
GSTN has also created an ecosystem handled by the ASPs. At present, there
of GST Suvidha Providers (GSPs) for are 34 authorized GSPs but many more
facilitating taxpayer compliance by [gehYfa]kYf\Õjekl`YlYj]9KHk&
consuming these APIs. It has also
encouraged start-ups and other
software OEMs, called Application
Service Providers (ASPs), to create
applications for GST compliance.
ASPs will interact with GSTN through
the GSPs. This has achieved the twin
12
12 India Tax Insights
Q
On what criteria should a
company select a GSP?
Issue 11 13
Banking:
A transformational
change to bind
technology and process
Divyesh Lapsiwala
Tax Partner, Indirect Tax Services
EY India
Banking is a sector with a national Banks have another task at hand same as for service tax, our effort
footprint and presence in almost all from a systems perspective. Banks was more about dissecting functions
cities and towns. It has a complex use several systems in addition to the related to delivery of services, to
delivery model, with services provided core banking software. Each of these determine where the services are
locally at the branch level, at select systems will have some aspects related hjgna\]\É^jgeÊ&L`]dYoj]imaj]kl`]
^]oZjYf[`]k$Yll`]j]_agfYdg^Õ[]k to tax, and a change in the manner in determination of the “establishment
Yf\Yll`][gjhgjYl]g^Õ[]&9hhda[Ylagf which tax applies will mean that every most directly concerned with the
of GST in the form that it is proposed km[`kqkl]ef]]\klgZ][gfÕ_mj]\lg provision of supply.” For this, banks
ea_`lZ]Yka_faÕ[Yfl[`Ydd]f_]^gj the new environment. have to examine every product
such business models in being able process and make an election of which
We have been involved in this
to identify the right “state.” The state operation is the most directly
journey with some banks for the
afl]j\]h]f\]f[]Z]lo]]fg^Õ[]jk concerned with the supply. This may
past eight months. We started with
coupled with centralization of functions be easier where service provision is
mapping all product processes.
such as credit risk analysis, treasury dYj_]dqdaf]YjYf\gf]g^l`]g^Õ[]k
Thankfully, as taxability principles
and lending adds to the complexity. always plays a more dominant role
were always expected to be the
than the others. In banking, though,
1.
expectations and deliver compliance in
upon was the location of the customer.
a timely and accurate manner.
While it is a very simple proposition
in the law, it is challenging for banks Building consensus across
as even retail customers have the industry so that all
multiple addresses with the bank and players take common
these addresses may be in different
technical positions
states. Based on interpretation of
2.
the guidelines and consensus among
industry players, a position has evolved
to consider the communication address Getting systems ready to
available on records.
be able to issue invoices
These are just simple examples of how statements, and purchase
complex this journey has been for
and sales register effective
banks thus far. Once these technical
calls are made, systems will have go live date
lgZ]j][gfÕ_mj]\lgZ]YZd]lg
deliver taxation in this manner. Also,
_an]fl`Yll`]j]_mdYlagfj]imaj]k
3.
reconciliation to be prepared at the
Closely looking at vendors
state level, internal records of mapping
revenue to states are being looked at
to make sure that the revenue mapping
4.
Finalizing the mechanism
ideology is close to the tax positions
been taken in GST. While this mapping
for charging internally
is not mandatory, it is likely to ease between state
out the need for preparing complex j]_akljYlagfklg^mdÕdl`]
reconciliations if internal revenue j]imaj]e]flg^hYqaf_lYp
capture is similar to the manner in
which tax positions are arrived at in
between distinct persons
GST.
Issue 11 15
Industry
view
Rajendra Khandelwal
@]Y\LYpYlagfYf\HdYffaf_$
ICICI Bank Ltd.
Issue 11 17
Exports:
Exemptions or ease of
compliances and expeditious
refunds?
Sarika Goel
Tax Partner, Indirect Tax Services
EY India
Issue 11 19
Fate of
Foreign
Trade
Policy (FTP)
schemes Procedures
It is still not clear whether the
export promotion schemes and
under FTP, such as the Advance
Authorization and Export compliances
for SEZs
Promotion Capital Goods (EPCG)
Scheme, would continue to allow
for upfront exemption from import
duties, including IGST. Further, if
the schemes are not going to be
under GST
[gflafm]\$[dYjalqakj]imaj]\gf The GST Bills and recommended
the fate of importers that have Rules prescribe a separate
already been issued authorizations j]_akljYlagf^gjK=Rk&@go]n]j$
but would import/procure under the rules are not clear on whether
the GST regime. multiple registrations, and hence
multiple sets of compliances,
Likewise, exporters are awaiting
ogmd\Z]j]imaj]\o`]j]Y
information on continuation of
company has multiple SEZ units
Zgmlaim]k[`]e]kkm[`YkE=AK'
within the same state.
