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PROJECT REPORT ON

Taxation

UNDER THE GUIDANCE OF

Prof. ANIL GOR

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SUBMITTED BY GROUP NO:-3

Name

Roll No

Sohil Baghadia

FM203

Abhishek Iyer

FM213

Shashank Mahadik

FM223

Manas Sharma

FP233

Shweta Karia

FP243

Jalpan Shah

FP253

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ACKNOWLEDGEMENT

WE take this opportunity to express our deep and sincere gratitude to Prof. Anil
Gor for his valuable guidance and encouragement in implementing the
knowledge gained through lectures in the form of a project. It is because of his
support that we could synchronize the efforts in covering the manifold features
of the project. I acknowledge the infrastructural support provided by the
organization.
Finally I am thankful to all the members of the organization and friends who
have given their full support in collecting the required and continuous help
during the preparation of the project.

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TABLE OF CONTENTS
SR. NO
1

2
3
4
5
6

TOPIC
Excise sops to automobile sector
may
halt beyond December,
companies to oppose the move
SEBI Received Tip-off from Tax
Department.
New-look Bipa won't let MNCs milk
tax havens
Restaurant Industry seeks tax relief,
less regulation
SITS suggestion to consider Tax
Evasion as a Criminal Offence.
Impact of GST on various sector.

PAGE NO.

8
11
15
19
22

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News - Excise sops to automobile sector may halt


beyond December, companies to oppose the move.
Source - The Economic Times
Date - 16 Dec, 2014
Summary of the news
With strong auto sales witnessed in the month of November, the
Government, which is already under pressure to raise revenues for the
fiscal year, may stop giving excise duty concessions to the automobile
sector beyond December 31. The Finance Ministry thinks that the
revenue considerations will leave the Government with no alternative
but to let the sops expire on December 31. The Government is
determined to achieve the fiscal deficit target of 4.1% of GDP, which
is why it is looking to receive as much revenue as possible in the
remaining 3 months of FY15. The auto industry, however, is up in
arms and feels that the demand for automobiles is still weak in an
economy which is still in the latent stages of recovery.
What were the incentives provided?
The previous UPA Government had in its interim budget provided an
excise duty incentive i.e. a reduction between three and six percentage
points on automobiles. These incentives were about to expire in June,
2014. However, the NDA Government which assumed office in May
2014, decided to let these incentives stay for another six months i.e.
till December 31. This was done primarily to lift sluggishness in
consumer sentiment, and to boost auto demand for automobiles.
According to senior Finance Ministry officials, these incentives had
led to a monthly revenue loss of approximately Rs. 500 crore. But
Finance Minister Arun Jaitley was of the view that short-term loss
from the extension would benefit the economy in the long run.

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Category
Commercial
wheelers

Present rate
vehicles

and

two 8%

Old rate
12%

SUVs

24%

30%

Large and mid-segment cars

24%

27%

Present scenario
The auto industry posted growth of around 10% in the first 8 months
of this fiscal year. This was mainly due to a 12% jump in two wheeler
sales. However, the critical commercial vehicles segment saw a
decline in sales by around 7.3%. Passenger vehicles segment (cars
and SUVs) sales grew by around 2.7% in the same period.
Auto makers say that this growth has been selective i.e. only certain
players like Maruti Suzuki, Hyundai and Honda have shown
consistent growth, while TVS, Hero MotoCorp, and Honda
Motorcycle and Scooter India have good numbers in two wheeler
segment.
The view in the Finance Ministry is towards scrapping these
incentives, in order to improve indirect tax collections. The revenue
from these indirect taxes has grown by a modest 7% in April
November period to around 3.28 lakh crore, which is well short of the
targeted growth of around 20% in this fiscal.
Another reason for reversing the duty cuts is that the reduction in
excise for some segments has created a peculiar problem of inverted
duty inputs attracting higher duty and the final product lower duty
leading to accumulation of input credit.
The Finance Ministry is contemplating these steps to avoid the
possibility of a shortfall in revenue collections, which would lead to a
slippage in the fiscal deficit target of 4.1% of the GDP this year.
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Impact
The automobile industry, which benefited from these incentives for
almost a year, will be hit hard. The incentives had resulted into
price reductions between Rs. 1500 80000, depending upon the
vehicle category, thereby stimulating auto sales in an economy
which was slowly beginning to come out of a slowdown.
To keep stimulating sales, the auto companies may have to dole out
attractive discounts, which will reduce their bottom-lines.
Consumer demand for vehicles will reduce, as auto loans are also
not available on easier credit terms (high interest rates)
Downstream elements like the automotive components industry
may also feel the heat due to lower demand for automobiles on
account of higher prices.
Revenue collection by way of indirect taxes increases, but not
significant enough as only 3 months left for the end of FY15.
Remarks
I feel that the Government can extend these incentives for another 2-3
months. The automobile industry is one of the important sectors in our
economy, and a good measure of consumer demand. The incentives
have helped the auto industry to break even, and avoid a third year of
decline in sales. Also, since the interest rates are high, easy credit i.e.
auto loans are not attractive enough. The fiscal deficit target of 4.1%
of GDP had already reached 90% last month, so these steps by the
Government wont be of much help in achieving this target. It has
other tools to bridge this gap in deficit divestment, proceeds from
spectrum sale etc. Therefore, I feel that the incentives can be
continued till February-March, to allow for full recovery of the auto
sector.
NEWS : SEBI Received Tip-off from Tax Department.
DATE: 18th December 2014
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SOURCE: Economic Times

