Hands that craft have gone ‘miss­ing’

Handicraft ar­ti­sans feel un­ac­knowl­edged in the new tax frame­work

The Hindu Business Line - - FRONT PAGE - MEERA SIVA

Mo­han Ku­mar, a latch-maker and small-time ven­dor in the real es­tate sec­tor space in Delhi-NCR re­gion, has a pe­cu­liar prob­lem. If Ku­mar sends a sam­ple to a real es­tate player, it is per se not tax­able un­der the Goods and Ser­vices Tax (GST) regime. How­ever, the freight and pack­ag­ing com­po­nent at­tracts GST.

Ever since GST took ef­fect on July 1, Ku­mar and oth­ers like him have been try­ing to fig­ure out how to be­come GST-com­pli­ant.

A per­plexed Ku­mar notes that SME ven­dors are yet to be trained and ad­vised to claim the tran­si­tion pro­vi­sions of GST un­der sec­tion 140 and claim in­put tax credit un­der Form GST TRAN-1. Com­pli­ance costs are high in the GST era, he says.

Nearly two months af­ter the GST frame­work was un­veiled, the real es­tate sec­tor is still try­ing to come to grips with the all-en­com­pass­ing tax­a­tion regime.

While most real es­tate play­ers say they are work­ing with their ven­dors and SME play­ers to get them to be­come GST-com­plaint, they still face teething trou­bles.

For starter, all stake­hold­ers have to up­load their GST pay­ment de­tails; fail­ure to com­ply may mean they don’t get any in­put tax credit.

In­dus­try play­ers to whom Busi­ness Line spoke said SME ven­dors were get­ting bogged by the me­chan­ics of up­load­ing tax de­tails.

Deep Kantawala, Head - ICS Real Es­tate Part­ners, says, “The busi­ness fra­ter­nity will have to cope with in­creased com­pli­ance and con­se­quent cost un­der GST. There is a lack of full aware­ness and pre­pared­ness on the part of the busi­ness com­mu­nity, par­tic­u­larly SMEs.”

Amit Goenka, MD & CEO, Nisus Fi­nance says, “GST has brought about a sin­gle tax­a­tion sys­tem. How­ever, its ben­e­fits will take time to per­co­late to the con­sumer. Larger firms have cre­ated sys­tems to tackle reg­u­la­tory changes. But there are adap­ta­tion chal­lenges among SMEs. While out­put is be­ing charged at GST rates as ap­pli­ca­ble, com­put­ing in­put credit, fil­ing GST re­turns, get­ting pre­vi­ous ser­vice tax and ex­cise off­set/ credit, among oth­ers, is a chal­lenge. There will be in­fla­tion­ary pres­sure, in­ef­fi­ciency in cash man­age­ment and al­lied costs, which will im­pose mar­gin and liq­uid­ity pres­sure.” Real es­tate play­ers are now also in­sist­ing that ven­dors and sup­pli­ers fur­nish in­voices. Mahin­dra Lifes­paces, for in­stance, says it has a frame­work in place which en­ables their ven­dors to com­ply, with sup­port from des­ig­nated pro­fes­sional agen­cies.

Su­nil Sharma, VP-Mar­ket­ing and CRM, Mahin­dra Lifes­paces, points, “The au­to­ma­tion of the credit mech­a­nism is ex­pected to en­hance ef­fi­cien­cies for all stake­hold­ers. We be­lieve we are among the first few de­vel­op­ers to have passed on this in­cre­men­tal ben­e­fit of In­put Tax Credit to our cus­tomers.”

The ben­e­fit, he says, “has been passed on to all ex­ist­ing cus­tomers of un­der-con­struc­tion projects, who com­pleted pur­chase in the pre-GST era, as well as to new cus­tomers in the wake of the roll­out of GST.” The hand-made prod­ucts seg­ment seems to have been ad­versely af­fected by the Goods and Ser­vices Tax (GST) frame­work. Sec­toral representatives and ex­perts say there are mul­ti­ple is­sues in the new tax regime that may in­hibit growth in the in­dus­try, which al­ready faces many chal­lenges, in­clud­ing from cheaper im­ports and ma­chine-made prod­ucts. For in­stance, the num­ber of hand­loom weavers in the coun­try has been in de­cline from 63 lakh in 1996 to 43 lakh in 2010, based on Cen­sus data.

