Why are some goods like popcorn taxed differently? How has GST impacted businesses and consumers over the years? Chartered Accountant and GST expert Stanley James joins Haritha Benjamin on News Brake to decode India’s GST puzzle.
See omnystudio.com/listener for privacy information.
[00:00:00] Why are salty and caramelized popcorn taxed more than regular popcorn? Why is hair oil and edible oil taxed differently? Why do business outlets often have a bone to pick with Finance Minister Nirmala Sitaraman and the GST Council?
[00:00:20] Hi and welcome to News Break. This is Harita Benjamin and in today's episode we try to decode why GST rates have become such a hot topic in India.
[00:00:32] Joining us is Stanley James, a Chartered Accountant and GST Consultant based in Kuchy. He's also the Managing Partner of Saju & Co. Welcome to the show Mr. Stanley.
[00:00:42] Yes, thank you.
[00:00:44] So with the union budget which is just around the corner, the common man is eager to understand the GST structure and why some goods are taxed more than the others.
[00:00:54] And I think that was the main reason why this popcorn debate and controversy happened.
[00:00:59] So what is the rationale behind classifying different types of the same commodity under different GST categories?
[00:01:08] Doesn't this contradict the very idea of a simplified tax structure?
[00:01:12] With regard to the rate of tax in the connection with the loose popcorns, the recent 55th GST Council meeting proposed some changes.
[00:01:23] In short, for a simple item of popcorn also, GST is now put forward with three different types of taxes.
[00:01:33] For example, in the case of popcorn, loose popcorn GST proposed with 5% then prepackaged and labelled items put with 12%.
[00:01:46] Again, caramelized popcorn, Gendman now putting the rate of 18%.
[00:01:52] So for a simple item also, now Gendman is making the things more complicated.
[00:01:59] We can prefer only just like a branded item, two types will be sufficient.
[00:02:04] But that is the main issue.
[00:02:06] Okay, so now the GST Council has, you know, roughly four tax labs, right?
[00:02:11] Like 5%, 12%, 18%, and 28%.
[00:02:14] So how is this system better than the earlier regime of, you know, VAT and excise duty, entry fees and other taxes?
[00:02:21] We were basically unifying it to simplify it.
[00:02:25] So is this any better or than the earlier system?
[00:02:28] Surely I will say it is a better system.
[00:02:31] Right.
[00:02:31] Because the previous period, lot of complications like C-form, F-form, limitations in taking the input tax credit, everything was there.
[00:02:40] Okay.
[00:02:40] Now all those complications has been removed.
[00:02:43] One nation, one tax was the principle.
[00:02:46] Correct.
[00:02:46] And moreover, the input taking, there was lot of limitations, especially in the case of stock transfer.
[00:02:54] Right.
[00:02:55] All those complications have been changed in the filing of excise return, service tax return, VAT return, everything abolished.
[00:03:02] Right.
[00:03:02] That was a welcome approach, no doubt about it.
[00:03:05] Okay, okay.
[00:03:05] So now in the past seven years, they have been targeting, the central government has been aiming for getting that, achieving that one nation, one tax objective, as you just said.
[00:03:14] But, you know, the former chief economic advisor, Arvind Subramanian recently said that the tax structure is more complicated, though they have, you know, intended to simplify it.
[00:03:26] So is it just old wine in new bottle?
[00:03:28] We cannot say like that because actually it is a new wine only.
[00:03:33] Right.
[00:03:34] The structure should be simplified.
[00:03:37] Okay.
[00:03:37] Actually, for common people, it is very difficult to comply with the procedural aspects.
[00:03:43] Okay.
[00:03:43] And moreover, one nation, one tax now ended up with the one nation, seven or 80 different types of tax.
[00:03:51] Yeah.
[00:03:52] Okay.
[00:03:52] Things more complicated.
[00:03:53] Okay.
[00:03:54] So now you were talking about this compliance, you know, I think that is the compliance burden is one of the significant points which are raised by small businesses, at least for bigger businesses.
[00:04:04] It's okay, because they can afford to have GST experts and you know, others to look at how their taxes are, you know, done.
[00:04:11] But when it comes to small businesses, is there a huge compliance burden which is there at play?
[00:04:17] Okay.
[00:04:18] And there are also penalties, right?
[00:04:20] And there are also penalties, right, associated with not filing GST and not doing it correctly.
[00:04:23] So how cumbersome is this process?
[00:04:26] And does it affect the competitiveness of small businesses?
[00:04:29] I will give a positive signal because the small traders is getting very, very adverse impact from this implementation of GST.
[00:04:40] Okay.
[00:04:41] Unlike a bigger companies, small traders are also suffering from these limitations.
[00:04:47] Okay.
[00:04:47] That is why, by filing the return if there is a delay for every taxpayer hit with the interest at the rate of 18% per annum.
[00:04:58] On the other hand, when government is giving refund to the taxpayer, the rate of tax is only 6%.
[00:05:04] Okay.
[00:05:06] So that type of abnormalities has to be reduced, number one.