SEIS in their present form, as well
as clarity on what would happen to Also, for SEZs, an exemption
current scrips in hand, as the GST mechanism based on self-
Bills or the Rules do not contain declaration should be explored
any provision allowing payment of by the Government instead of the
GST through the usage of these current multi-level approval and
scrips. documentation system involving
various forms.
Issue 11 21
Infrastructure:
Reliance on
unorganized sector
could prevent the
industry from taking
advantage of GST
Sidhartha Jain
Tax Partner, Indirect Tax Services
EY India
One of the biggest challenges of the Z]]fÕp]\Yl)0 the challenges of being GST ready,
kh][aÕ[Yddqgfl`]AL^jgfl&
sector at this point is the lack of clarity
on the continuity of exemptions that
whereas the general 9\\alagfYddq$l`]j]imaj]e]fllghYqlYp
are currently in place, such as service rate of tax currently on advances received and provisions
tax exemption on road projects, duty relating to withholding of taxes would
exemptions on machinery used for applicable on the Y\\lgl`][Yk`Ögohj]kkmj]kafYf
kh][aÕ]\hjgb][lk$Yf\\]]e]\]phgjl
Z]f]Õlk&Alakdac]dql`Yll`]?KLj]_ae] output side for already cash-strapped sector.
and it is imperative for the industry around 12%. its transition into the GST regime
kh][aÕ[Yddqc]]haf_afeaf\l`]hgjl^gdag
to evaluate and understand the net
of projects serviced by the sector. Some
impact in the changed scenario.
On the procurement front as well, a of the critical aspects of this transition
The sector might see an increased large segment of the sub-contractors process involve revisiting the tax cost
ability to take credits in the GST or vendors engaged by the industry envisaged for a project at the bid stage,
regime; however, the overall impact is unorganized. This is an additional the tax position of the contract (i.e.,
would need to be evaluated considering challenge for the sector because in whether inclusive or exclusive) and,
the fact that
Industry view
Anil Khandelwal
CFO
Tata Projects Ltd.
Introduction of GST is one of the most Most of the projects/contracts the unorganized sector — the additional
ka_faÕ[Yflhgkl%Af\]h]f\]f[]j]^gjek undertaken are with public sector compliance responsibility in this regard
that India is going to witness. It is going undertakings and any change would add to the administrative burden
to change the way business is done in in pricing/tax recoveries entails of the sector.
l]jekg^]^Õ[a]f[qYf\ljYfkhYj]f[q& extensive negotiations, which are time
On the procedure front as well, the
consuming. Delays in concluding these
For the infrastructure sector, continuity of waybills is a setback
discussions would result in an adverse
tax planning and structuring has to the expectations of the industry
working capital impact on an already
historically played a very critical role g^kaehdaÕ[Ylagfg^hjg[]\mj]kYf\
hj]kkmj]\k][lgjl`Yl$a^fglY\]imYl]dq
in the pricing methodology adopted administrative compliances for
addressed, could hurt the execution of
for bids. GST seeks to change many interstate movement.
critical infrastructure projects.
of these fundamentals; however,
The Government should look at
the lack of clarity on critical aspects The lack of clarity has affected the
an early redressal of these critical
such as continuity of exemptions level of preparedness of the industry,
concerns of the industry for a
and concessions just short of the especially of the smaller players,
successful transition into GST by
implementation date is adding to the which would have a spiral effect on
providing clarity at the earliest and
challenges of transition. the industry at large. Another big
providing enablers for the smaller
challenge for the sector is the reality of
players to be GST ready.
Issue 11 23
Life
sciences:
Would GST be
the balm for
the sector?
The pharma industry is gearing
up to face the challenges of
this transformational change,
which would impact all facets
of its operations.
