PROJECT REPORT ONTaxation

UNDER THE GUIDANCE OFProf. ANIL GOR

SUBMITTED BY GROUP NO:-3NameRoll No

Sohil BaghadiaFM203

Abhishek IyerFM213

Shashank MahadikFM223

Manas SharmaFP233

Shweta KariaFP243

Jalpan Shah FP253

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.

TABLE OF CONTENTS

SR. NOTOPICPAGE NO.

1Excise sops to automobile sector may halt beyond December, companies to oppose the move5

2SEBI Received Tip-off from Tax Department.8

3New-look Bipa won't let MNCs milk tax havens11

4Restaurant Industry seeks tax relief, less regulation15

5SITS suggestion to consider Tax Evasion as a Criminal Offence.19

6Impact of GST on various sector.22

News - Excise sops to automobile sector may halt beyond December, companies to oppose the move.Source - The Economic TimesDate - 16 Dec, 2014Summary 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 dutyconcessions 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.

Category Present rateOld rate

Commercial vehicles and two wheelers8%12%

SUVs24%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.

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.RemarksI 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 2014SOURCE: 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.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: 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 StandardDate: Dec 16, 2014.News : New-look Bipa won't let MNCs milk tax havensNews 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?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.Impact1. 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 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 Analysis1. 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 under the law.

RemarksAs 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 IndiaDate : Dec 17, 2014NEWS: Restaurant Industry seeks tax relief, less regulationNews 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."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 effectsThe immediate effect of the reduction in VAT on restaurants is to reduce prices ofrestaurants 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 effectsBecause one of the main effects of the reduction of VAT on restaurants is on thetourism 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 effectsHigher output and lower costs of production are likely to increase profit margins particularly in the hotels and restaurants sector. Higher 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 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 2014Source: Economic TimesNEWS: SITS suggestion to consider Tax Evasion as a Criminal Offence.

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 compensationCriminal 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. 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.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.

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 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 theLok Sabhathe 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 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: 19/12/14Source: Business StandardNEWS: GST to benefit e-commerce the most.

NEWS: Introduction of the goods and services tax (GST) may be a big positive for thee-commerceindustry. With no tax laws in place for the industry currently, tax is imposed based on the understanding of various state governments. GSTwill 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.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 byAmazonIndia were brought to the fore. Questions were raised about why Amazon and its sellers were paying noVATfor 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 ofsales Taxor 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: 19/12/14Source: Business StandardNEWS: 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 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.

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: 20/12/14Source: Business StandardNEWS: Why FMCG firms are cautiously optimistic on GSTNEWS: 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, representing the interest of states, has been speaking to the Centre on GST.

Page | 2