Indirect Taxes: India

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Contents

Why indirect taxes?

They Used To Help Domestic Manufacture, Agriculture, Cashless Society

The Times of India

Finance minister Arun Jaitley left indirect tax slabs untouched on account of the scheduled transition to the Goods and Services Tax during the course of 2017-18. However, spending is likely to get a boost due to the reduction in income tax and other public investments proposed by the government.

The FM has proposed changes to a few individual products to reorient the tax framework to promote the NDA government's key schemes of Make in India and Digital India. Changes in customs and excise duties were used to promote domestic manufacture in machinery used in renewable energy supply , electronics, textiles and chemicals, among others.


Evasion

2014-16

The Times of India, May 11 2016

The value of goods seized on account of smuggling activities has increased to Rs 3,963 crore in the same period, rising 32% over the seizures made in the two years before, it said. At the same time, prosecution has been launched in 1,466 cases against 1,169 in the two years 2014-16, an increase of 25%.

The present government has taken a slew of decisions to curb the menace of black money both within and outside the country in the last two years. It has signalled zero tolerance to tax evasion and has plugged loopholes to stamp out black money . A new Black Money Act has been enacted with provisions for strict penalties. It set up a special investigation team headed by former Supreme Court Judge M B Shah and has implemented several recommendations of the SIT.

The tax department has also unveiled a new Income disclosure scheme to tackle the problem of domestic black money . The government has amended the Prevention of Money Laundering Act. The definition of proceeds of crime under PMLA has been amended to enable attachment and confiscation of equivalent assets in India where those located abroad cannot be forfeited.While the government has unveiled tough measures to curb black money and tax evasion it has also taken steps to project a friendlier image of the tax department to end harassment of taxpayers. In a new installment of the Panama Papers, the Inter national Consortium of Investigative Journalists (ICIJ) has released a searchable database of nearly 2,14,000 offshore entities, which involve 3,60,000 names of people and companies that had stashed away wealth in offshore accounts. Included in this are about 746 Indian persons, companies and intermediaries and just plain addresses. The new release adds to the names released in 2013 as a part of its Offshore Leaks ex pose, which contained about 1,200 Indian names.

The latest release comes in the wake of worldwide criticism that ICIJ and its collaborative institutions had kept secret and inaccessible the 11.5 million leaked files of Panama-based firm Mossack Fonesca, and adopted a policy of releasing it in bits and pieces through select media outlets.

The names and addresses released on Monday by ICIJ are in searchable form and are accompanied by graphic diagrams depicting linkages between companies, intermediaries and named persons.

Some of the accounts are still active, while others were reported as closed or inactive. The Indians named are mostly from the four big metros, but a significant number of them are also from smaller towns.

While releasing the database, ICIJ said: “...Not disclosing raw documents or personal information en masse. The database contains a great deal of information about company owners, proxies and intermediaries in secrecy jurisdictions, but it doesn't disclose bank accounts, email exchanges and financial transactions in the documents.“

2014

TIMES GUIDE TO INDIRECT TAX

The Times of India Jul 11 2014

Proposal: With all inputs/components used in the manufacture of personal computers fully exempted from payment of 4% special additional duty, branded laptops, fully assembled with imported parts, worth Rs 35,000 could get cheaper by Rs. 950-1000

Advance ruling application to obtain surety on customs, excise and service tax matters on a future transaction can now be made by companies in India.

Impact: The facility of a ruling on tax implications on proposed transaction in advance is now extended to all companies in India (earlier it was available only to PSUs). Going forward, this should reduce the risk of tax litigation, especially on big ticket projects like setting up of a power plant.

P: Services providers and manufacturers are required to avail CENVAT credit on inputs, capital goods and input services within 6 months from the date of the invoice.

I: Earlier, there was no restriction prescribed under the CENVAT credit law for the time limit in availing credit.

P: Rate of interest on late payment of service tax has now been increased from 18% to a) 18% for the first six months, b) 24% for the next six months and c) 30% for period exceeding 1 year.