Suresh Nair
Tax Partner, Indirect Tax Services
EY India
Inverted duty
structure
Rate of tax The GST Act provides for refund
of accumulated credit resulting
and pricing from a higher tax rate for
The rate of GST for pharma inputs than outputs. Another Transitional provisions
^gjemdYlagfk`YkZ]]fÕfYdar]\ positive is that the transitional For the pharma industry, stocks
Yl)*Yf\^gja\]flaÕ]\ provisions provide for transfer lying at depots, warehouses
lifesaving drugs at 5%. There of accumulated credit under and clearing and forwarding
is an increase in the GST rate the current indirect tax law into (C&F) locations, as well as
for medicines, attracting 12%, the GST regime. The industry with stockists, distributors and
as compared to the current ogmd\dggc^gjoYj\lgZ]f]Õ[aYd [`]eaklk$Yj]imal]`a_`&Kge]
effective indirect tax rate on rules that enable refund of such of the transitional provisions in
formulations, which translates transitioned credit. the current draft rules do not
into a hit of around 3% for the Yhh]YjlgZ]Z]f]Õ[aYd^gjl`]
industry. Since the prices for industry. The GST Council should
some of the formulations have hjgna\]^gjZ]f]Õ[aYd[dYjaÕ[Ylagf
been set by the Government to ensure that the industry is not
under the National List of worse off during the transition
Essential Medicines (NLEM), the phase.
industry would look forward to
support from the Government
Loan licensee
in passing on this additional tax
cost by revising the MRP of such model
medicines. Special provisions for GST-free
Continuity of area-based movement of inputs goods/
af\aj][llYpZ]f]Õlkmf\]jl`] eYl]jaYd^gjbgZogjcÕf\e]flagf
GST regime (albeit by way of afl`]?KL9[l&@go]n]j$l`]j]
the refund route) is another does not appear to be any
area that the GST Council provision that enables movement
should consider, as companies of goods for job work on payment
`Yn]eY\]ka_faÕ[Yfl[YhalYd of GST, enabling the job worker to
investments in it. pay GST on supplies of processed
goods. The GST Council is
expected to clarify this aspect in
the coming days.
Issue 11 27
28 India Tax Insights
Industry view
Mohan Nusetti
@]Y\$Af\aj][lLYp
Lupin Limited
The issue of inverted duty structure that currently plagues the industry,
resulting in accumulation of credits, has been addressed by providing for
Yj]^mf\e][`Yfake&@go]n]j$l`]Z]f]Õlkg^km[`Ye]Ykmj]ogmd\Z]Yj
^jmalgfdqa^l`]hjg[]kkakkaehd]$ljYfkhYj]flYf\ima[c&
The tax treatment of unsold stocks lying with stockists and retailers during
transition and the treatment of loan licensee arrangements remain a
concern. The credit matching concept in GST making it incumbent on the
receiver to ensure GST compliances of supplier is stringent. Working capital
j]imaj]e]flkogmd\`Yn]lgZ]j]Ykk]kk]\[gfka\]jaf_l`Yl?KLogmd\
apply even on stock transfers. Valuation of stock transfers could also be a
sticky issue.
?KL$Z]af_YlYp%lja__]j]\Zmkaf]kkljYfk^gjeYlagf$ogmd\j]imaj]
dedicated participation of various business functions in transitioning to
GST. Dependency on technology for adhering to GST compliances would be
kaf]imYfgf&
While GST in its present form may not be ideal, it is bound to throw up
k]n]jYdghhgjlmfala]k^gjZjaf_af_af]^Õ[a]f[a]kYf\\ak[ahdaf]Y[jgkkYfq
business.
Issue 11 29
Oil and gas:
Restructure
the business to
maximize the
credits and ease
the compliance
One of the sectors that will be look for alternatives. Further, the VAT/
negatively affected by GST is the oil excise duty charged on these excluded
and gas sector, as its major products — hjg\m[lk kh][aÕ[Yddq^gjfYlmjYd_Yk! Abhishek Jain
i.e., crude oil, natural gas, petrol, diesel would not be available as credits to
and aviation turbine fuel (excluded the companies in the sector that are Tax Partner, Indirect Tax Services
products) — are outside the ambit of under the GST regime. This would be EY India
GST initially whereas other petroleum another reason for increase in cost for
products (e.g., kerosene, naphtha and customers. would adversely affect the industry
LPG) are covered. and might be an area of litigation in the
It might get challenging for the sector future.
Under GST, the companies in this to comply with both the current tax
sector would not be eligible to avail regime as well as the GST regime, The companies in the sector
GST credits on goods and services o`a[`ogmd\af[dm\]Õdaf_lYpj]lmjfk are exploring the possibility of
used for the manufacture and sale under the current VAT/excise restructuring their businesses to
of excluded products. The fate legislations and under the GST regime, maximize the credits and ease the
of continuity of exemptions and bifurcating and apportioning eligible compliance burden. Restructuring
concessional rate of tax available under and ineligible credits, dealing with would involve separating, to the extent
the current regime on procurement of multiple tax authorities, completing possible, the businesses that are under
goods and services for use in the oil multiple assessments and possibly also the GST regime from the businesses
and gas sector is not clear. Removal facing increased indirect tax—related that are outside the ambit of GST.
of such concessional rate/exemptions litigations. Another solution that the sector is
would increase the kitty of ineligible exploring is the outsourcing of the
Further, since the entire credits on self-
credits in the sector. compliance activity and electronic
supply of most goods/services would
This may increase the price of the not be available to companies in this reconciliation of the data recorded in
excluded products, which may reduce sector, GST on such supplies would be their system with the data uploaded on
their demand by forcing customers to payable at the open market value. This GSTN by their vendors and customers.