[00:05:11] Number two, it has to be made more simplified for small traders.
[00:05:16] Otherwise, only big companies will survive.
[00:05:19] Small and MSME will go into die.
[00:05:21] Right.
[00:05:21] And now, even when you're talking about the input tax credit refunds, there is a delay, like you are a CA and you must have observed, you know, how they are getting the refunds, you know, over the run.
[00:05:33] So, is there a delay, which is a serious issue when it comes to input tax credit refunds?
[00:05:39] And if that is the case, doesn't that affect the cash flow and strain the businesses because they have to invest it further to, you know, diversify or expand, right?
[00:05:50] So, is that a real concern?
[00:05:52] Yes, ITC refund is a complicated matter because as per the law, government has given only two years for claiming the eligible refund.
[00:06:02] Okay.
[00:06:04] And moreover, for the processing of refund, several officers taking more time asking for producing the bill of injury, shipping bill, bank details, etc.
[00:06:13] Nowadays, all the details are available at the point of import itself.
[00:06:19] There is no confusion.
[00:06:20] But still many cases, officers are making lots of postmortem for giving the refunds.
[00:06:26] And one suggestion I am putting forward is for the case of assessment, government has given five years time to claiming the doing the assessment.
[00:06:35] Okay.
[00:06:36] But in the case of refund, government is giving only two years.
[00:06:40] Two years, right.
[00:06:41] Yeah.
[00:06:41] That is a negative impact, giving a negative impact.
[00:06:44] And people are very difficult to count the exact date.
[00:06:49] Relevant date is saying in the Act and Rule also.
[00:06:52] Okay.
[00:06:53] So, that exact, there is no delay also for refund application.
[00:06:57] So, ideally, the timeframe for ITC refund should be increased.
[00:07:01] Is that what you're saying?
[00:07:02] Correct, correct, correct.
[00:07:03] Okay.
[00:07:03] So, now, another question which comes to mind is, there are different, now let's talk about the slabs, the GST slabs.
[00:07:11] So, is there, how does the government or the GST council arrive at what should go under what slab?
[00:07:17] Is there a, you know, differentiation between luxury and sin goods?
[00:07:22] Or is processed foods likely to get more taxed as compared to raw foods?
[00:07:27] If that is the case, if processed foods are getting more taxed, then doesn't it discourage from smaller MSMEs from diversifying into, you know, generating more processed foods?
[00:07:39] What is your take on that?
[00:07:41] In this connection, I would say, for essential commodities, anyhow, the rate of tax should be low.
[00:07:48] Right.
[00:07:49] Nowadays also, government adopting that policy only.
[00:07:52] Hmm.
[00:07:53] And for branded items and luxury type of items, during the pre-GST period also, rate of tax was on the higher side.
[00:08:01] Okay.
[00:08:02] So, in the GST scenario also, for luxury items, government is putting 28% rate and for car and automobile, even for compensation, sir, they are putting again 18% rate and 45-44% rate.
[00:08:16] So, that is there.
[00:08:17] That we cannot ignore because luxury items should be always put on a higher, higher bracket.
[00:08:23] Right.
[00:08:23] Right.
[00:08:24] Yeah.
[00:08:25] So, that we cannot deny that policy.
[00:08:28] But only thing is, pre-GST period also, for small scale and MSME class, there was a concessional rate of tax.
[00:08:36] Okay.
[00:08:37] For making more impetus, motivation to the small traders.
[00:08:42] But that is not seen in the GST scenario.
[00:08:46] Okay.
[00:08:46] Unlike, all taxpayers are putting in the same footing.
[00:08:50] There is no, a distinguishment or there is no other bifurcation.
[00:08:55] And there is no boost which is given to the MSME.
[00:08:58] So, when they are on the same platform, the bigger establishments have an advantage over them.
[00:09:04] That's what you're saying, right?
[00:09:05] Correct.
[00:09:06] Because even though there is a compounding system, it's limited to 1.5 crores per annum for a trader.
[00:09:12] If this is a service segment, it is only 50 lakhs.
[00:09:16] Very negligible amount.
[00:09:18] So, nobody can do a successful business with this small amount of turnover criteria imposed by the government.
[00:09:25] Okay.
[00:09:26] But, you know, I have also heard that, you know, when it comes to essential items should ideally be in the lower tax bracket.
[00:09:33] But then, when it comes to insurance covers and things like that, there is often no taxation benefits or it doesn't come under the lower tax brackets unless it is under the government.
[00:09:44] Is this true?
[00:09:45] Could you, you know, verify that for us?
[00:09:47] Regarding this matter, I also personally involved in putting a petition before the Honorable Finance Minister, Narmila Zihara, when visited Kochi last year.
[00:09:57] Yeah.
[00:09:58] Regarding this matter, they have now given an assurance in the case of health insurance category.
[00:10:05] Now, Gedman is seriously considering to reduce the GST from 18 to 5%.
[00:10:11] Right.
[00:10:12] Anyhow, that is a positive attempt and a positive signal also to reduce the burden to the shoulder of the common man who is going for insurance.
[00:10:21] Right.
