GST collections slow down in August to Rs 90,669 crore

The government collected Rs 90,669 crore goods and services tax (GST) for August, a little lower than the Rs 94,063 crore collected in July. This is also lower than the Rs 91,000 crore which should have come to the Centre and states in a month, given the Budget Estimates and assumed growth rates in receipts for 2017-18.

Only 55 per cent of assessees paid taxes for August, compared to 64 per cent for July.

But, the figures should be compared cautiously. About Rs 92,283 crore GST was collected for July till August 29, while Rs 90,669 crore was garnered till September 25. Hence, growth in collections was flat in August, compared to July. As much as Rs 94,063 crore was paid till August 31.

 

ALSO READ: Edit: The GST hurdle

About Rs 14,402 crore came from the Central GST (CGST) in August, against Rs 14,894 crore in July (paid till August 29); Rs 21,067 from State GST (SGST), against Rs 22,722 crore in the previous month; and Rs 47,377 crore from Integrated GST (IGST), compared to Rs 47,469 crore in July. Of the IGST, Rs 23,180 crore came from tax on imports, against Rs 20,964 crore in July, according to figures released by the finance ministry. The cess over the peak rate of 28 per cent garnered Rs 7,823 crore in August, from Rs 7,198 crore in July. Of the August amount, Rs 547 crore came from cess on imports. The cess will be used to pay states that suffer losses because of the GST.

Taking a broad look at the numbers, it is clear that two figures — the IGST on imports and cess collections were higher in August. This means imports in the month were higher than in July, and items that draw cess, such as aerated drinks, cigarettes, cars, and coal, were sold more, at least in value terms.

Merchandise imports of $35.46 billion were made in August, against $33.99 in July, according to trade figures released by the commerce department earlier.

graph These are gross figures, as such it is very hard to assess how much would be net collections for the exchequer as claims for input tax credit are not given.

As much as Rs 65,000 crore of credit for pre-GST stocks were claimed in July, but the government said only Rs 12,000 crore of claims were valid.

“The collection has dipped marginally as assesses start to utilise their transitional credit. As industry settles down to the GST law and compliance, a more realistic collection figure will be seen in the coming months,” said Bipin Sapra of EY. Ideally, the tax figures in August should be more than July as there were more returns filed last month. But those collections may come later. If those who paid taxes till August 29 and till September 25 are compared, the figures are more for the former month. The total number of taxpayers, who were required to file monthly returns for August was 6.82 million, of which 3.76 million filed returns (as of September 25). Over three million taxpayers are yet to file returns. There were 5.95 million registrations under the the GST in July, of which 3.83 million filed returns as of August 29. This also raises the issue of compliance.

“The alarming fact which emerges is with respect to the level of compliance for the month of August. It appears that 45 per cent of the assesses have still not filed returns (against 35 per cent for July). The government should go to the root cause and analyse whether these assesses are facing some genuine problems or they have been migrated automatically and are not required to comply,” said Abhishek Rastogi of Khaitan & Co.

Extrapolating the targets in the annual Budget, the central government’s August tax revenue should be Rs 48,000 crore. Against this, Rs 49,680.5 crore (Rs 14,402 crore from the CGST, Rs 23,180 crore from the IGST on imports and half of the remaining IGST at Rs 12,098.5 crore) came to the central kitty before devolution to the states. However, this is a broader number as division of the IGST is a complicated exercise. Assuming 14 per cent growth each in 2016-17 and 2017-18 to the 2015-16 revenues of states, their tax kitty should have been Rs 43,000 crore for the month. The growth rate is taken according to a formula of compensating loss-making states. Against this, states got Rs 40,919 crore, including cess, in August.

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GST collections slow down in August to Rs 90,669 crore

BS GST Round Table: Govt sets in motion anti-profiteering mechanism

Businesses not passing on the benefits of lower tax incidence under the goods and services tax (GST) may be in for trouble, with the government notifying the standing committee to receive complaints on profiteering.

A four-member standing committee comprising two officers each from the Centre and states will examine the complaints and refer cases for investigation if they find merit.

“If you have got any complaints, you can send it to the standing committee or state-level screening committee,” said Revenue Secretary Hasmukh Adhia at the Business Standard GST Round Table. The detailed procedure for approaching the committees will be announced soon, he added.