Way “
9l`j]]%^gmjl`hjg\m[lagfafYj]Õf]jqaklqha[Yddqg^
goods which are outside the ambit of GST. This would
forward
mean that there would be credit reversal of three-fourth
?KLhYa\gf_gg\kYf\k]jna[]kmk]\afYj]Õf]jq&Kaf[]
there will be huge credit reversals, there will always be
disputes with regard to availability of credits and would
require us to take decisions as regards to availability
Considering the situation the of credits in case of disputed positions. We would be
oil and gas industry would required to comply with the current tax laws of Excise
be in under the GST regime, and respective state VAT as well as the GST regime.
companies should consider:
“
Managing dual compliances, electronic reconciliation and
Õdaf_lae]dqj]lmjfogmd\Z]Y[`Ydd]f_af_lYkc&
- Sanjeev Madan
Looking at their organization <?E$@E=D
structure and manpower
“
j]imaj]e]fl^gj[Yjjqaf_gml
the compliances
Exclusion of natural gas from GST means that we
will be under the GST regime as well as existing tax
Revisiting their processes to
regime. This would result in increase in tax costs due
plug any loopholes that may
to loss of input tax credits. We would be required to
result in tax costs undertake compliances under both the tax regimes,
which would be cumbersome. Our cross-country
pipeline (for transportation of natural gas), having a
Developing robust IT Õp]\]klYZdak`e]flaf]Y[`klYl]$ogmd\imYda^qYkY
implementation to reduce the service provider in respective state. The units located
dependence on manual work in each of such state would be required to raise an
and automating compliances invoice on account of self-supply of service, leading to
manyfold increase in invoices without any real business
requirement. We feel that natural gas is predominantly
Engaging with the an industrial input and is more environment friendly than
Government for inclusion/ other fossil fuels. We are, therefore, of the view that
zero rating of petroleum natural gas deserves to be included under GST regime
products “
since beginning. We hope that considering the positive
aspects associated with natural gas, it will be included
under GST regime at an early date.
- Ashish Purwar
DGM, GAIL
Issue 11 31
Date with GST: Are you
Are you prepared ready for
GST?
to take the
plunge? Q-1 Have you completed
the migration process,
taking a provisional ID
The countdown has begun and the stage seems to be all set for the under GST?
rollout of a new tax reform that aims to replace the current complex
structure of multiple indirect taxes with a dual GST. Its expected
implementation from 1 July 2017 signals a new era in indirect Q-2 Is your IT system
tax administration as it infuses a fundamental change in the basic more than 75% ready for
concepts and practices of indirect tax. With just a few days away,
GST has created a lot of sensation and anxiety among every single
GST compliance?
stakeholder.
Q-3 Are your vendors and
distributors in the supply
chain more than 75%
GST machinery ready?
• ;dYkkaÕ[Ylagfg^_gg\kYf\k]jna[]k
• Exemptions
• Thresholds
• Tax administration
19%
14%
Exempt
Food grains, Cereals, Milk, Jaggery,
Common salt
5%
Coal, Sugar, Tea and coffee, Drugs
JYl][dYkkaÕ[Ylagf
12%
for goods
18%
Capital goods, Industrial intermediaries,
@Yajgad, Soap, Toothpaste
28%
Air conditioner, Refrigerators
28% + CESS
Small cars (1%/3% cess), Luxury cars
(15% cess)
Issue 11 33
Exempt
=\m[Ylagf$@]Ydl`[Yj]$J]ka\]flaYd
Y[[geeg\Ylagf$@gl]dk'Dg\_]koal`
tariff below INR1,000
5%
JYl][dYkkaÕ[Ylagf
12%-18%
Works contract, Business class air travel,
Telecom/Financial services, Restaurant
services, Cinema tickets (ticket price up
lgAFJ)((!$@gl]dk'Dg\_]koal`lYja^^
between INR1,000 and INR7,500
28%
Cinema tickets (ticket price exceeding
AFJ)((!$:]llaf_$?YeZdaf_$@gl]dk'Dg\_]k
with tariff above INR7500
*The facility for uploading outward supplies for July 2017 will be available from 15 July 2017.