1) SUMMARY:
SEBI is probing various small companies listed in stock exchange
which are assumed to be a shell companies and having a role in
converting black money to legitimate money for various clients,
showing it as a capital gain in their books of account. (Shell
companies are the corporation without active business operation or
significant assets, not necessary illegal or illegitimate but can act as
tax avoidance for legitimate business.)
SEBI have found out many of this shell company have generated
fictitious long term capital gain for many individuals. SEBI is probing
to find out ultimate beneficiary of such a transaction. It was also
reported that the black money is routed though multi layer of accounts
so that it becomes untraceable. SEBI is looking for know your client
in order to trace the money.
SEBI received this information from the income tax dept. that several
entities were using preferential allotment route to perform this action
of gaining long term capital gain on which stock and equity mutual
funds are not tax if held for more than one year. It was observed that
this preferential allotment was granted to the person who want to
evade tax and the promoter of such companies are involved in such an
activity to make money legitimate. SEBI has alleged that investment
in a company having poor fundamentals cannot be termed as rational
investment behaviour.

How shell companies play role in converting black money into white?
Under income tax act stock and equity mutual fund are not tax on
capital gain if held for more than one year.
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Let us take an example of a person P having a black money of Rs.


99 crore and wants to convert it into white money. Person P now
contacts to a share broker B to convert this money into white. Now
consider a shell company S who has given the rights to B to sell its
preference or ordinary share in the market with the book value of
Rs.10. (Note that all the parties i.e. p, b, and s are interlinked and
everyone knows the purpose of p.) Now b allots the 10,00,000
shares of worth Rs. 1 crore to p which is a substantial number of
share consider this issued share to all such party as 75% of the
company shares so as to impact the price of the share during the
trading. On the other hand b who has received Rs.99 crore of black
money from p diverts it through various multi level accounts so that
it becomes untraceable. Now after one year when lock in period of
this share is completed the b start buying back the shares from all
such person like p to which he had allotted this shares and try to
trade internally within this cartel to raise the price of the share. During
this process the share price rise to Rs. 1000 and the person p sells
the share to the broker b. So in this process person p receives it
own money from broker b but in white on which no tax is levied.
And now b has 10,00,000 shares of p which he sells it to a another
broker or a big party on the market price and earns hefty profits of
Rs.99 crore which is shared with s. Now market doesnt have the
artificial demand that was created by broker as a result of which he
will not able to sell the share at or more than Rs.1000 as a result the
price falls down to its original level of Rs.10. Even in the case if b is
not able to find such a big party to sell the share he earns his
commission of Rs. 1 crore or the face value of the share. In this entire
process p has successfully converted his black money into white
money by paying a fees of Rs. 1 crore for converting Rs. 99 crore into
white which is apprx. 1% of black money and save the tax.
2) IMPACT:
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Real investors who have invested in this shell companies suffers the
loss.
The overall sentiments and confidence of investor about market and
market regulators is hurt if the number of such a shell companies
increases.
Income tax department and government suffer heavy loss in the
revenue by such activities.
It gives more encouragement to black money and fraudulent
activities and discourage the real investors.
3) REMARKS:
SEBI can amend the norms which will allow equity and mutual
funds only be allotted if funds are received from bank account of
that person inorder to curb such an activity.
Tax department should amend its law to tax the capital gain above
certain amount.
Authorities should become more stringent in application of KYC
norms.

