In the eve of the goods and services tax (GST) Council’s three-day (October 18-20) meeting, there is one niggling issue that has had the financial services and other services firms which have branches and outlets in multiple locations biting their nails.
Bhavna G Doshi, senior advisor of KPMG, says under the proposed GST regime, financial services entities like banks, insurances companies, mutual fund and others will have to register in every location they have their business in.
To put things in perspective, a large bank could have as many as 18-20,000 branches across India. Doshi believes such a compliance norm could make tax filing process more complex than simplifying it.
Currently, services firms pay service tax to only the Central government and hence the process is centralised. However, under GST, service tax is expected to be collected by both states and Central government.
“For services, it (GST) will become a big challenge. The way the draft norms have been prepared, they (services firms) will have to register in each of the state (they have branches in), pay taxes and claim credits there. Compliance will become very complex,” said the KPMG tax consultant.
Vipul Jhaveri, managing partner – tax – Deloitte Haskins & Sells LLP, also feels registration for service tax compliance in places where a company has branches was threatening to become a “non-starter” for many. However, he said the government was helpless in this matter as it was dealing with the concern of states on revenue sharing, which has not yet been resolved. In fact, revenue sharing between the states and the Centre is one of the topics that would be sorted out in the third meeting of the GST Council starting today.
“Right now, we have no clue of what could happen. Their (government) first priority is to start GST. So, in all fairness, for the government, it is the right thing (even though) the initial pain to the tax payers will be huge because they (tax payers) will have to get their systems organised to do the compliance at every outlet but there is no other option,” he said. Shah added; “without starting GST the government would have no idea what the compensation (to states that will lose revenue due to GST) would be, without a committed compensation the states will not agree and therefore there would be a stalemate”.
KPMG’s Doshi, however, has not given up hope yet. According to her, there are alternate models that could work; “we are recommending a model of one registration like in some countries around the world”.
She said India could follow the Europe model of one-stop-shop called Single Registration Model (SRM). “We can adopt SRM and then do all compliances in a manner that each state gets the revenue, because ultimately what is important for the state is that they should get the revenue. How they get the revenue is not critical? Concerns of the states are that they get their due share (of revenue) and in timely manner,” said Doshi.
The solution to this issue would depend on how the states and the Centre work out their revenue-sharing and compensation model. The Council, which is headed by Finance Minister Arun Jaitley and represented by finance ministers of all Indian states, will deliberate on this and other issues related to GST tax structure, jurisdiction over service tax assessment, etc.
At the last meeting, the Council had decided to resolves all GST issues by November 22. The Winter Session of Parliament will begin from November 16 and Jaitley will try to get a consensus on most issues so that the Central GST (CGST) and Integrated GST (IGST) legislations can be introduced in the both Houses next month.
The Council has been able to come to a consensus on six issues including finalisation of rules for registration, rules for payments, returns, refunds and invoices. It has also agreed that GST would not be applicable on traders with annual revenue of up to Rs 20 lakh and that states will have exclusive control over all dealers up to a revenue threshold of Rs 1.5 crore in a year.