• Align your invoicing and debit/credit note formats and the vendor and customer masters updated with their respective
klYl]%oak]?KLa\]flaÕ[YlagffmeZ]j
• <]n]dghjYl]eYkl]jkoal`Y@Yjegfar]\Kqkl]eg^Fge]f[dYlmj] @KF!Yf\k]jna[]Y[[gmflaf_[g\]koal`l`]Yhhda[YZd]
rates
• Realign your business with the supply chain — on the procurement and the distribution fronts — to adapt to the new tax
regime
• Initiate the process of negotiating the tax-triggered product re-pricing with vendors
• =fkmj]l`Yll`]j]akj]imakal]YoYj]f]kk$ljYafaf_Yf\[YhY[alqZmad\af_$Yf\Õpl`]jgd]kYf\j]khgfkaZadala]kg^h]ghd]
across levels
• To mitigate the risk of loss of tax credit, assess the details of stock in hand and unutilized tax and duty credits vis-a-vis
expected state-wise taxable supplies under GST and appropriate strategy framed for transitioning such credits
• Plan to engage with Application Software Providers/GST Suvidha Providers or GST practitioners who combine tax domain
expertise with technology
Issue 11 35
Global
News
36
36 India Tax Insights
01
BEPS Multilateral Instrument (MLI) signed
by 68 countries1
In October 2015, the Organisation On 7 June 2017, 68 jurisdictions The MLI will enter into force after
for Economic Co-operation and signed the MLI during a signing Õn]bmjak\a[lagfk`Yn]\]hgkal]\
Development (OECD) released the ceremony hosted by the OECD l`]ajafkljme]flkg^jYlaÕ[Ylagf$
ÕfYdj]hgjlkgfl`])-Y[lagfal]ek in Paris. Eight other jurisdictions acceptance or approval of the MLI.
g^l`]:=HK9[lagfHdYf&L`]ÕfYd expressed their intent to sign the Oal`j]kh][llgYkh][aÕ[ZadYl]jYd
reports contain recommendations MLI in the near future. tax treaty, the measures will only
that target domestic rules as well enter into effect after both parties
as tax treaty provisions — namely, At the time of signature, the to the treaty have deposited
recommendations in relation to signatories submitted a list of l`]ajafkljme]flkg^jYlaÕ[Ylagf$
treaty abuse, hybrid mismatches, their tax treaties in force that acceptance or approval of the MLI
permanent establishment and they would like to designate Yf\Ykh][aÕ]\lae]`YkhYkk]\&
dispute resolution. To enable as Covered Tax Agreements
jurisdictions to swiftly and (CTAs), i.e., to be amended At this stage, it is expected that
consistently implement the treaty- through the MLI. Together with over 1,100 tax treaties will be
ZYk]\j][gee]f\Ylagfk$l`]ÕfYd the list of CTAs, signatories also eg\aÕ]\ZYk]\gfeYl[`af_
report on Action 15 analyzed submitted a preliminary list of their l`]kh][aÕ[hjgnakagfkl`Yl
whether an MLI was feasible. j]k]jnYlagfkYf\fglaÕ[Ylagfk EDA jurisdictions wish to add or change
Accordingly, MLI was developed by positions) in respect of the various within the CTAs nominated by
approximately 100 jurisdictions, hjgnakagfkg^l`]EDA&L`]\]Õfalan] the signatories. Signing the MLI
including OECD member countries, MLI positions for each jurisdiction constitutes an unprecedented
G20 countries and other developed will be provided upon the deposit moment in international taxation.
and developing countries. g^alkafkljme]flg^jYlaÕ[Ylagf$ It is also a key milestone in the
@go]n]j$alakgh]f^gjka_fYlmj]lg acceptance or approval of the MLI. implementation of the treaty-based
any interested jurisdictions. BEPS recommendations.
1 Refer EY global alert titled, “68 jurisdictions sign the Multilateral Convention to Implement Tax Treaty Related
Measures to Prevent BEPS,” dated 7 June 2017
Issue 11 37
02
Australian ruling on interest paid on cross-
border loan between related parties
2 Refer EY global alert titled, “Australian Court rejects Chevron’s appeal relating to borrowing from related party,” dated 1 May 2017
+=Q_dgZYdYd]jllald]\$É?]jeYfqakkm]k\jY^l_ma\Yf[]gf[dYkkaÕ[Ylagfg^[jgkk%Zgj\]jkg^loYj]Yf\\YlYZYk]mk]
payments for withholding tax purposes,” dated 18 May 2017
Issue 11 39
5 Foreign company provides 7 The foreign cloud service 10 Foreign rating agency
“infrastructure as a service” company interposes a German allows German bank through end
(IaaS) offering through a German ASP distributor, who contracts mk]jda[]fk]lgmk]ÕfYf[aYdeYjc]l
subsidiary and, together with the with German customers: Payments data online (access, reading and
right to use the IaaS, grants the by the German ASP distributor printing rights): No WHT obligation.
