Govt seeks explanation for transition credit; only 690K GST returns filed

Close to 160 companies could start receiving notices seeking explanations on the amount of transitional GST tax credits claimed by them over the coming weeks, even as the number of taxpayers who have filed their GST returns for August remains far below the figure expected by the government.

In the run-up to the introduction of the single production levy, the indirect-tax department will begin sending notices to several companies after the Central Board of Excise and Customs (CBEC) last week directed chief commissioners to verify any transitional credit claim over Rs 1 crore, the Economic Times reported on Tuesday while citing people who knew of the development. According to the report, close to 160 companies, which have collectively claimed around Rs 65,000 crore in transitional tax credits due to the implementation of the Goods and Services Tax (GST), would be part of the exercise.

As reported earlier, significant refunds claimed by entities for their pre-GST stock has left the government startled. For the close to Rs 95,000 crore of revenue collected for July till September 9, around Rs 60,000 crore was claimed as input tax credit for taxes paid for the period before July 1, according to state official sources.

 

The input tax credit for the transitional period has been claimed through the TRAN 1 form. Companies had a 90-day period from July 1 to claim credit for the excise duty already paid on inputs.

“We are still evaluating the number of input tax credit claims. It seems to be too large. It is not adding up,” Revenue Secretary Hasmukh Adhia had said at the Business Standard GST Roundtable on September 6.

Speaking to ET, a tax official said that many companies were suspected of having claimed credit without backing the claim with proper invoices. Further, according to the report, industry trackers have said that transitional credit claims amounting to Rs 65,000 crore when total GST revenue for July stood at Rs 95,000 crore appeared to be disproportionate.

Further, according to the financial daily, some companies, especially certain Hyderabad-based infrastructure firms, could be asked to produce their value-added tax (VAT) returns for the past one year.

Where are all the GST returns?

Less than 48 hours remain before the deadline (September 20) to file GST returns for August expires. However, even at this eleventh hour, only 690,000 taxpayers had filed their GSTR-3B returns till Monday, the Indian Express reported on Tuesday while citing sources. Despite the September 20 deadline, data accessed by the national daily show that only 499,000 taxpayers had filed their 3B returns for August until September 17.

According to the report, the government expects about 6.4 million taxpayers to file returns for August, from 4.6 million taxpayers who filed their returns for July. Further, the total number of taxpayers registered under GST is 8.5 million.

Bihar Deputy Chief Minister Sushil Kumar Modi, who is leading the group of ministers (GoM) constituted to look into technical glitches in the Goods and Services Tax Network (GSTN), appealed to dealers to not wait until the last day to file returns. He added the heavy rush to meet the deadline would put pressure on the system.

GSTN glitches to blame?

As reported earlier, traders have complained that it takes as much as 12 hours to update a form, and in many cases, the site is inaccessible. This has had an impact on the filing of returns.

The GoM has identified a set of common issues after talking to corporate entities such as Unilever, various state tax department officials, and tax consultants. At its first review meeting in Bengaluru, the GoM asked vendor Infosys to fix these glitches by October-end.

Led by the Bihar Deputy CM, the GoM will review progress on this task every fortnight.

Since September 15, GSTN officials have met several large enterprises, including Unilever, and over 80 tax officials from various states. Further, they interacted with tax consultants who help file returns for the nearly 8.5 million taxpayers registered with the indirect tax system.

Infosys officials were also involved in identifying the set of universal glitches: Inability to rectify errors, lack of forms, issues regarding processing applications, and bugs in the software that slow the system.

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Govt seeks explanation for transition credit; only 690K GST returns filed

MARKETS LIVE: Sensex trades flat, Nifty tests 10,150 ahead of Fed meet

The benchmark indices turned flat after Nifty50 inched up to its fresh high in early trade on Tuesday as investors remained cautious ahead of the US Federal Reserve’s two-day policy meeting beginning later today.

The Nifty50 was hovering around its crucial support of 10,150 after it gained as much as 26 points to touch its new high of 10179 level in the early trade.

The Fed is expected to hold interest rates steady in its policy meeting, but investors will be looking for clues on the expected pace of further tightening later this year and next. The market is pricing in an approximately even chance of a hike in December.