Source: Business Standard


Date: Dec 16, 2014.
News : New-look Bipa won't let MNCs milk tax
havens
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News in brief :
The government plans to replace BIPA (Bilateral Investment
Protection Agreement) with a new pact that will provide protection
only to those companies and natural persons with substantial business
activity in their home country.
The finance ministry has drafted a new model BIT (Bilateral
Investment Treaty) and is moving Cabinet saying that there is a need
to revisit BIPAs in order to prevent treaty shopping and to properly
balance the objective of investor protection and the interest of the
nation.
The need for the review of the BIPA framework arose since there has
been a rise in the number of disputes under BIPA. More specifically,
the number of disputes rose up to 550 in 2012. 58 new cases were
taken up in the year 2012, itself, the highest in a single year.
What is Treaty Shopping?
Treaty shopping generally refers to a situation under which a person
who is not entitled to the benefits of a tax treaty uses an intermediary
entity that is entitled to such benefits in order to indirectly obtain
those benefits.
For example, a corporation (CayCo) resident in the Cayman Islands
(the home country) may own a corporation (USCo) in the U.S. (the
source country). Dividends paid from USCo to CayCo would be
subject to a 30% U.S. withholding tax. If CayCo were to form a
corporation (UKCo) in the U.K. (the third country) and transfer the
stock of USCo to UKCo, dividends would be paid from USCo to
UKCo and, without anti-treaty shopping rules, these dividends would
qualify for benefits under the U.S.-U.K. Income Tax Treaty.
If this approach were successful, the dividend withholding tax of 30%
on dividends paid by USCo could be reduced to zero.
What are tax havens?
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A tax haven any country having a low or zero rate of tax on all or
certain categories of income, and offering a certain level of banking or
commercial secrecy. Tax havens exist because countries are usually
not obligated to provide customer information to foreign taxing
authorities (though investigations of criminal activity, terrorism, or
other behavior may require disclosure). Switzerland is the most
famous tax haven, followed by a number of Caribbean countries.
Tax havens must have reputable banks in order to attract business, and
they must exist in regions with relatively low tax rates. Customer with
accounts in tax havens may be required to pay taxes in that region, but
if those taxes are considerably lower than what the customer would
pay on that income is his home country , the savings can be
considerable, especially over the long run.
What is arbitration?
Arbitration is a procedure in which a dispute is submitted, by
agreement of the parties, to one or more arbitrators who make a
binding decision on the dispute. In choosing arbitration, the parties
opt for a private dispute resolution procedure instead of going to
court.
Arbitrator is an independent person or body officially appointed to
settle a dispute.
Impact
1. The new model that has been proposed would entertain the
claim of investors with at least 50 percent stake or the right to
appoint a majority of the directors or senior management
personnel and would also exclude claims of indirect or minority
shareholders. A holding company will also not be considered for
protection.
2. Any tax measure introduced by the host country will not be
subject to any dispute settlement under the BIT.
3. It plans for the removal of broad obligations found in the current
BIPA model. The most favoured nation obligation would be
removed.
4. Introduction of an early review mechanism and a mechanism
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under which a host country can pursue counter claims against


foreign investors, for illegal conduct.
5. It broadens the scope of exceptional provisions to preserve the
right of the state to develop policies in accordance with national
interest.
6. In dispute settlement, the aggrieved party should exhaust all
administrative and judicial procedures within a specified period
time frame within the country, before the claim can be submitted
for arbitration.
7. It will balance investor rights with their obligations under the
law.
Impact Analysis
1. The new model will help prevent treaty shopping practices done
by multinational companies taking advantage of more
favourable tax jurisdictions.
2. Tax measures such as the retrospective tax ones can no longer be
remedied since the treaty specifically removes tax changes from
the ambit of BITs.
3. It will be difficult for foreign investors to to drag India to
arbitration because of more exclusions added to the BIT. It will
not be easy for the firms to use BITs.
4. The early review mechanism will help dismiss frivolous claims
leading to significant costs .
5. The scope of exceptional provisions to preserve the right of state
to develop policies in accordance with national interest have
been broadened to include protection of the environment,
conservation of natural resources, stability and integrity of the
financial system, public health and safety, and improving
working conditions, amongst others. Bipa used to have only one
exception, that is essential security interest.
6. Failure to go through the administrative and judicial procedures
and consultation with the host state for one year to find a
solution, would lead to the investor being barred from pursuing
investor-state arbitration.
7. There is no protection for investors who violate core obligations
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under the law.