German subsidiary the right to become subject to WHT, as rights
use and modify (for customer use)
archiving software: The IaaS-
are granted that go beyond those
needed for the intended use of the
11 If the German bank also has
the right to grant its customers
related payment would not be software (distribution rights). access to the database: WHT
subject to WHT (service, no grant
8 Foreign SaaS company
obligation, as rights are granted
of right), while the right to use that go beyond those needed for
and modify the software should be distributes in Germany through a the intended use of the database.
subject to WHT. subsidiary, which is being granted
6 Cloud-based “software as
[ghq$eg\aÕ[Ylagf$\akljaZmlagfYf\
publication rights to the software:
12 The bank also has the right
to grant its customers access to
a service” (SaaS)/”application Payments by the German SaaS data generated from the database
service provision” (ASP) distributor become subject to WHT. (although not access to the
transactions where software
9 Payments for access to online
database itself): No WHT obligation,
remains installed on the service as no rights are granted beyond the
provider’s server, and beyond the k[a]flaÕ[bgmjfYd gfdqj]Y\af_Yf\ intended use.
use of software, additional services printing rights): No WHT obligation.
are agreed (software maintenance
and updates, data storage and
hotline service): No WHT, as no
rights are granted beyond the
intended use.
40
40 India Tax Insights
04
China guidance on TP and mutual agreement
procedure4
2 Intangible property
that merely funds intangible
development activities but does 7 TP methods: The transactional
transactions: In addition to the not perform any DEMPEP functions net margin method (TNMM )
DEMPE functions (development, should only be entitled to earn a is generally not appropriate in
enhancement, maintenance, j]YkgfYZd]ÕfYf[af_j]lmjf$Yf\ transactions where the tested
protection and exploitation), (2) an entity that has mere legal hYjlq`Ykka_faÕ[YflaflYf_aZd]
Bulletin 6 adds promotion as a sixth ownership but does not control assets. In addition, where the
function (i.e., DEMPEP functions), ÕfYf[af_^mf[lagfkgjjakckk`gmd\ Chinese taxpayer undertakes
demonstrating the importance not be entitled to any intangible ka_faÕ[Yfl<=EH=H^mf[lagfk$
China places on value created j]dYl]\hjgÕlk& including promotion activities, tax
authorities may argue that a PSM
should be applied
4 EY global alert titled, “China issues updated transfer pricing and Mutual Agreement
Procedure rules,” dated 7 April 2017
Issue 11 41
05
<Yfak`]ehdgq]]Ìk`ge]g^Õ[][gfklalml]kH=g^
the German employer 5
5 Refer EY global alert titled, “Danish Tax Board rules that Scandinavian sales manager’s work from home creates PE for German
company,” dated 19 April 2017
42
42 India Tax Insights
06
Russian ministry denies lower WHT rate under
a look through approach 6
The Russian Finance Ministry (the In order for the look-through • ;gfÕjeYlagfl`Yll`][gehYfq
Ministry) recently (7 December approach to be applied to has an actual right to receive
2016) published a letter clarifying dividends, the following conditions the income in question
the application of the “look through must be met:
In the letter, the Ministry examines
approach” in relation to dividend
payments. The Ministry considers 1 The entity to which a situation in which the actual
recipient of the dividend income
a situation in which the actual the payment is made must
recipient of dividends is a foreign acknowledge that it does not have paid by a Russian company is a
company whose participation in an actual right to the income. Spanish tax-resident company.
the capital of the Russian company
paying the dividends is not direct 2 The entity that has an actual The Ministry asserts that in order
lgimYda^q^gjl`]-jYl]$YKhYfak`
but indirect (structured via a right to the income must hold a
direct and/or indirect interest in tax resident, which is the actual
series of intermediate holding
the Russian company paying the recipient of dividends, must have
companies).
invested at least EUR100,000
dividends.
directly in the capital of the Russian
As per the Russian domestic laws,
the recipient of income has to 3 The entity that has an actual company paying the dividends.