Meanwhile, states are in the process of notifying the state-level screening committees, which will also include central government nominees.

The anti-profiteering law is a deterrent mechanism under the GST that makes it mandatory for businesses to pass on the benefits arising out of lower tax incidence from rate reduction or input tax credit to the consumer. It is a three-tier mechanism, with the final call to be taken by the authority not yet set up.

The price reduction must commensurate with the reduction in tax incidence. Erring companies will be asked to lower price of the product concerned prospectively and part with the amount profiteered before.

The respective committees would refer cases for further investigation to the Directorate General of Safeguards.

Complaints pertaining to local companies would be first sent to the state-level screening committee, whereas those of the national level would be sent to the standing committee.

“DG Safeguards would generally take two-three months to complete the investigation and send the report to the anti-profiteering authority,” said Adhia.

Manish Kumar Sinha, commissioner, Central Board of Excise and Customs, said that committees set up will soon come out with guidelines, which will give a clearer picture on the anti-profiteering mechanism. He added that the anti-profiteering authority will not be doing a roving investigation on who is passing on the benefit.

The investigation by the DG Safeguards will be reviewed by the authority, which will have a chairman of the rank of a secretary and four nominated members who have been commissioners of central or state taxes. The additional director general of safeguards will be the secretary to the authority.

The anti-profiteering authority will have the power to debar an errant assessee from conducting business, if found to be profiteering. Companies not passing on the benefits of reduced cost to customers may lose their registration.

BS GST Round Table: Govt sets in motion anti-profiteering mechanism

Key takeaways from Q1FY18 earnings and what it means for your investments

The June quarter earnings of the financial year 2017-18 remained soft, but on expected lines as the fallout of GST implementation led to channel destocking and discounting across consumer-facing industries. Given this, automobiles, auto-ancillaries, consumer staples, white good manufacturers and healthcare sectors faced the brunt.

The under-performance was exaggerated with input cost inflation yet to play out. The rise in commodity prices was also not passed on entirely in this quarter, as the inventory was liquidated at a discount to avail input tax-credits before GST implementation. That apart, compensation was given to the dealers / stockists / supply chain distributors for the losses they incurred on GST roll-out.

A few companies did manage to deliver better return in comparison to what analysts had pegged, and such companies got rewarded by the markets. The under-performance of IT, pharma and telecom continued. A recovery stayed elusive for IT companies amid headwinds like lower utilisation and digital investments still continuing, leading to further payback periods, while growth in revenues and volumes is still recovering in a gradual fashion.

 

For pharma, the troubles due to USFDA-related issues continued with elevated remediation costs plaguing the balance sheets, high R&D expenses and pricing pressures weighing on EBIDTA margin and the slower key niche drug approval pipeline is also taking a hit on the earnings.

Revenue accretion was a challenge for the telecom companies, which is evident from the ARPUs that the companies reported. Bottom-line was impacted due to high leverage levels. Reliance Jio’s aggressive price stance and the spectrum payout has resulted in data tariffs coming down, which has been compensated by the large data volume growth.

Autos continued the good show. The demand is expected to come back strongly in the second quarter. The FMCG sector is likely to see the impact of restocking in the second quarter. Festival demand and good monsoons aiding spending both on the rural and urban side along with payouts related to the seventh pay commission recommendations are the additional positives.

Retail private banks had a good show too as asset quality pressure was not evident. Good traction was seen in the advances growth along with credit cost reaming low leading to improvement in NIM and ROE.

However, the same cannot be said about corporate-facing banks where stress continued and slippages remained high, but stable (except few PSUs which witnessed deterioration). However, the resolutions expected on the back of Bankruptcy Code (IBC) can have relative improvement in the coming fiscal year. The pick-up in the credit growth cycle and the private capex in the second half, preferably by Q4, should also boost the earnings trajectory, as widely anticipated by the analyst community, and justify the multiples that the index is currently deriving.

With m-cap/GDP at 81%, the Indian markets are nowhere close to the peaks seen in 2007 and on a price to book (p/b) parameter at 2.6xFY19 earnings, close to the median 10-year averages. The earnings picked up in the second half and the range of 13-14% might justify the premium valuations for the full fiscal year.

Domestic liquidity remains strong. Since there are no lucrative alternative investment opportunities for any other asset classes at this point of time to deliver superior returns vis-a-vis equities, the flows through the SIP route in domestic MF’s would continue lending support to any sharp correction.