Remarks
As a part of its Make in India campaign, the Indian government
should be addressing the reasons for why the firms need to use the
BIT, since ultimately BIT is intended to enhance the confidence of
foreign investors. Instead, it is focusing on adding more exclusions, to
ensure that the firms don't find it easy to use the BIT. In terms of
signaling comfort to investors, this is a really bad move because the
foreign investor will be left to the mercy of the Indian legal system
and its limited ability to deal with high handed government behaviour.
On the other hand, these exclusions would lead to a decline in the
number of dispute cases as foreign investors would not be able to
drag India to arbitration on any issues that have been settled by a
judicial authority.

Source: The Times Of India


Date : Dec 17, 2014
NEWS: Restaurant Industry seeks tax relief, less
regulation
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News in brief :
The Delhi restaurant industry is suffering under the twin burdens of
confused and heavy regulation and over-taxation, and is demanding
longer operating hours, the National Restaurant Association of India
(NRAI) said at an industry meet organized on Dec 17,2014.
At the meeting, the NRAI presented a list of challenges and policy
changes it wants to see in the Delhi government. Calling themselves a
"heavily licensed and overtaxed industry,"
The NRAI's key demands include
Lower taxes,
Longer permitted operating hours,
Reduced barriers to liquor retail, Simplified licensing, & A
single window clearance system for licensing.
1) Lower Taxes :
The NRAI believes restaurants are unfairly overtaxed compared to
similar industries such as retailers and hotels.
"Service tax is on services, VAT is on goods. So if you're serving
food, they say okay you're selling food but you're also provide
service, so we're going to charge you double the taxes," said Riyaaz
Amlani, President of the NRAI.
"Restaurants are the only industry which pays VAT as well as service
tax - it doesn't happen. It should either VAT or service tax."
2) Longer Permitted Operating Hours :
Other demands include permitting operating hours up to 24 hours a
day current regulations mandate closing shop by 1am.
3) Reduced barriers to liquor retail, Simplified licensing, & A
single window clearance system for licensing.

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"Liquor sourcing for the industry is caught up in a maze of archaic


and complex regulations," said the NRAI in a published document.
Making matters more difficult, liquor licenses are overly expensive,
according to the NRAI. In Delhi, liquor licenses cost 5 to 10 lakh
annually depending on the size of the restaurant; for comparison, in
Singapore, a liquor license is less than half a lakh.
Impact Analysis:
This is how reducing rate of VAT or scrapping it off would help the
restaurant business & nations economy:
1) Primary effects
The immediate effect of the reduction in VAT on restaurants is to
reduce prices of
restaurants for both domestic consumers and for tourists. The
reduction in VAT is also likely to reduce the costs of production for
those industries which make use of restaurants as an intermediate
service. Other prices may consequently decline, improving
competitiveness of other sectors. However, most of the impact will
come from final demand components, namely domestic consumption
and exports.
2) Secondary effects
Because one of the main effects of the reduction of VAT on
restaurants is on the
tourism sector (at least in the long-term), the significant multiplier
effects involved are likely to be an important consideration in this
analysis. Sectors which are highly dependent on tourism are expected
to be affected more positively. These are likely to include agriculture,
food and beverages, wholesale and retail sector, hotels, and transport.
3) Third round effects
Higher output and lower costs of production are likely to increase
profit margins particularly in the hotels and restaurants sector. Higher
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output will also result in higher employment and therefore an increase


in total wages paid in the economy. The model assumes that average
wages do not rise on the assumption that there are enough
unemployed resources in the economy. This is a reasonable
assumption especially during the crisis. Higher profits which are then
distributed to shareholders and higher wages paid in the economy as a
result of the increase in employment will raise aggregate household

disposable income. This will in turn have a further positive effect on


domestic consumption through the income effect. Imports will also
rise as a result of the higher domestic and foreign consumption, partly
offsetting some of the positive effects on the economy.
Remarks:
In an already heavily licensed and overtaxed industry, the extremely
high food inflation, coupled with ever increasing taxation and various
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other operational factors, are significant burdens on those in the


business. Reducing tax rates or scrapping VAT off would certainly
help the restaurant businesses and nations economy to some extent as
the prices will be reduced which will increase the demand which will
eventually help improve nations GDP and reduce inflation.

