Meet on SEZs to address tax concerns under GST regime

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Government to seek inputs from international experts on SEZ policy revamp

Tax clarity:The workshop is also an attempt to convince the Finance Ministry on the need to ensure tax exemptions to SEZs.— FILE PHOTO

The Commerce Ministry will convene a stakeholder workshop on Special Economic Zones (SEZ) on September 5.

The meeting, to be attended among others by Finance Ministry officials and international SEZ experts, is being held amid concerns expressed by the SEZ sector about the lack of clarity in the proposed Goods and Services Tax (GST) regime regarding upfront exemptions of taxes and duties for SEZ developers and units.

Diminished interest

The workshop comes in the backdrop of diminished investor interest in SEZs due to concerns including those on the tax burden due to the FY’12 Union Budget imposing a 20.5 per cent Minimum Alternate Tax (including cess) on SEZ developers and units as well as Dividend Distribution Tax (DDT) on developers.

The Commerce Ministry and the SEZ sector had sought exemption or at least reduction of MAT and DDT on SEZs.

Significantly, the meeting will have as participants, representatives from the Dubai-based World Free Zones Organization (World FZO) who will give their views on the future of SEZs in India under the GST regime as well as on global best practices relating to SEZs, official sources said.

The World FZO was set up to “bring together free zones from around the world to enable them to achieve shared objectives and address common issues.”

The workshop will also be attended by officials from the Australian Trade & Investment Commission (or Austrade) as well as South Africa’s experts on SEZ & Value Added Tax, they said. Efforts to get suggestions from global experts on the SEZ policy follow a similar attempt made by India in May this year along with several countries bordering the Indian Ocean to develop a regional framework to cooperate on SEZ-related issues.

Participants at the meeting in May at the Iranian Port of Chabahar had also considered forming a “joint FTZ” among the Indian Ocean Rim Association-member countries since most of these FTZs are situated or are being built in coastal regions.

P.C. Nambiar, Chairman of the Export Promotion Council for EOUs and SEZs (EPCES) and the Secretary of the World FZO, told The Hindu , “The government needs to amend the SEZ Rules to ensure that idle capacity in SEZs is converted to productive capacity. Such a move will strengthen the ‘Make in India’ initiative.”

Mr. Nambiar, who is also on the Board of Directors of the World FZO, said the government must identify the land lying idle in the Central/state-government SEZs, de-notify them as SEZ land and instead use it for creating infrastructure or for manufacturing units that would cater to the domestic market.

Tax exemption

During the meet, to be held in New Delhi, the Commerce Ministry will also seek suggestions for greater ease of doing business in SEZs. The workshop, where Finance Minister Arun Jaitley will be the chief guest, is also an attempt to convince Finance Ministry officials about the need to ensure upfront exemptions of taxes and duties to SEZ developers and units in the new GST regime.

There are about 329 notified SEZs of which 204 are operational. As on March 31, 2016, SEZs had attracted almost Rs.3.8 lakh crore worth of investments.

‘GST rate above 18% could stoke inflation’

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Industry wants 6 months time for hassle-free roll-out

New order:Trade groups also want a single centralised registration of suppliers of services.— FILE PHOTO: AFP

Industry lobbies are backing the Congress Party’s demand that the standard rate of Goods & Services Tax (GST) should not be allowed to breach the 18 per cent mark as it would stoke inflation.

The demand was made during an interaction with the Empowered Committee of State Finance Ministers on Tuesday. They said higher rates could fuel price gains. The chambers of business also said they required sufficient time to put in place the IT infrastructure.

Reasonable rate

A Federation of Indian Chambers of Commerce & Industry (FICCI) delegation led by its past president Harsh Mariwala sought a minimum of six months from the date of the adoption of the GST Law by the proposed GST Council to prepare for hassle-free roll-out of the new indirect tax regime. The delegation said it preferred a “reasonable” standard rate that would check inflation as well as evasion while ensuring compliance.

“For industry, which seeks to be competitive in the global marketplace, a standard rate of 18 per cent will be advantageous,” said Naushad Forbes, President, Confederation of Indian Industry (CII).

The CII is committed to the deadline of April 1, 2017 for the roll out of the GST, Mr. Forbes said.

The average standard rate of value-added tax in high-income countries is 16.8 per cent while that in emerging market economies is 14.1 per cent although rates in countries like China and Mexico are a little higher than this, he pointed out. “India should position itself correctly in order to boost exports and generate employment,” he said.