Investors should have a stock-specific approach in autos, auto ancillaries, private banks, FMCG, white good players, selective mid-cap IT stocks and selective pharma stocks, but they should also remain cautious on capital goods, PSU banks and have a staggered manner on investing in qualitative names within these sectors. For a new investor, going through MF mode is still the best way to play the long-term Indian growth story.

Key takeaways from Q1FY18 earnings and what it means for your investments

Slow tax growth reflects companies’ GST troubles

The exchequer got 19.1 per cent more from direct taxes in the first four months of the current financial year (FY18), but the amount paid by companies reflected their struggle with the goods and services tax (GST).

The total direct taxes after refunds grew 19.1 per cent at Rs 1.9 lakh crore between April and June this year. Last year, during this period, it had risen 24 per cent.

This is a minor deceleration, but when compared in terms of percentage of Budget Estimates (BE), the figures this time are rosier.

 

The collections constituted 19.5 per cent of the BE of direct taxes for FY18. In FY17, they had accounted for 18.8 per cent of the BE.

What is startling, however, is the slow tax collection from corporate entities. This year, this grew by 7.2 per cent in the April-July period, sharply lower than the 11.7 per cent in the same period last year.

Experts said the slowdown could be attributed to adjustments leading to destocking and the offering of discounts by companies as the government ushered in the new indirect taxation system on July 1.

Aditi Nayar, principal economist with Icra, said gross corporation tax collections recorded slower growth, reflecting factors such as subdued volume growth in various sectors as well as the discounts offered to reduce inventories ahead of the transition to the GST.

Available indicators — such as the sequential decline in growth in non-oil exports, core sector output and automobile production — suggest that industrial growth was subdued in June.

chart “Given the unfavourable base effect and inventory trimming prior to the onset of the GST, we expect a 1 per cent contraction in the Index of Industrial Production in June. Subsequently, the Purchasing Managers’ Index (PMI) for manufacturing as well as services indicates a contraction in July,” she added.

While the services sector PMI plunged to a four-year low in July to 45.9 points from 53.1 in June, manufacturing PMI contracted to an eight-year low of 47.9 from 50.9 points.

Madan Sabnavis, chief economist with Care Ratings, attributed the slowing growth in corporation tax collections to de-stocking and discounts offered by companies.

He, however, said this would be more than compensated for by rebuilding of inventories after initial hiccups due to the GST, from the third and fourth quarters. Nayar said higher prices of some commodities in April-July, compared to the same period in 2016, might be squeezing the margins of companies in some sectors. For instance, many businesses would be experiencing higher fuel costs, following the 8 per cent rise in the average crude oil prices. Also, the margins of some exporters might be getting squeezed following the rupee appreciation relative to the dollar, she added. Personal income tax collections, including the securities transaction tax (STT), were up 17.5 per cent. Growth was 31.47 per cent in the same period in FY17.

After adjusting for refunds, net growth in corporate tax collections stood at 23.2 per cent in the period under consideration. Similarly, personal income tax collections rose 15.7 per cent. Growth was 46.55 per cent in April-July of FY17. The phenomenal growth of personal income tax collections was because of a change in the rules of advance payments in FY17. Refunds to the tune of Rs 61,290 crore were issued in April-July against Rs 64,181 crore in the corresponding period of the previous financial year.

Slow tax growth reflects companies’ GST troubles

GST pulls down July services PMI to 45.9, lowest level since Sept 2013

The introduction of the Goods and Service Tax (GST) has pushed down activity in the services sector to a nearly four-year low in July even as manufacturing activity reels at an eight-and-a half-year low.

The widely-tracked Nikkei Purchasing Managers’ Index (PMI) on Thursday showed that PMI for the dominating sector of the Indian economy plunged to 45.9, its lowest level since September 2013. At an eight-month high, PMI had been 53.1 in the previous month of June.

ALSO READ: India’s June services PMI grows to 8-month high on new orders

The 50-point mark separates expansion from contraction.

 

Output and new work declined for the first time since January, with rates of reduction the quickest since September 2013. This had an adverse effect on the labour market, with employment contracting over the month. Likewise, factory orders decreased in July, and at the quickest pace since February 2009.