Date: 14th December 2014


Source: Economic Times
NEWS: SITS suggestion to consider Tax Evasion
as a Criminal Offence.
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NEWS IN BRIEF:
The Special Investigation team formed by president Narendra Modi is
working on ways to get back the unaccounted wealth (Black Money)
of the Indians preserved in the Swiss Bank and other sources abroad.
It has made a suggestion to make Tax Evasion a Criminal offence
under the I-T Act 1961. Till date it is treated as a criminal offence and
hence no cooperation is received from governments abroad to trace
the unaccounted wealth.
Civil Offence: Civil offence is violation of rule rather law and the
person has to pay a penalty/fine or monetary compensation
Criminal Offence: Criminal Offence is violation of law and it has
severe consequences on the society as well. The person is imprisoned
and fined.
Summary:
Tax evasion needs to be made a serious 'criminal offence' to force
foreign countries to reveal names and account details of Indians
stashing illicit wealth abroad, the Special Investigation Team on black
money has said.
At present, tax evasion is a civil offence in India and it is dealt under
the Income Tax Act, 1961 while forex violations are dealt under the
Foreign Exchange Management Act (FEMA).
Both the laws are civil in nature and do not have criminal proceedings
attached as such.
If tax crimes remain civil in nature, the foreign governments will not
cooperate. If this is made a crime, then there is no difficulty and then
they (foreign countries) are bound to reveal the names. That is the
main purpose.
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The Supreme Court-constituted SIT, which has former Supreme Court


judges M B Shah and Arijit Pasayat as Chairman and Vice-Chairman,
recently submitted its latest report on black money menace, wherein it
has disclosed tracing of Rs 4,479 crore held by Indians in a Swiss
bank and unaccounted wealth worth Rs 14,958 crore within India.In
this report, the SIT pointed out that more than 25 countries have made
"tax crimes" a predicate offence.
India is seeking cooperation from a number of foreign jurisdictions,
including Switzerland, in cases of suspected black money, but its
requests have been turned down in maximum number of such
instances as tax evasion is not dealt under strict criminal laws, unlike
money laundering provisions.
SUGGESTIONS OR RECOMMENDATIONS OF THE SIT TEAM:
1. To deal with this issue, the SIT has suggested making tax evasion of
Rs 50 lakh and above a 'predicate offence', saying this would enable
easier investigation into tax evasion crimes under the stringent laws
of money laundering as stipulated under the Prevention of Money
Laundering Act (PMLA).Pasayat said there is also a need to limit
holding and transportation of cash and to check large-value
'unreported' cash dealings that are rampant even at public places
like shopping malls.The high-powered panel which has the heads or
representatives of agencies to assist Shah and Pasayat, also wants
limits on holding of cash and currency notes.
2. Make PAN mandatory for all cash and cheque transactions above
Rs 1 lakh and amendment of laws to provide for confiscation of
domestic property of those with illicit assets abroad.
3. The SIT has also flagged existence of black money in mining, ponzi
scheme and iron ore exports as well as money couriers, called
'Angadias', dealing in huge sums of money outside the banking
system.

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4. Setting up of an institutional mechanism to examine mismatch


between export/import data with corresponding data of other
countries on a quarterly basis to unearth black money.
5. It also recommended establishment of a central KYC (Know Your
Customer) registry to deal with the problem of multiple identities of
an individual in financial transactions.
6. Also, the shipping bills should include the international market
price of goods and machinery sought to be exported. "This
suggestion is under consideration and is likely to be implemented
within short time," the SIT said.
7. Besides, there should be a dynamic interaction between different
stakeholders like reporting entities, Financial Intelligence Unit and
law enforcement authorities. In cases where ED has attached a
property and there are income tax dues to be collected, the SIT said
that the former should be open to recovering dues from the attached
property.
8. SIT said that at least five additional chief judicial magistrates courts
should be set up in Mumbai to deal with 5,000 pending IT
prosecution cases. It said Rs 4,479 crore was held in the Swiss bank
accounts owned by Indians, who figured on the HSBC list that
India had got from the French government.Besides, the tax
department and other agencies including Enforcement Directorate
are probing cases involving unaccounted wealth totalling Rs
14,957.95 crore within India, the report said.