 

The Fed, however, may take a step toward policy normalisation and announce plans to begin unwinding its $4.2 trillion portfolio of Treasuries and mortgage-backed securities.

Overseas, Asian shares wavered, bolstered by record highs on Wall Street but hobbled by uncertainty as traders waited on a Fed meeting for clues on US monetary policy.

MARKETS LIVE: Sensex trades flat, Nifty tests 10,150 ahead of Fed meet

Modi govt eyes spending cuts in railways, roads as GST glitches hit revenue

India could be forced to cut spending on key infrastructure such as railways and highways as lower-than-expected tax collections and sluggish growth have upset the government’s budget calculations, two finance ministry officials said.

Tax receipts were about $7.8 billion in July – a little over half the monthly target – mostly because millions of firms failed to comply with the new Goods and Services Tax (GST) system that harmonises all state and central sales taxes but is still a work in progress.

The big worry is that economic growth, which slipped to a three-year low in the last quarter, could take a further hit if the public spending that largely underpinned expansion were to be slashed.

“There is a concern over lower tax collections,” a senior finance ministry official said.

The revenue shortfall could be at least 800 billion rupees ($12.5 billion) if the current trend continues until the end of the year, a second official said, forcing a re-think in government spending.

ALSO READ: Note ban, ‘hasty’ rollout of GST has affected GDP growth: Manmohan Singh
He said receipts from individual and corporate income tax may slightly overshoot the target of 9.8 trillion rupees ($152.8 billion) for the whole year, partly due to a crackdown on tax evaders. And in coming months, GST collections may pick up.

Both officials spoke on condition of anonymity.

Without spending cuts, the second official said, the fiscal deficit could slip to 3.5 per cent of GDP, from the target of 3.2 per cent that Prime Minister Narendra Modi’s government has set for 2017/18.

GST “chaos and pandemonium”

The main problem has been the introduction of the GST, billed as India’s biggest tax reform in 70 years.

Ambiguous rules, an onerous return filing system and glitches with its IT back-end have made doing business far more complicated for many companies. Frequent changes in tax rates after the GST’s launch have heightened business uncertainty, resulting in many firms failing to register for the new tax.

Manpreet Singh Badal, finance minister of Punjab, told Reuters the new tax was launched in a “hurry resulting in a lot of chaos and pandemonium”.

ALSO READ: GSTN glitches: GoM selects over 25 issues, to meet every fortnight
Punjab, for example, had suffered a revenue shortfall of about 8 billion rupees in the first month of its launch, he said as the textile, engineering goods, and other small industries were hit. The state expects to raise near 395 billion rupees ($6.17 billion) in tax in 2017/18.

Under a GST deal, the central government has to compensate states if their receipts fall below an annual growth of 14 percent in taxes for the next five years.

India’s GDP growth itself has slowed to 5.7 percent in the April-June quarter from 7.9 percent a year earlier, a slowdown also partly blamed on the introduction of the GST, adding to the pressure on the state coffers.

Dividends from state-run companies are expected to fall and a $11 billion share sale programme is slowing down.

“If the revenues remain below target, then the government could cut spending on railways and road transport,” the second finance ministry official said.

ALSO READ: GST hits exporters’ order book hard; 15% drop till October: FIEO
Aiming to boost growth, Finance Minister Arun Jaitley increased budgetary allocations for the railways by one-fifth to 550 billion rupees and by 24 percent for highways development to 649 billion rupees this fiscal year from a year ago.

Complicating the finance ministry’s budget arithmetic further, the Reserve Bank of India announced last month that its annual surplus, a dividend transferred by the central bank to the government each year, would be only $4.9 billion, less than half the initial estimate, largely due to costs of Modi’s shock “demonetisation” initiative last year.

“This is an abnormal year. A shortfall in tax and non-tax revenue could give a shock,” said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank funded by the finance ministry.

He said the economy was still recovering from Modi’s move to withdraw 86 per cent of high-value banknotes as part of a fight against graft.

Tax collections

A finance ministry spokesman said tax receipts were expected to improve as problems related to the new GST system and the technology underpinning it were tackled.

In his annual budget presented in February, finance minister Jaitley had projected a 17 percent growth in tax collections, while estimating spending of nearly $335.05 billion in the current fiscal year.