According to survey participants, confusion over GST was mentioned by services firms as having caused a contraction in new work, leading to lower activity. This is in stark contrast to improving demand conditions and marketing efforts leading to a higher share of new work over the past four months.

“The downturn in services follows similar weakness in manufacturing, to make a double-whammy of disappointing news at the start of the second quarter of the 2017/2018 financial year. Private sector activity dipped for the first time since the demonetisation shock and to the greatest extent since early 2009, mirroring the sales trend,” Pollyanna De Lima, principal economist at IHS Markit — which compiles the data — and author of the report, said.

On the price front, input cost inflation eased from June, while charges were raised to the greatest extent since early-2013. This was a result of higher tax rates and salaries awarded to staff. Nonetheless, the rate of inflation softened since June and was well below its long-run average, the survey showed.

Those companies that reported higher selling prices again quoted the GST. However, producers offered discounts amid efforts to stimulate demand. The drop in factory charges was the first in 17 months.

Released two days back, similar data for the manufacturing sector had shown manufacturing PMI contracting to 47.9 points in July, down from 50.9 in June. Factory activities had last fallen in December 2016 after demonetisation. Implementation of the GST led to outputs, new orders, and purchasing activity seeing their steepest fall since early-2009, De Lima said.

ALSO READ: GST pulls down manufacturing PMI to over 8-year low

Consequently, companies purchased fewer quantities of inputs for use in the production process, leading to an overall decline in holdings of raw materials and semi-finished items, data showed.

As a result of all this, the Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors, fell sharply from the eight-month high of 52.7 in June to 46.0 in July.

GST pulls down July services PMI to 45.9, lowest level since Sept 2013

Relief! No GST on sale of old gold jewellery, cars by individuals

The Revenue Department on Thursday clarified that sale of old jewellery as well as old vehicles by individuals will not attract any GST as the sale is not for furthering any business.

Clarifying on Revenue Secretary Hasmukh Adhia’s comments yesterday, the department issued a press statement saying it was informed at GST Master Class yesterday that “purchase of old gold jewellery by a jeweller from a consumer will be subject to GST at the rate of 3 per cent under reverse charge mechanism in terms of the provisions contained in Section 9(4) of the Central GST Act, 2017.”

 

It then went on to state that the said section has to be read in conjunction with another section and “even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se.”

“Accordingly, the sale of old jewellery by an individual to a jeweller will not attract the provisions of Section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism (RCM) on such purchases,” it said.

Revenue department officials said the same principal will apply on sale of old cars or two-wheelers and no GST will be payable even though the supply would be for a consideration.

The statement said that Section 9(4) of the said Act mandates that tax on supply of taxable goods (gold in this case) by an unregistered supplier (an individual in this case) to a registered person (the jeweller in this case) will be paid by the registered person (the jeweller in this case) under reverse charge mechanism.

But since the sale is not in consideration for the furtherance of business no tax will apply.

It however said the tax would apply if an unregistered business sells gold ornaments to registered supplier.

“However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply,” it added.

A supplier is defined as the one who buys or sells in furtherance of his business.

Relief! No GST on sale of old gold jewellery, cars by individuals

Gifts up to Rs 50,000 by employer, free club membership exempt under GST

The government on Monday clarified that gifts worth up to Rs 50,000 by an employer to its employees as also free membership of clubs, health and fitness centres will not attract the Goods and Services Tax (GST).

Also, the services by an employee to the employer in the course of or in relation to his employment is outside the scope of the new indirect tax regime, it said.

Any club, health and fitness centre membership provided by an employer to its all employees free of charge will not be subject to the GST.

 

The same would hold true for free housing as part of cost-to-company (C2C) package.

Commenting on reports of gifts and perquisites supplied by companies to their employees being taxed under GST, the finance ministry in a statement said gifts up to a value of Rs 50,000 in a year by an employer to his employee are outside the ambit of GST.

“However, gifts of value more than Rs 50,000 made without consideration are subject to the GST, when made in the course or furtherance of business,” the statement said.

While the GST law does not define gifts, the ministry said for tax purposes gift is something that is made without consideration, is voluntary in nature and is made occasionally.

“It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift,” it said.

On the issue of taxation of perquisites, the ministry said the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services).

“It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST,” it said.

Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health and fitness centre.

“It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer.

“The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C),” the statement added.

Gifts up to Rs 50,000 by employer, free club membership exempt under GST