FROM 12%, GST ON CELLPHONES RAISED TO 18%
Sitharaman says interest on the delayed payment of GST will be charged on net cash tax liability
NEW DELHI: Mobile phones will be costlier from April 1 as the Goods and Services Tax (GST) Council on Saturday decided to raise the tax on handsets by 6 percentage points to 18% to correct duty anomalies. The council, however, but deferred a proposal to raise GST on footwear, fertiliser and textiles.
NEW DELHI: Mobile phones will be costlier from April 1 as the Goods and Services Tax (GST) Council on Saturday decided to raise the tax on handsets by 6 percentage points to 18% to correct duty anomalies. The council, however, deferred a proposal to raise GST on footwear, fertiliser and textiles at a time when global economies are reeling from the coronavirus pandemic.
Briefing the media after the 39th meeting of the GST Council, finance minister Nirmala Sitharaman said several members were initially not in favour of correcting the inverted duty structure in the four sectors because of the current global economic situation, but postlunch, a consensus was arrived at on one product – mobile phones.
Under the duty structure, higher tax is levied on inputs compared to finished goods, making it difficult for manufacturers to avail of input tax credit..
“The Council has decided to deliberate the issue of calibrating the [GST] rate in other items for removing inversion in future meetings with further consultation and examination of issue,” Sitharaman said.
The Council raised the GST rate on handmade matches from 5% to 12%, and brought down the tax on machine-made matches from 18% to 12% to address classification issues. “This issue was deliberated earlier in the 37th meeting and was pending for decision,” an official statement said.
The council reduced the GST rate on maintenance, repair and overhaul (MRO) services for aircraft from 18% to 5% with full input-tax credit (ITC), and changed the place of supply for business-to-business MRO services to the location of the recipients. “This change is likely to assist in setting up of MRO services in India,” Sitharaman said adding that changes in all tax rates would be applicable from April 1, 2020.
In a big relief to industry, Sitharaman announced that interest on the delayed payment of GST will be charged on net cash tax liability instead of gross value of tax “retrospectively” from July 1, 2017 — the day the new indirect tax regime was launched. HT reported on March 6 that businesses facing the prospect of having to pay around ~46,000 crore as interest on delayed payment of GST might get a reprieve at the 39th meeting of the GST Council. So far, the Central Board of Indirect Taxes and Customs (CBIC) had a rigid stance on this matter — that interest be calculated on gross GST.
Sitharaman said the Council also decided to waive late fee for delayed filing of annual returns for FY-2018 and FY-2019 by entities with a turnover of less than ~2 crore. She said the Council has asked Infosys Limited to deploy more skilled manpower and increase the capacity of the GST Network hardware to ensure that the system is glitch-free. The Council asked Infosys, which has designed GSTN, to provide a better groomed system by July.
According to officials present at the meeting, the issue of correcting inverted duty structure took most of the time of the Council as members were in-principle not against the move, but some of them had doubts about the timing. Their main worry was the impact of tax changes on the prices of fertiliser, textiles and footwear, items of common consumption, they said, requesting anonymity.
HT reported on Saturday that the proposal to correct inverted duty structure could be resisted at the Council’s meeting because the move could raise prices of products at a difficult time for world markets. In a letter to Sitharaman, West Bengal finance minister Amit Mitra on Friday urged her not to make any changes in the rate structure during these “perilous economic times, particularly keeping in mind the interest of the common people”. The federal council, which has representation from states, is the apex decision-making body on all GST matters and is chaired by the Union finance minister.
The Indian economy grew 4.7% in the quarter ending December 2019. The GDP growth had been falling continuously for six quarters since June 2018, and experts fear that the economy would perform poorly in the current quarter due to disruptions from the coronavirus outbreak. India’s benchmark stock index Sensex lost 8.18% on Thursday after the World Health Organisation (WHO) declared the coronavirus a pandemic. The market was highly volatile the next day plunging 10.3% in the intraday trade that led to a 45-minute trading suspension, but recovered from the fall to close with a 4.04% gain at 34,130.48.
MS Mani, partner, Deloitte India said, “Having completed the rate rationalisation exercise for mobile phones, it is now necessary to focus on other products where there are issues of inverted duty structure.”
Pratik Jain, partner and leader, Indirect Tax, PwC India, said the Council had taken several major decisions, particularly on proposed new compliance framework.
“The decision to defer the due date for filing the annual returns for financial year 2018-19 by three months was on expected lines and should provide much relief to the industry. While extension of due date for e-invoicing to October 2020 is a welcome step, given the quantum of change, industry should continue the preparation including engaging with vendors and customers,” he said.
Archit Gupta, founder and CEO of ClearTax, said: “We are expecting the Council to soon share a detailed roadmap for the new GST return system and clear ambiguities that exist in the current format of new return forms. The milestones for the new GST return should be closely tracked and must be met.”