Jaitley also has to set aside funds for India’s stressed state-run banks, which need nearly $60 billion in extra capital to meet new international banking rules by March 2019 according to Fitch Ratings estimates.

Balancing those demands while trying to control the fiscal deficit would involve a cut in public spending, analysts said.

Soumya Kanti Ghosh, chief economist at State Bank of India, said in a research note this month that first-quarter economic growth was supported by higher state spending, but the need to rein in the fiscal deficit could force the government to cut expenditure.

Modi govt eyes spending cuts in railways, roads as GST glitches hit revenue

M&M partners Ford in drive for e-cars

Homegrown utility vehicle major Mahindra & Mahindra (M&M) and Ford have decided to collaborate again, after a 1995 tie-up to facilitate the American carmaker’s entry into India ended in 2005. This time, the firms would explore joint development of products, especially electric and connected vehicles.

The partnership will look to expand Ford’s reach in the fast-growing Indian market and improve M&M’s access to global markets. At present, both have a single-digit share in a market dominated by Maruti Suzuki and Hyundai Motor.

Teams from both the firms would work together for up to three years and any further strategic cooperation would be decided at the end of the period.

 

The partnership comes at a time when the government has gone all out to promote electric vehicles and plans to move to an all-electric fleet by 2030. More and more Indian automobile companies are, thus, feeling the need to partner international brands to address the needs of the fast-changing market.

Japanese carmaker Toyota partnered Suzuki early this year. “The cost and time taken in new product development is extremely high. Every player has some unique strength. In this backdrop, it is a win-win for two players to come together and derive benefits of partnership,” said Jagdish Khattar, former managing director of Maruti Suzuki and the man behind Carnation (a network of service stations for cars).

Recently, Bajaj Auto partnered British motorcycle brand Triumph to make some motorcycles in India.

“The changes facing the industry globally are triggered by the accelerated rise of new technologies, sustainability policies and new models of urban shared mobility. Given these changes, we see the need to anticipate new market trends, explore alternatives and look for ways to collaborate, as we compete and build powerful synergies that will allow rapid exploitation of exciting new opportunities,” said Pawan Goenka, managing director at M&M, the country’s biggest passenger vehicle (cars, vans and utility vehicles) player after Maruti Suzuki and Hyundai. M&M already manufactures electric cars and three-wheelers.

Ford’s first car in India, the Escort, was made through its first partnership with M&M. The Ikon, Fusion, Fiesta, Figo and other models followed. Ford bought out M&M’s 50 per cent stake in the partnership in 2005. M&M then entered into a joint venture with French carmaker Renault to make and sell its sedan, the Logan, in India. However, this venture didn’t last long, either. The 51:49 venture started selling the Logan in July 2007. In April 2010, M&M bought out Renault’s stake for an undisclosed amount.

M&M, which specialises in utility vehicles, can take a re-look at the car segment through its latest partnership with Ford. The partnership is much wider in scope compared to the earlier one, and will also look at distribution of cars and sourcing of materials. M&M has been losing market share for a while and has not been able grow volumes for more than a year, as rivals step up competition in the utility vehicle space. Ford has also been stuck with a sub-three per cent share for a few years, while emerging as the biggest exporter of passenger vehicles from India. Ford has a spare capacity, which can be used suitably by M&M. India, currently the fifth-biggest, is expected to become the third-biggest car market by 2020, with a volume of 5 million units compared to 3 million now. “The partnership with M&M will allow us to work together to take advantage of the changes coming in the industry. The enormous growth potential in the utility vehicle market and the growing importance of mobility and affordable battery electric vehicles are all aligned with our strategic priorities,” said Jim Farley, executive vice-president and president of global markets, Ford.

According to a Bloomberg report, the India plan is one of the most significant Ford has made in the first four months under Chief Executive Officer Jim Hackett. The first major decision the firm announced after Hackett took charge as CEO involved the automaker’s operations in Asia, the report said.

In June, it scrapped a $500-million plan to move the production of the Focus from Michigan to Mexico and said it would export the Focus from an existing factory in China instead.

