GST Council Hikes Tax On Mobile Phones, Extends Deadline For Filing Annual Returns

Mobile phones will now attract a higher tax after the Goods and Services Tax Council corrected the inverted duty structure that the industry faces.

The council hiked the GST on mobiles and specified parts to 18 percent from 12 percent, Finance Minister Nirmala Sitharaman said after the meeting.

An increase in GST rates for mobile phones should help in improving the working capital costs for manufacturers, said Abhishek Jain, partner at EY India. But prices of mobile phones may rise if industry players decide to pass on the rate increase to customers, he told BloombergQuint.

The GST Council also rationalised rates on matchsticks to 12 percent. That’s from 5 percent for handmade matchsticks and 18 percent for machine-made.

Sitharaman said there were other items such as footwear, textiles, telephones and fertilisers are affected by the inverted duty structure—where inputs are taxed higher than finished products. Today, the council only corrected the rate on mobile phones. If the need arises, it will consider rationalising rates of other such items in subsequent meetings, she said.

In another move, the council reduced GST on maintenance, repair and overhaul services for aircraft from 18 percent to 5 percent with full input tax credit. “This change is likely to assist in setting up of MRO services in India,” a statement from the finance ministry said.

According to Parag Mehta, partner at NA Shah Associates LLP, currently, many MROs were not being set up due to the high cost impact of GST. “This change will ensure that such centres which had been set up in other countries may also shift to India.”

The changes in rates will be effective April 1, 2020, the statement said.

Relief For MSMEs

The GST Council provided relief to small businesses with annual turnover below Rs 5 crore from filing reconciliation statement GSTR-9C for financial year 2018-19. The due date for filing annual return GSTR-9 and reconciliation statement GSTR-9C has been extended to June 30 from March 31.

The increased threshold to Rs 5 crore for filing GST annual return and audit compliance will help to ease compliances for small businesses, Jain said, adding small businesses will now have to only focus on their quarterly and monthly return filing.

The GST Council also waived late fee for delayed filing of annual returns and reconciliation statement for financial year 2017-18 and 2018-19 for taxpayers with aggregate turnover of less than Rs 2 crore, according to the finance ministry’s statement.

It decided to curb tax evasion by seeking information of taxpayers from banks and impose restrictions on passing input tax credit by new GST taxpayers before physical verification of premises and financial KYC of the registered person.

The dates for implementation of e-invoicing and QR code has been extended to Oct. 1, 2020, and the existing system of filing GSTR-1 and GSTR-3B by taxpayers will continue till Sept. 30, 2020.

That, according to Rajat Bose, a partner, Shardul Amarchand Mangaldas & Co., should give enough time to the industry for getting their systems in place.

Revenue Secretary Ajay Bhushan Pandey said the GST Council approved a new facility called ‘Know Your Supplier’. This will allow every registered person to have some basic information about the suppliers with whom they conduct business. The facility will help taxpayers in knowing their suppliers’ GST number, and if they have filed returns, among other details.

Tech Glitches

Nandan Nilekani, chairman at Infosys Ltd.—which provides technological support to GST Network—suggested implementation of the new return filing process in a staggered manner for its smooth rollout.

The process, according to the government statement that listed Nilekani’s suggestions, may be initiated by addressing the compliance-related issues first so that the problem of tax evasion and gaming of the system due to non-linking of GSTR-1 and GSTR-3B returns is addressed immediately.

Nilekani suggested linking of the sales details in GSTR-1 to the liability in GSTR-3B. This would be followed by the linking of the input tax credit in GSTR-3B to the details of the supplies reflected in GSTR-2A. He told the council that to augment the capacity of the IT system to concurrently handle 3 lakh taxpayers from the current 1.5 lakh, hardware procurement process has been initiated, but impacted by the coronavirus pandemic.

Nilekani will attend the next three meetings of the GST Council. He will update the council with the status of implementation of the decisions taken and assist it in taking appropriate decisions on technology-related issues, Sitharaman said. The GST Council has approved deployment of additional manpower at GST Network, and procurement of additional hardware.

Market Borrowing To Compensate States

Sitharaman said there was a discussion to borrow from the market to adequately compensate states for any losses they incurred after the rollout of the new indirect tax regime.

The council, she said, will meet again after Parliament session looks at how the GST Council should be allowed to borrow and who stands guarantee, how will it be repaid, who will pay the interest, and the legal implications of it. The impact of such borrowing on the Fiscal Responsibility and Budget Management limits will also have to be looked at, she said.

“I have told the council I will look at those things, legally get opinions, more information and then come back to council based on what I have,” she said.

The central government has so far compensated Rs 1.2 lakh crore to the states, while it only collected Rs 78,000 crore as compensation cess. The government compensates states—by levying a cess on sin and luxury goods—for any losses they incur in the first five years of GST rollout with an annual growth rate of 14 percent keeping 2015-16 as the base year.