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IMPACT OF GST ON VARIOUS SECTOR

What is GST?
Goods and Service Tax or GST is expected to be a critical reform in
spurring growth in the economy. When introduced, GST will not only
make the tax system simpler, but will also help in increased
compliance, boost tax revenues, reduce the tax outflow in the hands of
the consumers and make exports competitive. It is hoped that the new
Government will set forth a roadmap of the GST implementation in
the upcoming Budget.
To begin with, the GST is a value added tax to be levied on both
goods and services (except for a list of exempted goods and services),
at both the centre and state level (Central GST and State GST
respectively). This is a single tax which will be levied on the product
or service which is sold. In other words, multiple taxes like CENVAT,
central sales tax, state sales tax, octroi, etc will not exist and will be
replaced by GST. This comprehensive tax covers all stages from
manufacture to sale. The tax will be levied only on the value added at
each stage of the life cycle.
Simpler tax structure: As multiple taxes on a product or service are
eliminated and a single tax comes into place, the tax structure is
expected to be much simpler and easier to understand. Paperwork will
become simpler and there will be a reduction in accounting
complexities for businesses. A simple taxation regime can make the
manufacturing sector more competitive and save both money and
time. Experts opine that the implementation of GST would push up
GDP by 1%-2%.
Increased tax revenues: A simpler tax structure can bring about
greater compliance, thus increasing the number of tax payers and in
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turn tax revenues for the Government. The current state of the Indian
economy demands fiscal consolidation and reduction in fiscal deficit.
A recent report by CRISIL states that GST is the countrys best bet to
achieve fiscal consolidation. As there is not much scope to reduce
Government expenditure, increasing tax revenues is the best
alternative to improve the fiscal health.
Competitive pricing: GST will eliminate all other forms of indirect
taxing. This will effectively mean that the tax paid by the final
consumer will come down in most cases. Lower prices will help in
boosting consumption, which is again beneficial to companies. The
biggest positive of GST is that goods and services will be taxed on a
common basis.
Boost to exports: When the cost of production falls in the domestic
market, Indian goods and services will be more price-competitive in
foreign markets. This can bode well for exporters, who compete with
manufacturers abroad facing a lower cost structure.
The rate for GST is as yet undecided, but it would be in a range that
would make exports competitive. A sub-committee of the Empowered
Committee of state finance ministers had proposed revenue-neutral
rates (RNR) for the Central and state components at 12.77 per cent
and 13.91 per cent, respectively, taking the effective GST rate to
26.88 per cent. This is much stiffer than the 14-16 per cent in most
countries.
LATEST UPDATES ON GST: Finance minister Arun Jaitley on
Friday introduced in the Lok Sabha the much-awaited bill to amend
the Constitution for introduction of goods and services tax (GST),
which he described as the biggest tax reform in Independent India.
Jaitely promised that the Centre will compensate states for the losses
incurred by them after the introduction of the tax to create a unified
market. The centre has made a provision in the Bill promising to
compensate states for five years for losses arising from GSTs
implementation. While states will be compensated for 100% of their

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losses in the first three years, it will be 75% in the fourth year and
50% in the fifth year.
The Constitution amendment bill provides for giving states and the
Centre simultaneous powers to legislate on GST and also set up a
GST Council with the Union FM and state ministers as members. The
Centre will have a one-third say, while the states together will have
two-thirds. Any decision will need the backing of 75% of the
members. "The states will have a majority and the Centre alone can't
push a decision. The two have to decide together and no one can
decide arbitrarily.

Date: 19/12/14
Source: Business Standard
NEWS: GST to benefit e-commerce the most.