TIE-UPS & BREAK-UPS

1995
M&M partners Ford; together make Ford Escort cars in India. Partnership ends in 2005

2005
M&M partners Renault; make Logan cars. Association ends in 2010
M&M partners Navistar to make trucks. Ends the pact in 2012

2007
M&M ties up with Navistar to make engines. Ends deal in 2012

2017
M&M partners Ford to make cars, especially e-vehicles. To also help each other in sourcing parts

M&M partners Ford in drive for e-cars

Is rupee depreciation a good idea to perk up economy?

Given the resource crunch of the Centre and the states as well as the limitations of monetary policy tools, depreciating the rupee against the dollar to boost economic growth, which fell to 5.7 per cent in the April-June quarter, is an idea that has found favour among economists. The idea had been broached by former chief economic advisor Shankar Acharya. However, the economists say it could be just a limited option. The problem of rupee liquidity will arise if the Reserve Bank of India (RBI) buys dollars. Some others suggested that the central bank had been purchasing

Is rupee depreciation a good idea to perk up economy?

Statsguru: India fares poorly in human capital

India ranks 103rd among 130 countries on the World Economic Forum’s (WEF’s) Human Capital Index in 2017, behind not only other developing economies but also Nepal, Serbia, and Ghana (Chart 1).

The Human Capital Index measures a country’s performance on four key areas — capacity, based on past investments in education; deployment, which measures the application and accumulation of skills; development, which is the education of the next generation workforce and the continued skilling of the existing one; and know-how, which measures the breadth and depth of specialised skills used at work.

The report estimates the South Asian and Sub-Saharan African regions as having the largest gap on the development index, while the developed regions of North America and Western Europe have comparatively smaller gaps, as shown in Chart 2.

 

The relationship between the index and per capita income is not as straightforward, as seen in Chart 3. For example, despite similar income levels, the UAE significantly outperforms Kuwait.

Of the four areas, India scores highest on development, followed by know-how (Chart 4). On the development sub-index, the country’s better performance can be traced to the absence of any gender gap in the secondary enrolment levels and better perception among executives surveyed by the WEF about the education system meeting the needs of a competitive economy (Chart 5).

In the case of know-how, the country fares well due to higher scores on economic complexity and availability of skilled employees (Chart 6). The former is a measure of the degree of sophistication of a country’s “productive knowledge”, while the latter is based on an executive opinion survey carried out by the WEF in 2016-17.

 

Unless otherwise indicated by a superscripted note, “value” refers to percentage rates for the corresponding age group. The following exceptions apply; 1: Survey response on a 1–7 scale (1 = worst score, 7 = best score), 2: Data on a normalised 0.090 – 1.000 scale (0.090 = best score, 1.000 = worst score) and 3: Data from -2.33 (worst score) to 2.21 (best score)

Statsguru: India fares poorly in human capital

P V Sindhu clinches Korea Open Super Series title

India’s Olympic silver medallist shuttler, P V Sindhu, defeated Nozomi Okuhara of Japan in a thrilling summit clash to clinch the women’s singles title at the Korea Open Super Series here.

The 22-year-old overcame eighth seeded Okuhara 22-20, 11-21 and 20-18, in another energy-sapping contest that lasted an hour and 23 minutes to win the $600,000 tournament.
Sindhu had lost to Okuhara in the World Championship final in Glasgow last month, in an epic battle which was described by experts as the best in many years. On Sunday, she turned the tables on the Japanese to become the first Indian to win this Korea Super Series.

Expectations of another edge-of-the-seat thriller were raised after Sindhu and Okuhara set up a summit clash for the second time in a little over three weeks after the final, Sindhu was both exhausted and elated.

It did not go the distance of the marathon World Championship final that had lasted an hour and 50 minutes. But, Sunday’s clash had all the ingredients of another thrilling contest, as the duo battled in long and intense rallies at the SK Handball Stadium.

Sindhu displayed dogged determination to lay claim to the third Super Series title of her career.

World No. 4 Sindhu, who had clinched the 2016 China Super Series Premier and India Super Series, and the Syed Modi Grand Prix Gold this season, thus dashed Okuhara’s bid to win her third straight title after winning the Australian Open and the World Championship.

The win also helped Sindhu to level her head-to-head record against Okuhara, making it 4-4 in eight meetings.

P V Sindhu clinches Korea Open Super Series title