India's Final Goods Tax Rules Leave Big Questions Unanswered

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By Siri Bulusu

Tax professionals are urging companies to prepare quickly for the July 1 roll-out of India’s goods and services tax regime, even though recently finalized GST rules leave big questions unanswered.

State-level finance ministers charged with developing rules for the new tax regime released rate brackets May 18-19 for a full list of goods, and finalized seven of the nine draft rules.

With less than six weeks to go before the implementation deadline, however, tax practitioners say there is no time to “wait and see” if the government clarifies major compliance questions, and they said companies must begin preparing for the new tax regime.

“Everyone in the country has become very busy and serious about GST now that the rates have been announced,” Mahadevan Subra Mani, senior director at Deloitte Haskins & Sells LLP, told Bloomberg BNA.

Mani said the rules that were finalized are very close to the draft rules that were issued on March 31, despite 40,000 representations being made by industry members and groups, asking the government to clarify the anti-profiteering provision, reduce state registration requirements, and even delay implementation of the tax regime to September 1. The government has reached out to those groups to justify why specific changes weren’t adopted based on recommendations, according to Mani.

“There are no clear winners or losers in terms of the businesses, but every company will be effected by some good things and some not so good things under the GST rules,” Mani said.

‘E-Way Bill’

One rule that has come under criticism since its release has been the “E-way bill” rule, which requires any goods valued at more than 50,000 rupees ($771) that are moved across or within state borders to be registered online with the GST network, a one-stop online portal for companies and tax authorities to track tax registrations, payments, credits and refunds. The online portal will then issue an “e-bill”—that expires within a short period of time—that verifies that the goods aren’t being exchanged outside the official tax system.

It is called the “e-way bill” because an electronic bill will replace the manually issued bills that are currently used to track movement of goods.

“The government has been struggling to keep track of what goods are traveling and where they are going so tackling that issue seems to be the overall reason for this rule,” Mani said.

Any company that moves goods from “point A to point B” will have to ensure their transportation personnel have reliable internet connections and understand how to register the movement of the goods across the country on the online portal—a major compliance issue that depends on external infrastructure outside the control of companies.

Mani said the government has changed the e-way rule to include “distance slabs” that allow the bill to remain valid for a longer period of time when goods are moved across longer distances. An e-way bill for goods moving 100 kilometers will be valid for one day while the e-way bill for goods moving across 500 kilometers will be valid for five days, Mani explained, adding that the time extension will ease the worry that traffic or road delays will result in tax penalties.

Mani said ideally the e-way system would be scrapped completely, but that the government does seem to be making slight adjustments to accommodate industry groups’ concerns.

Anti-Profiteering Provision

The anti-profiteering provision remains another point of contention for companies waiting to make business decisions in accordance with the new tax regime, as no new details which clarify the provision have been released under the finalized rules.

The provision prohibits companies from keeping extra profits obtained through any tax benefits under the single-market tax regime—any benefit must be passed on to end consumers through a reduction in prices.

“Now that the rates are released, companies are looking at what credits they may claim that don’t exist under the current regime, so they can account for what profits they’ll gain under the new regime,” Himanshu Goel, assistant vice president of tax at T.R. Chadha & Co. LLP, told Bloomberg BNA.

Goel said the government needs to clarify what will be considered “profiteering” since many companies anticipate a reduced tax liability in the long-term.

The government has not yet released any mechanism by which “profiteering” will be measured, nor has an authoritative body been assigned to carry out the evaluations.

Tax practitioners say that clarifications and notifications are expected to be released in the weeks leading up to the new tax regime, and that companies are making business decisions on how to move forward and taking steps to protect against future litigation.

“With the rates being released, companies can compare cost sheets pre-GST to post-GST and make decisions on how to decrease prices to comply with the anti-profiteering clause,” Rajat Mohan, director of tax advisory firm Nangia & Co LLP, told Bloomberg BNA.

Mohan said since their is no exact method to ensure the anti-profiteering provision isn’t triggered, it is best to keep track of how all pricing and business decisions are being made in case a company has to prove anything to tax authorities.

“Clarifications and improvements will continue to come before and after the roll-out of GST—that is just how it works in an indirect tax regime of 1.3 billion people,” Mohan said.

To contact the reporter on this story: Siri Bulusu in New Delhi at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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