Therefore, under the look-though
^mdÕdYk]lg^[jal]jaYafgj\]jlg right to the income must provide
approach the Russian tax agent
imYda^q^gjZ]f]Õlkmf\]jJmkkaYf the following documents to the tax
would have to withhold tax at the
tax treaties. In many cases, this agent before the date on which the
higher rate of 10%.
position would prevent a lower income is paid:
O@LjYl]^jgeZ]af_Yhhda]\mf\]j • ;gfÕjeYlagfg^j]ka\]f[]g^ @go]n]j$l`]j]akkmhhgjl^gjl`]
the “look-through approach” by a state with which Russia has taxpayer’s position that the lowest
virtue of the fact that a foreign an international tax treaty, tax rate is applicable, since the
shareholder made its investment []jlaÕ]\ZqY[geh]l]fl look-though approach as such is
in a Russian company not directly authority of the relevant foreign an expression of the substance-
but through intermediate foreign klYl] lYpj]ka\]f[][]jlaÕ[Yl]! over-form principle, and using it as
companies, which are not the a basis for applying a selectively
actual recipients of the dividends. formal approach to individual
[jal]jaYakim]klagfYZd]&
.=Q_dgZYdYd]jllald]\$ÉJmkkaYf>afYf[]Eafakljqakkm]k[dYjaÕ[Ylagfgfmk]g^dggc%l`jgm_`YhhjgY[`j]_Yj\af_
dividend payments,” dated 30 March 2017
Issue 11 43
Regulatory
Update
What after FIPB?
India has become a favored investment destination in light of its large domestic consumption
based economy, favorable demographics, skilled workforce and the continuing global focus
on emerging markets. In recent times, the Government of India has been constantly aiming
lgoYj\[j]Ylaf_Yfgf%Y\n]jkYjaYd$Zmkaf]kk%^ja]f\dqYf\egj]_gn]jfYf[]%gja]fl]\ÕfYf[aYd
and economic environment. It has adopted various measures to attract foreign investment in
the country, one of which is the relaxation in the FDI policy for the investors and abolition of
the Foreign Investment Promotion Board (FIPB).
1
FDI investments in India are governed by a comprehensive FDI policy . It embodies the
_]f]jYdYf\k][lgj%kh][aÕ[[gf\alagfkgf><A^gjhjgkh][lan]Yf\]paklaf_^gj]a_fafn]klgjk
in India. Every year, the Department of Industrial Policy & Promotion (DIPP), a Government
body under the aegis of the Ministry of Commerce & Industry, releases a circular updating
the policy. The annual circular consolidates all the FDI-related policy announcements through
Issue 11 45
EconoMeter
eY[jg%Õk[Ydlj]f\k
46
46 India Tax Insights
India remains a global growth leader in FY18 and beyond in
spite of the adverse effect of demonetization on FY17 growth
• The IMF and the World Bank lowered India’s FY17 GDP forecast to 6.8% on account of demonetization. The IMF projects
India to grow by 7.2% in FY18 and 7.7% in FY19.
• The RBI, in its June 2017 Monetary Policy Review, projected a strengthening of GVA growth at 7.3% in FY18 from 6.6% in
FY17.
• The IMF projects global growth to rise from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018.
10.0
7.7
7.2
6.6
6.2
5.0
3.6 3.5
2.5
2.3
2.0
1.7 1.6 1.7 1.6
1.4 1.4 1.5
1.2
0.8
0.6
0.2
0.0
Global Brazil Russia Japan Euro The UK The US South China India*
growth area Africa
Issue 11 47
After demonetization, output growth in 4QFY17 fell to 5.6%
• After demonetization, GVA growth in 4QFY17 fell sharply to 5.6%.
• ?jgol`afÕfYf[aYdk]jna[]kYf\eYfm^Y[lmjaf_ka_faÕ[Yfldqkdgo]\\gofo`ad]l`Ylaf[gfkljm[lagf[gfljY[l]\Yko]ddaf
4QFY17.
• But for public administration and defense services and agriculture, output growth would have fallen further.
1Q 2Q 3Q 4Q
Sector FY14 FY15 FY16 FY17
FY17 FY17 FY17 FY17
Table 2: Annual and quarterly growth in components of aggregate demand with 2011—12 as base (% y-o-y)
at constant prices
1Q 2Q 3Q 4Q
AD component FY14 FY15 FY16 FY17
FY17 FY17 FY17 FY17
PFCE 8.4 7.9 11.1 7.3 7.4 6.2 6.1 8.7
GCE 16.6 16.5 21.0 31.9 0.6 9.6 3.3 20.8
GFCF 7.4 3.0 1.7 -2.1 1.8 3.2 6.5 2.4
EXP 2.0 1.5 4.0 10.3 7.8 1.8 - 5.3 4.5
IMP - 0.5 -3.8 2.1 11.9 -8.1 0.9 - 5.9 2.3
GDP 7.9 7.5 7.0 6.1 6.5 7.3 8.0 7.1
• ;gfkme]jHja[]Af\]p%ZYk]\afÖYlagf\][j]Yk]\lgY`aklgja[dgog^*&*afEYq*()/\m]lgYk`Yjh^Yddaf^gg\hja[]
afÖYlagf$hYjla[mdYjdqafn]_]lYZd]kYf\hmdk]k&
;`Yjl*2AfÕYlagf q%g%q3!