A note pre­pared on be­half of the hand-made goods seg­ment and shared with the Prime Min­is­ter’s Of­fice draws at­ten­tion to the fact that the word ‘hand’ (as in, for in­stance, hand-made or handicraft) is en­tirely miss­ing from the GST list of items – ex­cept for a per­func­tory ref­er­ence to ‘hand­loom ma­chin­ery’.

Is­sues with GST rates

This im­plies that the con­cepts of ‘hand­work’, ‘handicraft’, and ‘hand skills’ have not been ac­knowl­edged at all in the GST frame­work.

There ap­pear to be is­sues with GST on at least five fronts. One, there are mul­ti­ple tax slabs for sim­i­lar items, which is very con­fus­ing.

For ex­am­ple, codes 9601 and 0507 re­fer to tor­toise­shell - un­worked or raw ma­te­rial; the for­mer at­tracts 18 per cent tax, while the lat­ter is taxed only at 5 per cent. How one can de­ter­mine what cat­e­gory a prod­uct falls un­der is un­clear.

Sec­ond, many low-priced items such as nee­dles, kites, car­ni­val toys and broom­sticks are now taxed.

Mahesh Kr­ish­na­murthy, founder of Crafti­san, an ecom­merce plat­form for hand-crafted prod­ucts, says that un­der the ear­lier tax regime, in Delhi, VAT was 0 to 5 per cent for hand­looms and hand­i­crafts, but now the tax range is from 3 per cent to 18 per cent.

“The re­tail price for con­sumers will have to in­crease, which may po­ten­tially cause re­duced ab­sorp­tion,” he says. Also, cer­tain prod­ucts and raw ma­te­ri­als that are hand-made by the most dis­ad­van­taged groups are un­der puni­tive GST rates.

Reg­is­tra­tion woes

Third, sellers must reg­is­ter in mul­ti­ple States as most of the buy­ers for prod­ucts from the craft com­mu­nity op­er­ate on a pan-In­dia ba­sis. For ex­am­ple, they may be sell­ing to on­line por­tals or those who con­duct fairs in var­i­ous States.

Ev­ery sup­plier, how­so­ever small, is re­quired to reg­is­ter un­der GST when mak­ing in­ter-State sup­ply, which adds to the com­pli­ance bur­den for ar­ti­sans. Fourth, given that the in­dus­try is highly frag­mented, it is not easy for many small pro­duc­ers to reg­is­ter.

Ac­cord­ing to data from the Ex­port Pro­mo­tion Council of Hand­crafts, the in­dus­try has over seven mil­lion re­gional ar­ti­sans.

Many of them are un­reg­is­tered and sell to larger buy­ers. Now, they may be forced to reg­is­ter or go out of busi­ness.

There is no aware­ness on reg­is­tra­tion pro­ce­dures and com­pli­ance.

Sim­i­larly, when ex­port­ing prod­ucts, un­der the GST frame­work the ex­porters must pay GST up­front, and then get a re­fund.

The process of get­ting a re­fund is te­dious and of­ten the ef­fort may not be worth the re­fund amount, notes Punebased tax con­sul­tant Pritham Mahure.

This will also im­pact work­ing cap­i­tal re­quire­ments, and given the com­plex­i­ties, small play­ers should have been ex­empt from the pro­vi­sion, he says.

With over 67,000 ex­port houses, a fa­vor­able ex­port pol­icy will aid the market, which grew 11 per cent last year.

In­ad­e­quate aware­ness

A sur­vey by the Dastkari Haat Samiti showed that nearly 90 per cent of craft­per­sons were not aware of re­verse in­put re­fund on tax paid for raw ma­te­rial, and 75 per cent did not know the tax rate that is ap­pli­ca­ble to their spe­cific craft.

Gov­ern­ment of­fi­cials in­di­cated that they are cur­rently work­ing with those reg­is­tered un­der VAT and will reach out to un­reg­is­tered seg­ments in the next few months.

Nearly 90 per cent of craft­per­sons are un­aware of re­verse in­put re­fund on tax paid for raw ma­te­rial, and 75 per cent do not know the tax rate ap­pli­ca­ble to their spe­cific craft V SREENIVASA MURTHY

SMEs in the realty sec­tor feel over­whelmed by GST M GOVARTHAN

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.