[00:10:22] So, we should hope that, you know, this budget would have some, you know, positive review on that, right?
[00:10:26] I hope.
[00:10:27] Yeah.
[00:10:28] Let's see.
[00:10:28] So, now, another controversy which erupted was when a, you know, small hotelier in Tamil Nadu had, you know, said that, you know, the differential pricing for food items, you know, versus the inputs are the same, but the output is different.
[00:10:42] And these outputs are taxed differently.
[00:10:45] And that is becoming a problem for them.
[00:10:47] So, is this true?
[00:10:49] And in such cases, what can be done, you know, at the personal finance level for these small businesses?
[00:10:57] I don't fully agree with that statement.
[00:11:01] Yes.
[00:11:02] So, the output rate of tax will be same, but the output when coming with a manufacturing product, the rate would be different depends on the type of manufacturing.
[00:11:12] Okay.
[00:11:14] I would say an example for branded and unbranded.
[00:11:16] Hmm.
[00:11:17] For branded products, normally the quality of the product would be different.
[00:11:22] Naturally, rate of tax also would be different.
[00:11:26] Otherwise, the normal items when we are manufacturing without any brands, that means a local procurement of our materials and manufacturing and giving locally without any branding.
[00:11:39] Normally, the quality we cannot assure as good as that of a branded item.
[00:11:46] So, hotel also during the pre-GST period depends on the star classification there was different rate of tax.
[00:11:53] Okay.
[00:11:54] But under GST scenario, for all hotels, cooked food rate is now 5% only.
[00:12:00] If there is an accommodation given by the hotel where the tariff is 7500 rupees per day per room,
[00:12:08] then only this rate would be jumped to 18%.
[00:12:12] So, I don't feel any difficulty for this.
[00:12:16] The law is very clear.
[00:12:17] Okay.
[00:12:18] But then there was this issue that raised that why is buns and cream buns are taxed differently when you know there is only one input which is additional.
[00:12:25] So, is that kind of unfair or is that also justified under this tax structure?
[00:12:31] That should be making it very clear.
[00:12:34] Chapati also is with the same issue.
[00:12:37] For what our issue.
[00:12:38] Yeah.
[00:12:38] There are a lot of advanced rulings, which I will give a suggestion.
[00:12:43] Yeah.
[00:12:43] For advanced ruling means only a clarification with regard to rate of tax.
[00:12:47] Correct.
[00:12:48] So, now it is under GST principle for every state to their own having advanced ruling.
[00:12:54] Mm-hmm.
[00:12:55] So, different states is giving different types of opinion regarding the same subject matter.
[00:13:00] Okay.
[00:13:00] That anomaly should be avoided in future to make the things more simplified and clear.
[00:13:08] Okay.
[00:13:09] So, to wind up, what would your suggestions be to simplify this GST structure and you know make it better for the common man?
[00:13:17] I would like to say for more complex simplification part, the rate of taxes should be limited to maximum 3 slab only.
[00:13:27] Right.
[00:13:28] Instead of 7 or 8 slab.
[00:13:30] Number 2, GEDMEN has already declared an amnesty scheme that is only for non-fraud cases of section 73 and applicable only for 3 years.
[00:13:41] My suggestion is, this has to be given to all taxpayers and a complete waiver of interest and penalties should be provided.
[00:13:49] Now, the amnesty scheme, whatever is declared right now.
[00:13:53] Complete waiver without any conditions?
[00:13:55] Without any conditions.
[00:13:57] Okay.
[00:13:57] 100% of tax to be remitted but interest and penalties should be waived fully.
[00:14:02] But now, GEDMEN has put a limitation.
[00:14:05] This is only for the notices or order coming under section 73 assessments.
[00:14:11] Okay.
[00:14:11] Regarding 74, if there is a rate or some investigation, so coming out to some suppression of facts or rate of tax, GEDMEN will not give these concessions.
[00:14:21] And GEDMEN also put forward a very big dialogue in the introduction of GST.
[00:14:27] It would be definitely very simplified.
[00:14:30] Initial period, GEDMEN will not make any harassment to the dealer.
[00:14:34] All those things there.
[00:14:35] And traders also were not aware about the GST complication, especially in the initial period of GST scenario.
[00:14:44] So, my personal suggestion is, this amnesty should be given to all taxpayers for all notices issued at least for the initial 3 or 4 years.
[00:14:55] This limitation has to be avoided.
[00:14:59] Okay.
[00:14:59] I think with that, those are a few good suggestions.
[00:15:02] Let's hope that, you know, the Finance Ministry takes it into account while, you know, drafting the budget for this time, which is on the 1st.
[00:15:10] So, that brings us to the end of today's episode.
[00:15:14] This is On Manorama's News Break, an explainer podcast which is produced by Harita Benjamin.
[00:15:18] It airs every week and is available on all podcast platforms.
[00:15:22] Do follow on manorama.com for more updates.
[00:15:25] So, thank you so much, Mr. Stanley, for joining us today.
[00:15:28] Thank you.
[00:15:29] Thank you.