I: Now, delay in payment of service tax will cost more as the cost of non-compliance has increased significantly.

P: The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 are amended to provide that in cases where excisable goods are sold at a price below the manufacturing cost and there is no additional consideration flowing from the buyer to the seller directly or from a third person on behalf of the buyer, this price shall be subject to excise duty.

I: The Supreme Court judgment in case of FIAT India Private Limited, which held that excise duty should be payable on value which is at least equal to the cost of goods, has been reversed. This will benefit manufacturers, especially those who sell goods at steeply discounted prices to attract customers.

P: While filing an appeal with the Commissioner (Appeals) or with the Tribunal, a certain percentage of the duty demanded has to be first paid.

I: Any person desiring to file appeal against order of customs, excise or service tax officer may now have to mandatorily deposit 7.5% of tax or penalty or both for first stage of appeal and 10% of tax or penalty or both for second stage of appeal to Tribunals. This may positively reduce the time with Commissioner Appeals or Tribunal and may boost early disposal of final hearing. P: All inputs/components used in the manufacture of personal computers have been fully exempted from payment of 4% special additional duty.

I: Branded laptops, fully assembled with imported parts, worth Rs 35,000 could get cheaper by Rs. 950-1000.

P: Additional excise duty at 5% has been imposed on aerated water containing added sugar.

I: A 300ml cola can priced at Rs 25 may now cost more by Rs 1.5 to Rs 2. However, non-aerated energy drinks may not undergo any change.

P: Basic customs duty on semi-proc essed, half cut or broken diamonds, cut and polished diamonds and coloured gemstones is being rationalized at 2.5%.

I: Incremental impact on price of diamond & colour stone jewellery depending upon the specification and cost of diamond/colour stone, as the case may be, used. Industrial cutting tools to also get dearer.

P: With effect from 11 July 2014, dutyfree baggage allowance carried by an international passenger, when coming to India, is increased from Rs 35,000 to Rs 45,000 per person. Limits for importing cigarettes reduced from 200 to 100, cigars 50 to 25 and tobacco from 250 grams to 125 grams.

I: This incremental allowance would result in customs duty saving of approximately Rs 3,600 for international passengers. However, allowance for importing cigarettes, cigars and tobacco reduced.

P: Basic excise duty on footwear of retail price exceeding Rs 500 per pair but not exceeding Rs 1,000 per pair reduced from 12% to 6%.

I: Pair of footwear priced at Rs 900 could get cheaper by Rs 35-40.

P: Sale of space or time for advertisements in segments like online, mobile, out of home, on film screens in theatres, aerial advertising, etc brought within service tax net; however, advertisement space in print media continues to be out of tax net.

I: Proposal will result in additional burden of 12.36% on costs of advertisement on such non-print medium. There could be possible dual taxation in those cases where state governments are already levying state specific advertisement tax.

P: Service tax is proposed to be levied on services provided by radio taxis.

I: Hailing a radio taxi such as Meru cab costing Rs 500 may now cost Rs 525.

P: Service tax exemption granted on services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India.

I: A tour package booked by a British tourist through an Indian tour operator for a tour to nearby Thailand costing Rs 1,00,000 for two may now cost up to Rs 3,000 less.

P: Basic customs duty on e-book readers reduced from 7.5% to NIL.

I: Amazon Kindle, Paperwhite 3G 6“ Ereader costing Rs 13,999 could get cheaper by Rs 1050-1100.

P: Basic Excise Duty on sin goods is being increased -from 12% to 16% on pan masala, from 50% to 55% on unmanufactured tobacco and from 60% to 70% on zarda-scented tobacco, gutkha etc.

I: 100gm pack of pan masala previously costing Rs 185 could, going forward, cost approximately Rs 190. Similarly, 50gm pack of chewing tobacco previously costing Rs 120 could, going forward, cost approximately Rs 127-128.

P: Basic customs duty on product-specific inputs reduced.