Assocham called for a relaxation in the penal and prosecution provisions in the first two years after the roll out of the GST except in case of tax fraud or non-deposit of collected taxes.

Chairman of the Empowered Committee and West Bengal Finance Minister Amit Mitra said that the concerns raised by the chambers would be looked into by the committee and the proposed GST Council, including the arrest and prosecution provisions. He sought suggestions on the quantum of penalties.

Centralised registration

Another demand was that there should be single, centralised registration of suppliers of services operating across states rather than multiple, state-wise registrations.

Government expects tax revenues to increase after GST roll-out

By ET Bureau | Aug 18, 2016, 02.31 AM IST

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With plan and non-plan distinction being done away with from next financial year, the government expects to bring more attention to capital spending.

NEW DELHI: The government expects its tax buoyancy to increase after the goods and services tax (GST) is rolled out, a sharp contrast to many experts warning of disruptions in tax machinery and slower revenue growth in the initial years of this tax reform.

In the medium term expenditure framework released last week the government expects higher economic growth, GST and other policy measures to help lift gross tax revenues to 10.9% of gross domestic product (GDP) in FY18 and 11.1% of GDP in FY19. The Centre's tax-to-GDP ratio was 10.7% in FY15, almost same as projected 10.8% for the current fiscal.

CAPITAL SPENDING & SMALLER GOVT
With plan and non-plan distinction being done away with from next financial year, the government expects to bring more attention to capital spending. It wants to set aside more funds for capital spending and expects to show a higher allocation from next fiscal.

"The larger issue on the expenditure side that remains to be tackled relates to the revenue-capital expenditure imbalance," the government said in its statement, promising to lift total capital spending to 15.6% of total spending in FY19. "It is presumed that with the focus shifting to capital and revenue expenditures with the merger of plan and non-plan from Budget 2017-18, government will take proactive measures for enhancement of the capital component within its total expenditure," it said. The government also sees total spending decline from estimated 13.1% of GDP in FY17 to 12.2% of GDP by FY19 by curtailing the growth in non-developmental expenditure.



MORE TO COVER PAY COMMISSION
The government said it will need more to cover its seventh pay commission liability — both for pension and salaries — as the amount set aside may not be enough. To absorb complete impact of pay revision in 2016-17, "salary provision made in BE 2016-17 will require some enhancement in RE 2016-17" the statement said. Spending on salaries is projected to increase 12% in FY18 and 8% in FY19. Similar increase in pensions is suggested that are set to increase 10% in FY18.

LOWER DISINVESTMENT
The government has planned a less ambitious disinvestment target in the years ahead. This year, disinvestment is estimated to fetch .Rs 56,500 crore (including.Rs 20,500 crore from strategic disinvestment). "Over the medium-term framework, the target of disinvestment receipts are kept flat on conservative side, at .Rs 40,000 crore both for 2017-18 and 2018-19," the government said in the statement.

SUBSIDY REFORM
The government also said subsidies reforms will continue over the next two years. Subsidy spending is expected to decline to 1.5% of GDP in FY17 from 1.8% in FY16. "It is expected that with active policy reforms including better targeting, the incidence will progressively reduce," the government said, pegging it at 1.3% of GDP in FY19. Once the biggest burden on finances, the fuel subsidy is now seen at Rs 21,500 crore in FY19. The biggest subsidy now is food subsidy that is expected to cost Rs 1.45 lakh crore in FY19 compared with Rs 1.34 lakh crore in the current fiscal.

ET view: Rational exuberance
The government's assessment is not unrealistic. Indeed, GST will drive investment, growth and tax revenues. That's because companies will be able claim credit for all input taxes paid across the production chain. It will cut out the cascade of taxes and make production more efficient. The government's goal should be to double the current tax/GDP ratio of about 16% (combined states and Centre) to close in on the average for OECD members. This, in turn, will give welcome fiscal space to raise public investment in a big way.

More banks to start e-verifying without net banking

NEW DELHI, August 15, 2016

After Punjab National Bank and United Bank of India, more banks are likely to soon start a facility wherein an account holder can verify his income tax return on e-filing site even without having netbanking.

Electronic Verification Code (EVC) can be generated by pre-validating the bank account on the e-filing portal of the Income Tax Department.

