GST does not seem a vague possibility any more with the long-awaited passage of the GST Constitution Amendment Bill in Rajya Sabha on August 3, 2016. GST will be a game changer as it will not only affect the long laid taxation principles but will also embark transition in the modes of doing business. The Model GST Law which will form base of the future GST Act was released on June, 14 2016 and in this law several issues crop up which needs to be embraced by industries and government.
All supplies without consideration may be liable to GST
Para 5 of Schedule I of proposed GST Law states that any supply by a taxable person to any person in the course or furtherance of business would be a "supply" even if same is made without any consideration.
With this kind of open end law some difficulties may crop up which includes taxation of free samples given to customers(In pharma industry Medicine samples are provided to doctors for testing and sampling), any gesture of hospitality towards prospective client, like having a cup of tea in office, may also be considered as a supply.
This leg of law needs to be buckled up before it is up for discussion in parliament.
Special permission from commissioner for every job work
Under GST Law the power to permit transfer of goods for job work resides with GST Commissioner, and such order needs to be passed for every case separately. In a country like India which is governed by small & medium enterprises there are huge number of suppliers whose goods are subject to job work and even if we switch this manual procedure to an online mechanism through GSTN, it will still not be practically feasible for the commissioner to discharge all such cases in a well-timed manner. In my understanding some conditional blanket approval might be given to job workers.
Principal to declare the job-worker's place of business as his additional place of business
Under the GST law, principals are required to declare the place of business of the job-worker as their additional places of business. However, in case a job-worker is working for more than one principal, then would all principal register such place of business of job worker as their own place of business?
This scenario would lead to many difficulties especially in case of audit or investigation of job-worker premises.
Can a branch transfer its Input tax credit to head office?
This is an ideal scenario in service tax today where work is performed from a multiple premises (Branches) but invoicing is from one premises (Head Office). Post GST, branches will have separate registration and so will head office. If Head Office collects & pays all the tax, then what would happen to the credit lying in Branches (eg. Credit on lease rentals, credit on professional fees paid etc.).
Huge burden on suppliers of E- commerce operators
E commerce is very upcoming subject which is in nascent stage there will be more and more such ideas for which our law still needs to be fine-tuned.
Mandatory registration for every supplier of E- Commerce operator
Every supplier on an e-commerce platform must mandatorily get registered irrespective of limit of his turnover. This will be against basic principles of every tax law, which exempts small payers from the levy of a tax, so as to save them from the burden of maintaining tax records and compliances.
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TCS by E- Commerce operator
E - Commerce operator is required to deduct tax at source from the amount payable to an individual supplier. This will pose a big problem, as under GST, an operator will be required to upload the details of an invoice to GSTN; in such a case the quantum of paper work with E -Commerce operator will be enormous.
Fate of aggregators like OLX, Quikr etc. undecided
It is unclear whether peer to peer supplies i.e. in the case of companies like OLX where the website is acting only as medium and the entire consideration is received directly by the supplier in his bank account without be in grouted through the operator. How would the provisions of GST be applicable on such companies?
Will Lending start-up be roofed under GST?
Lending start-up is one which arranges money online at comparably lower rate of interest and then gives it as a loan at a higher rate of interest. In such cases what will be the applicability of TCS and GST on such business model? In general taxes should not be levied on the financial transactions.
Is Registration mandatory in each state for services provided in relation to immovable property?
Let us take an example of an advertisement agency which places ads on various buildings (immovable property) for their clientele in various states. Here such agency may be required to take a registration in each state separately only due to the fact that service will technically be considered rendered in the state where such immovable property is situated.
This will increase the burden on taxable person as after attaining registration in each state he will be required to file separate returns for each state also. I think department needs to clarify this point. Similar issue will persist in other services which are performed in relation to immovable properties like renting/ leasing, construction etc.
Is Importation of free service for personal purposes also a Supply?
Section 3 of proposed GST law stipulates that an import of service will be taxable even when the same is done without consideration and is for personal use. This provision is quite vague and needs a revisit. Let us understand this with help of an example. Suppose Mr X invites his relatives from U.K for his wedding. An entertainment act performed by any one of the NRI relative, will this act be termed as an import of service because all the conditions for the same to be termed as an import of service are fulfilled.
Moreover, basis for valuation of such services would be impossible.
Currently in India there are plethora of indirect taxes applicable namely Excise, Service tax, VAT, CST, Entry tax etc. merging them in one is an impeccable task which needs appreciation and motivation. Having said this, I am of the view that the above issues needs to be seriously vouched by Government & Industries both so that the greater goal of "Easy of doing Business" shall also be achieved.