The Goods and Services Tax (GST) Council on Saturday partly restored the tax liability on mid-segment and large cars and SUVs to the higher pre-GST level by increasing the cess on them by 2, 5 and 7 percentage points, respectively. Including the 28% GST and the cess that existed previously, the total tax on these vehicles will now be 45%, 48% and 50%, respectively — still lower than the level before GST was implemented. While the Council hasn’t used the entire 10 percentage points headroom for cess hike provided by the recent ordinance, it also retained the status quo in taxation of small and hybrid cars and 13-seater vehicles.
The Council’s decisions could force auto makers like Mahindra & Mahindra, Toyota Kirloskar Motor, Mercedes Benz and Skoda, among others, to partially roll back the post-GST price. At its 21st meeting here —which was also the second after the July rollout of the comprehensive indirect tax — the Council also cut the GST rates on around 30 daily use and mass consumption items and a clutch of handicrafts, while exempting khadi fabrics sold via KVIC outlets.
At Saturday’s meeting, however, most of the Council’s time was spent in discussing the glitches faced by the GST Network, the IT back-end. It was resolved to form a five-member committee of state finance ministers to monitor GST operations, iron out the relevant issues and ensure smooth functioning of the returns-filing and tax-payment process.
Acknowledging the problems faced by taxpayers on the compliance front, the Council also liberally extended the deadline for filing various returns. Admitting that the GSTN got overloaded on “two-three occasions”, including on Friday, finance minister Arun Jaitley said these “transient glitches” would be addressed in a time-bound manner. Taxpayers can now file only the summary returns (GSTN 3B) till December as the Council gave them “a long rope” in filing the detailed GSTR 1, 2 and 3 returns, a step though has come in handy for the businesses could also undermine the GST’s structural quality for several months. These relaxations will not affect the government tax revenue much, as taxes need to be paid with GSTN 3B.
Sales invoices (GSTR-I) for July can now be filed till October 3 for businesses above Rs 100 crore and up to October 10 for others. The earlier deadline was September 10. The last date for filing GSTR-2 and GSTR-3 have also been extended to October 31 and November 10, respectively. As 45 lakh or 70% of the eligible registrants have paid the tax, the July GST collections have topped Rs 95,000 crore, higher than the projected revenue of Rs 91,000 crore (Rs 48,000 crore for the Centre and Rs 43,000 crore for states) for the month. However, several states have complained of revenue shortfall, which the finance minister said was partly because of the transient issue of floating balance on the integrated GST credit account. These credits eventually get used up to pay the central GST and state GST. States are accorded a constitutional guarantee for full compensation for any revenue loss from GST in the initial five years. Experts opined that a clearer picture of GST revenue will emerge only after three-four months. The entire pattern of tax liabilities—including those on some 10 lakh firms that opted for the composition scheme that allows paying taxes as a small percentage of turnover—and the input tax credit/refund mechanisms need to be known before estimating the GST’s revenue impact, they noted.
The Council also plugged a loophole on taxation of branded foods, by stating that all those who had used a registered trademark as on May 15, 2017 will have to pay the 5% tax on branded/packaged food, even if the brands were subsequently de-registered to avail of the 0% tax benefit on unbranded food. Jaitley clarified that whether or not a brand is registered, if the brand owner is entitled to exclusivity and “maintain an actionable claim,” compliance with 5% levy will be warranted.
The GST Council also decided to set up a committee of bureaucrats to ensure that principle of zero-rating of exports is fully implemented. Even though the GST rules provide for refund of indirect taxes to exporters, some embedded taxes at the state level don’t get fully neutralised at present, adding to the cost of exporters at a time when the shipments are hit by reduced global demand and a strong rupee.
On the requests of some states, the Council decided to expand the definition of “work contracts.” So, work contracts will now include all works by government in exercise of its “sovereign functions” which means that most contracts where a government agency does the work will now be taxed at 12%, instead of 18% earlier. This will help governments cut costs. Besides, job workers and artisans up to Rs 20 lakh annual turnover won’t have make “second registration” in the neighbouring states for inter-state businesses, a move that will reduce the compliance burden on lakhs of units. Job works in gold however won’t enjoy this facility.
Pratik Jain, partner and leader-indirect tax, PwC, said: “Extending the deadline for filing the GSTR 1 for July 17 by another one month is a welcome step, which gives much-needed time to the industry as well as GSTN to sort out the system and process related issues. Also the fact that schedule for filing the detailed returns for August 17 onwards has not been laid out for now does indicate that the government wants to adopt a cautious approach in this regard. If need be, it won’t be surprising if due date for filing of detailed returns is deferred further, given that summary return in Form 3B will now continue to be applicable till December 17 and GST would be collected on a monthly basis.” He added that the facility of filing and amending the TRAN 1 form (for claiming opening credit) is also “a welcome relief as many companies could not file it properly, given that it had to be done manually on the portal”.
This is the second time the GST Council tinkered with the tax rates after it fixed the rates for all items in May. On June 12, the Council had brought down the tax rates for as many as 66 items ranging from the most common packaged foods to school bags, computer printers, tractor components and insulin.