I: Goods such as non-flat television sets, small LCDs/ LEDs, soaps, water filters, vegetable oils (used in varied industries such as edible oils, pharma, pesticides, etc), LED lights, fixtures and LED lamps, mobile phones, readymade garments, etc to get cheaper pursuant to the reduction in customs duty on inputs used in their manufacture.

P: Service tax to apply on travel by airconditioned contract carriages with immediate effect.

I: Hiring an air-conditioned bus for transport of employees between office and home may cost more by nearly 5%.

P: Service tax exemption accorded to Employees' State Insurance Corporation for past period to settle existing dispute. I: Overarching effect of service tax litigation in hands of the Corporation settled thus, absolving the contingency of service liability of approximately Rs 7,300 crore (as per media reports) that could have impacted the fund value benefitting several low-income employees.

P: The concept of “auxiliary educational services“ is omitted and a new list of exempted services received by eligible educational institutions is introduced.

I: Some services exempted by earlier law such as renting service provided to educational institutions may not be available now and hence, cost of operating an educational institute may rise.

P: SEZ units shall obtain Form A-2 containing list of exempted services from excise officers within 15 days from submission of A-1 and if it is not issued within 15 days, authorization shall be deemed to be valid from date of application in A-1.

I: Procedure for claiming exemption to services received by SEZ units has been simplified. However, if authorization is not given to service providers within three months by SEZ unit, service tax shall become payable.

P: In certain cases, the benefit of waiver of penalty which was earlier available for bona fide cases is now removed.

I: This amendment removes the power to waive the 50% penalty imposed in cases where service tax was not charged and paid by the supplier of services on bona fide grounds. Now, even if the supplier proves that he had not charged and paid service tax on bona fide grounds, the penalty will be payable.

P: CENVAT allowance is now available to car and tour operators, who in turn are obtaining such renting cars with drivers from third parties.

I: Allowance of such tax credits (to the extent of a determined amount) should be a huge impetus to the industry and it would reduce the price paid by the ultimate customer.

COMPILED AND POWERED BY EY

2015

The Times of India Mar 01 2015

TIMES GUIDE TO INDIRECT TAXES

Proposal

Service tax is proposed to be increased from 12.36% to 14%. Similarly rates for composition schemes (combing goods and services such as restaurant) as available to air travel agents, money changers, life insurance and lottery distributor selling agent, shall also be proportionately increased.

Impact

All services shall now become costlier. For example, monthly telephone bill of Rs 1,000 may now cost Rs 1,015, Cost of meal for two in an air conditioned restaurant costing Rs 1,500 may now be costlier by Rs 10, Renewal of life insurance premium of Rs 10,000 may increase to Rs 10,025, Even buying a flat will be costlier, let us assume a current price tag of Rs 1.25 crores for a flat having a carpet area of 750 square feet in Gurgaon (under construction), this will be pricier by another Rs 50,000.

P:

New Swachh Bharat Cess (`SBC') shall be introduced up to 2% on value of any or all taxable services from a date to be notified. Thus, the total service tax charge would be 16%


I:


Certain services, (to be notified) shall become costlier. It is not yet clear whether the SBC will apply to all services or only the specified services.Thus, for example, if SBC is levied at 2% on construction services, the same flat admeasuring a carpet area of 750 square feet in Gurgaon (under construction) shall cost higher by Rs 75,000 in addition to the hike on account of service tax.

P:

Effective median rate of central excise duty, levied on goods manufactured in India,be increased from 12.36 to 12.5%


I:


Combined impact of abolition of education cesses and increase in excise duty rate may lead to a minor increase in cost of daily use articles. For example, new Honda city vx automatic costing Rs 13.6 lacs (on-road Mumbai) could now be costlier by Rs 1,400.

P:

Tickets purchased for admission to entertainment or amusement facilities fell under the negative list and was exempt from service tax. This negative list is now replaced by a notified exemption which is much narrower. However, entertainments such as films, e circus, recognized sporting event, dance performances, continue to enjoy exemption.