“PNB and UBI have launched this facility which will facilitate the account holders, who may not have a netbanking account, to e-verify their return. Other banks are expected to launch this facility,” the Central Board of Direct Taxes (CBDT) said. It also said EVC can be generated by pre-validating a Demat Account on the e-filing portal.

“NSDL and CDSL have launched this facility which will facilitate the account holders to e-verify their return,” it said.

Customers of State Bank of India, Axis Bank and Canara Bank can generate EVC through the respective bank’s automated teller machines. Other banks are also expected to offer this facility soon, the tax department said.

As per the latest data, the e-verification facility of IT returns was used by over 75.3 lakh taxpayers till August 5 against 32.95 lakh taxpayers last year till September 7, 2015. Of these, Aadhar based e-verification was used by 17.68 lakh taxpayers during the current year. — PTI

Govt notifies revised tax treaty with Mauritius

PTI | Aug 13, 2016, 06.51 PM IST

NEW DELHI: Government has notified the revised tax treaty with Mauritius under which India will impose capital gains tax on investments routed through the island nation from April 1 next year in a bid to curb tax evasion.

The protocol amending the agreement between India and Mauritius, signed on August 24, 1982 for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains and for the encouragement of mutual trade and investment, was signed at Mauritius on May 10, 2016.

India and Mauritius had signed the revised Double Taxation Avoidance Convention (DTAC) after prolonged negotiations at Port Louis.

Under the amended treaty with Mauritius, for two years beginning April 1, 2017, capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019.

This concessional rate would however apply to a Mauritius resident company that can prove that it has a total expenditure of at least Rs 27 lakh in that nation and is not a 'shell' company with just a post office address.

As per the revised treaty, investments made prior to April 1, 2017, will be protected from new tax provisions.

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The island nation with just 1.3 million people was the biggest single source of foreign direct investment into India in 2014-15, accounting for about 24 per cent of USD 24.7 billion foreign direct investment (FDI).

The three-decade-old taxation treaty is said to have been misused by many Indian and multinational companies to avoid paying tax or to route illicit funds.

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well done... though its just the beginningSumit Dubey

India had been insisting on review of the treaty since 2006 as it felt a chunk of the funds were not real foreign investments but Indians routing cash through the island to avoid domestic taxes, a practice known as "round tripping".

It wanted to ensure firms in Mauritius that invest in India are not just 'shell' and instead have substantial operations in the island, such as paying staff there, before qualifying for treaty terms of getting exemption from payment of capital gains tax in India.

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Ministry wants SEZs’ tax sops to continue

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There is lack of clarity in the proposed GST regime

Tax-free enclaves:As per the current norms, SEZs are tax and duty-free enclaves.— PHOTO: K.R. DEEPAK

The Commerce Ministry has raised with the Finance Ministry the Special Economic Zone (SEZ) sector’s concerns about the lack of clarity in the proposed Goods & Services Tax (GST) regime on the continuation of tax & duty exemptions, official sources said.

According to the Commerce Ministry, many tax and duty incentives have been offered to SEZ units and developers in the current SEZ policy to help them attract investments, and in turn, generate employment and boost exports. Pointing out that the proposed GST regime does not provide clarity on these SEZ-related incentives, the Commerce Ministry sought continuation of the tax and duty exemptions, the sources said.

As per the current norms, SEZs are tax and duty-free enclaves and are deemed to be foreign territory for purposes of taxes, duties and trade. Parliament recently passed the amended GST Bill.

The proposed GST regime will subsume central & state level taxes, and the new model will include a Central GST, IGST for inter-state supplies and SGST for intra-State supplies.

The Commerce Ministry had on Wednesday held a meeting with representatives from Export Promotion Council for Export Oriented Units and SEZs (EPCES), the apex body for SEZs and EOUs. The EPCES — which had asked the consulting firm EY to study the impact of GST on SEZs & EOUs — submitted to the commerce ministry the EY study’s key recommendations.

As per the commerce ministry, incentives offered to SEZ units include duty-free import and duty-free domestic procurement of goods for development, operation and maintenance of SEZ units. SEZ units are also exempted from Central Sales Tax (CST), service tax and State sales tax. These incentives should continue, it said.

Maintain sops

Incentives offered in the present SEZ-related policy to SEZ developers include exemption from customs/excise duties for development of SEZs for authorised operations approved by the SEZ Board of Approval, besides exemption from CST and service tax. These exemptions also should be maintained in the GST regime, the ministry said.