NEWS: Introduction of the goods and services tax (GST) may be a


big positive for the e-commerce industry. With no tax laws in place
for the industry currently, tax is imposed based on the understanding
of various state governments. GST will help resolve many supply
chain issues which impact the e-commerce sector.
The shipment and returns across the country will be done more
efficiently and with lesser paperwork. The efficiency in the supply
chain will also mean quicker deliveries. Companies will also be able
to execute more efficient supply chain strategies, with warehousing
based on strategy rather than tax requirements (like Octroi). More
importantly, with a uniform tax structure across India, goods can
be priced and margins calculated properly without worrying
about where the product is finally shipping.

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AMAZON-KARNATAKA TAX ISSUE: GST would also help


address challenges such as the one faced by the Karnataka tax
authorities, where concerns about alleged tax evasion
by Amazon India were brought to the fore. Questions were raised
about why Amazon and its sellers were paying no VAT for operating
from the companys warehousing facilities on the outskirts of
Bengaluru. The situation might have been different if clear laws had
been formulated for the e-commerce sector. The standoff is more a
result of differences in interpretation of the vague laws by Amazon
and
the
state
tax
authorities.
Amazon operates on a marketplace model and only provides a
platform for buyers and sellers to transact -- it's not engaging in any
selling directly. Thus, Amazon's reasoning was that it should not come
under the purview of sales Tax or VAT. It gets a commission from
sellers for facilitating sales and, thus, only service tax was applicable,
it felt. On the other hand, its sellers, who were stocking their goods in
Amazons warehousing facility, were designating it as an additional
place of business, in contravention of the states VAT rules.

Date: 19/12/14
Source: Business Standard
NEWS: AUTOMOBILE, LOGISTICS COMPANIES TO REAP
RICH GST DIVIDEND.

NEWS IN BRIEF:
GST is expected to result in a reduction in the cost of doing business
by removing the cascading effect of taxes especially for automotive
distributors, which attracts high rates of CENVAT duties as well as
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VAT at State level, in addition to other levies such as NCCD, Auto


cess, entry taxes, octroi, registration charges and road taxes.
Automobile exports are also likely to benefit, as embedded taxes in
Indias export prices will be eliminated.
Under the GST regime, with no embedded tax costs on inter-state
movement of goods (CST or entry taxes) and a shift in the point of
taxation to the consumer ultimately, businesses would have greater
flexibility to re-design their supply chains and thus, optimize logistics
costs. Since their vendors are also likely to benefit from the transition,
companies could negotiate with their vendors to pass on those
benefits in terms of input prices.
Other big beneficiaries would be logistics companies. Other big
beneficiaries would be logistics companies. A complicated tax regime
coupled with poor infrastructure has led to high logistics costs in India
at around 14 per cent of the total value of goods against seven to eight
per cent in developed countries.
The Centre will levy and collect the Integrated Goods and Services
Tax (IGST) on all inter-state supply of goods and services. There will
be flow of input tax credit from one state to another and proceeds of
IGST will be apportioned among the states.
IMPACT ANALYSIS:
Currently, a three-tier GST rate structure is proposed 12% for
essential goods, 16% for services and 20% for goods, which could
result in double-digit reduction in tax costs for the mid-size and
luxury passenger vehicle segments especially. Such benefit could be
useful for manufacturers to either improve profitability or increase
competitiveness by passing on the benefit to consumers in form of
price reductions.

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Moreover, announcements like reduction in steel prices and


elimination of customs duty on auto components too will work in
favour of the sector.There will be major savings in transport costs for
companies, which will directly improve profitability.

Date: 20/12/14
Source: Business Standard
NEWS: Why FMCG firms are cautiously optimistic on
GST
NEWS: The Union Cabinets approval to the Constitution
amendment Bill for implementing the goods and services tax (GST)
earlier this week has paved the way for the Bills introduction in
Parliament. This implies a boost for the long-pending indirect tax
reforms. Yet, executives in Indias Rs 3-lakh-crore fast-moving
consumer goods (FMCG) sector, who were earlier lobbying for
implementation of GST, now are cautiously optimistic.
The reason: A lack of clarity on the tax rate under GST. GST speaks
of a harmonised goods and services tax. But estimates suggest this
harmonised, or revenue-neutral rate will be 24-27 per cent. This,
interestingly, is what had been recommended last month by the
empowered committee of state finance ministers. This group,

Page | 27

representing the interest of states, has been speaking to the Centre on


GST.

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