I:


A one day unlimited access pass of Imagica Theme Park near Mumbai (over weekend) presently costing Rs 1,900 could get dearer by approximately Rs 250 (without SBC) and by Rs 300 (if SBC applied).


P:

Registration of factories under central excise and single premise under service tax, through an online process, shall be processed within 2 days.


I:


Reduction in the lead time for processing registration applications to enable businesses to go live faster.

P:

Cenvat credit on inputs and input services was allowed only within six months from date of supplier invoice.The time limit for availment of credit has been extended to one year.


I:


Manufacturers and service providers shall now be eligible to claim credit of inputs and input services up to 1 year from suppliers invoice thereby provid ing ease in doing business.

P:

Digitally signed invoices shall be recognized at par with physically signed invoices.Similarly, provisions also made for allowing electronic mode of preservation of financial records which are digitally signed.


I:


The proposal is in line with technological dependence by businesses.It would reduce the paper physical records substantially thus making the incidental handling a lot easier.However, costs associated with digital signature may be an additional burden.

P:

Penalty on account of non-payment short payment of duty tax (service tax, excise and customs) will depend on the stage of proceeding. It will increase as the delay progresses and also will depend on the gravity of the evasion..The stages that will be considered are: a) before issuance of notice; (b) within 30 days of issuance of notice; (c) within 30 days of issuance of order and (d) any other case. The penalty at different stages shall range from 0-100 % of the duty tax amount involved. Further, the provision for waiver of penalty in certain cases where the taxpayer could rely on grounds of having a reasonable cause (bonafide belief) for failure to comply with laws is now deleted.


I:


With staggered penal provisions, the Government encourages timely tax compliance and discourages authorities to impose highest penalties on all type of non-payments.

P:

The Finance Minister commits to introduce a Goods and Services Tax or GST regime in India wef April 1, 2016.


I:


GST is one of the advanced indirect tax regime and followed in many developed and developing countries in the world (Malaysia is introducing GST from 1 April 2015). It shall play a transformative role in developing India as a common market place and remove cascading effect of indirect taxes.

P:

Service tax exemption to services of mutual fund distribution has been withdrawn


I:


Administrative cost of managing mutual fund is likely to go higher implying marginal decrease in returns for the investors.

P:

Basic excise duty on cigarettes, cigars, cheroots and cigarillos increased 25% from existing duty rates.


I:


One pack of 20 Classic Mild cigarettes currently costing Rs 190 may now cost Rs 202.

P:

Basic customs duty on digital still video camera shall be reduced to NIL, which shall consequently reduce the effective customs duty incidence from 23.90 % to 12.88 %.


I:


The current retail sale price of a Nikon Coolpix point and shoot 12 megapixel camera with retail price of Rs 5,450 could become cheaper by Rs 475­500.

P:

An option has been given to tablet manufacturers in India to pay excise duty at with cenvat credit or 2% without cenvat credit benefit. Impact shall be consequently be extended in case of imported tablets also.


I:


Price of Micromax Canvas Tab P470 (a 7 inch tablet) currently retailing at Rs 7,499 could get cheaper by Rs 180.

P:

Effective excise duty rate on leather footwear having retail price of more than Rs 1,000 shall be reduced from 8.03 % to 4.50%.


I:


A Bata leather footwear presently priced at Rs 1,490 could get cheaper by Rs 50.

P:

Life insurance service provided by way of Varishtra Pension Bima Yojna is exempted from service tax.


I:


Senior citizen investing Rs 25,000 per year under the said scheme shall save approx. Rs 385.

P:

Effective service tax rate for transport of goods by road shall increase from 3.09% to 4.2% (without SBC) and 4.8% (with SBC).


I:


Cost for transportation of goods by road from Mumbai to Delhi with a 10 tonne truck load costing Rs 27,000 shall now cost Rs 27,300 (without SBC) and Rs 27,450 (with SBC).Methodology: We have taken the MRP of popular brands across each item in this table, factored in a tentative distributor's margin and then computed the indicative impact of budget announcements.

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