14
12
10
0 Jul 16
Jul 14
Jul 15
Sep 16
Sep 14
Sep 15
Jan 17
Jan 15
Jan 16
Mar 15
Mar 16
Mar 17
Nov 16
May 14
May 15
May 16
Nov 14
Nov 15
May 17
New CPI inÖation InÖation target: upper end InÖation target: lower end
Source: MOSPI
Issue 11 49
L`];]fl]je]lalkÔk[Yd\]Ô[allYj_]lg^+&-g^?<Haf
FY17, driven by buoyant tax revenues
• L`];]fl]jÌkÕk[Yd\]Õ[alklgg\Yl+&-*g^?<Haf>Q)/&
• Disinvestment receipts stood at INR46,246.5 crore for FY17, meeting the FY17 revised estimate of INR45,500 crore.
• >ak[Yd\]Õ[alafl`]Õjklegfl`g^>Q)0oYk*-&/g^l`]YffmYdZm\_]l]\lYj_]l&
;`Yjl+2>ak[Yd\]Ô[alYkYg^?<H
6.0 5.8
5.5
5.0 4.9
4.5
4.5
4.0
4.0
3.5
3.9
3.5
3.2
3.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 (BE)
Source: Union Budget FY18, Monthly Accounts, Controller General of Accounts, Government of India
L`];]fl]jYdkgeYfY_]\lgY[`a]n]alkj]n]fm]\]Ô[allYj_]l^gj>Q)/
• L`];]fl]jÌkj]n]fm]\]Õ[alklgg\Yl*&(+g^?<Haf>Q)/$kda_`ldqdgo]jl`Yfl`]j]nak]\]klaeYl]g^*&)g^?<H&
• J]n]fm]\]Õ[alaf9hjad>Q)0oYkYl++&.g^l`]YffmYdZm\_]l]\lYj_]l&
;`Yjl,2J]n]fm]\]Ô[alYkYg^?<H
5.0
4.5 4.4
4.0
3.7
3.5 3.2
2.9
3.0
2.5
2.5 2.0
2.0 1.9
1.5
1.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 (BE)
Source: Monthly Accounts, Controller General of Accounts, Government of India
• Growth in non-tax revenues was low at 9.3% in FY17 due to a contraction in the Center’s
afl]j]klj][]ahlkYf\Ykdgo\gofafl`]_jgol`g^\ana\]f\kYf\hjgÕlk&
Table 3: Gross tax and non-tax revenue (annual growth rate, y-o-y)
Tax/Non-tax
FY14 FY15 FY16 FY17 FY18
revenue (BE)
Gross tax revenue 9.8 9.3 17.0 17.9 11.3
Non-tax revenue 44.6 -1.1 27.3 9.3 5.3
Source: Union Budget FY18 and Monthly Accounts, Controller General of Accounts, Government of India
RE: revised estimates; BE: budget estimates;
• ?jgol`af]p[ak]\mla]kaf>Q)/ +*&/!oYkdgo]jl`Yfaf>Q).$j]Ö][laf_egn]e]flaf
h]ljgd]mehja[]kYf\[gfk]im]flY\bmkle]flafkh][aÕ[]p[ak]\mlq&
FY18
Tax revenues FY14 FY15 FY16 FY17
(BE)
Source: Union Budget FY18 and Monthly Accounts, Controller General of Accounts, Government of India
15
13
11 10.7
9.8 9.5
9.0
9
8.9
7
6.0 5.5
5
1
FY12 FY13 FY14 FY15 FY16 FY17 FY18 (BE)
Source: Union Budget FY18, Monthly Accounts, Controller General of Accounts, Government of India
30
25.8 23.4
20
12.4 6.7
10
- 0.5
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 (BE)
-10
-20
-25.8
-30
Source: Union Budget FY18, Monthly Accounts, Controller General of Accounts, Government of India
Issue 11 53
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Subscribe to our blog for topical reads
on the Indian tax and policy landscape
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visit our DigiGST microsite.
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Issue 11 55
Ernst & Young LLP
EY | Assurance | Tax | Transactions | Advisory
About EY
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Y\nakgjqk]jna[]k&L`]afka_`lkYf\imYdalqk]jna[]ko]
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