Rahul Gupta, vice chairman, EPCES, said there was no clarity in the model GST law on customs & excise duty exemptions available to SEZs for export & import activities.

Also, currently there is no excise duty on raw material procurement by SEZs from Domestic Tariff Area (or DTA, which is the area outside the SEZs but within India) as such procurement is treated as exports from DTA to SEZ. Besides, procurement by SEZs does not attract CST and even Value Added Tax (states such as Tamil Nadu do not levy VAT on such transactions, while many other states do not grant VAT exemption to SEZs for the same).

Zero ratings

The relevant provision in the model GST law which specifies the kind of supplies that can be zero-rated (where there is no tax on supplies & where suppliers will be eligible to claim input credit) should include supplies from DTA to SEZ, the EPCES said , adding that the model GST law should be amended to this effect.As on June 7, 2016, there were 329 notified SEZs, of which 204 are operational. As on March 31, 2016, SEZs have attracted Rs.3.76 lakh crore worth of investment and provided employment to nearly 16 lakh people. Exports from SEZs in FY’16 were Rs.4.67 lakh crore.

GST Bill: Green light for ‘one nation, one tax’

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NEW DELHI, August 4, 2016

Updated: August 4, 2016 02:28 IST

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The GST will have two components keeping in mind the federal structure of India: the Central GST (CGST) and the State GST (SGST).

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Barring the AIADMK, which staged a walkout on the plea that it violated federalism, all others, including the Congress, voted for the Bill.

After being subject to months of haggling and histrionics, the Goods & Services Tax (GST) finally had its historic day in the Rajya Sabha with the passage of the Bill to amend the Constitution, paving the way for what is popularly referred to as the concept of “one nation, one tax.”

Barring the AIADMK, which staged a walkout on the plea that it violated federalism, all others, including the Congress, voted for the Bill.

Led by the former Finance Minister P. Chidambaram, the Congress, supported by members of some other parties, made a valiant effort to extract an assurance from Finance Minister Arun Jaitley that as and when he would introduce the subsequent legislation to operationalise the GST, it would be as finance rather than money bills. This was to ensure that they would also be voted in the Rajya Sabha.

However, Mr. Jaitley refused to yield, stating that he could not give a commitment on future legislation whose contours would be decided by the Centre and the States together.

Also read: Editorial | Good sense triumphs on the GST

The Rajya Sabha passed the constitutional amendment by two-thirds majority, as all parties, except the AIADMK, pledged support. The amendments moved by Mr. Jaitley were also put to vote. The Bill will now be returned to the Lok Sabha for its approval.

The constitutional amendment will enable both the Centre and the States to simultaneously levy the GST, which will subsume all indirect taxes currently levied, including excise duties and service tax. It will be levied on consumption rather than production.

Two components

The GST will have two components keeping in mind the federal structure of India: the Central GST (CGST) and the State GST (SGST).

The shift to the GST regime will lead to a uniform, seamless market across the country. It will be a uniform rate, will check evasion, and boost growth rates, Mr. Jaitley said initiating the debate.

Earlier in the day, lead speaker for the Congress, Mr. Chidambaram, made it clear that the main Opposition party will support the long-pending Bill only if the government gave firm assurances on two things: keeping the GST rate capped at 18 per cent in the subsequent legislation needed for the GST’s roll-out and bringing forth these as financial bills rather than money bills, which the Upper House will not just discuss but also vote on.

Jaitley hopes GST rates will be moderate

The Union Finance Minister also refused to give an assurance on demands put forth by Congress leader P. Chidambaram and others but did give the Rajya Sabha his word that the government will go by the Constitutional provisions and precedents at the time of bringing in the subsequent GST Bills.

The Congress members voted in favour of the Bill.

The Finance Minister said that his discussions with States led him to believe that the rates would be moderate and less onerous than the combined burden of the Central and State taxes on goods and services, which comes at present rates to about 27%. However, he said that it was not possible for him to give an assurance on legislations that had not yet been drafted. Before the Bill was put to vote, the AIADMK members staged a walkout from the House.

Putting on record that the GST was originally initiated by his predecessor, Mr. Chidambaram, Mr. Jaitley expressed gratitude to leaders of all political parties for the consensus that he was able to build on the Bill. “A legislation of this kind cannot be made on the basis of a partisan approach…,” he said.