Hands that craft have gone ‘missing’
Handicraft artisans feel unacknowledged in the new tax framework
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.
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.
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