GST – So near, yet so far…

Goods and services tax is finally running its last lap. But it has not reached this stage without hurdles. It has been facing various problems to get implemented right from the time it was mentioned in the 2006 budget for the first time.

In India, the powers to levy taxes is divided between the states and the centre. There are lists which define who is to levy taxes. In some cases the entity comes under a common list thus creating multiplicity of taxes and substantially adding to the compliance and administrative costs for businesses. All of this calls for the need of a comprehensive way of taxation which is being brought in the form of GST.

Goods and services tax is a single tax rate on any supply of goods or services or both. The GST will wipe the indirect tax slate clean, replacing around a dozen indirect taxes and excise levied by the state and the centre. It is a courageous step to reduce the current tax complexities, encourage tax compliance, and streamline the system of tax credits. Although courageous, we are pretty late in implementing this reform compared to the rest of the world. More than 100 countries have already implemented these.

GST, as far as the implementation is concerned, will be decided on the basis of a tax rate to be levied. This tax rate to be levied is termed as the Revenue Neutral Rate (RNR). RNR is the rate at which there will be no revenue loss to the states after GST implementation. RNR is decided, bill is passed, everyone is happy right?? That does not seem to be the case so far. Calculating the RNR and finalizing a value which is acceptable to all the stakeholders seems to be a challenge. The Ministry of Finance had given the task to a few committees to come up with a rate for the same, bifurcated as state rate and central rate. The picture looked something like the given below table.

Fullscreen capture 18-May-15 75309 PM.bmp

The suggestions of empowered committee were void since the RNR of 27% is too high, while the 13th finance commission rates were way too low. If the rates are too low or too high, they would have to face opposition from states as well as consumers and industries. Mr. Finance Minister has so far indicated, based on a consensus, that the GST rate will be somewhere in the range of 21-27% which will be subject to agreement by all the states. Many experts believe that RNR less than 25% might lead to revenue loss. Despite what the RNR is decided, GST will definitely reduce the cascading of taxes to a great extent and would help in increasing the GDP by 0.9-1.7% from the current growth rate.

Although GST, India’s most ambitious tax reform, is being implemented with slow pace and is likely to be rolled out next year, a lot of roadblocks still remain as a challenge. Following are a few :

  1. Passage of the bill in the Rajya Sabha (as it is already is cleared in the other house) and ratification by at least half of the states.
  2. Arriving at a RNR and a minimum threshold level
  3. Deciding on the goods and services and exclusions if any.
  4. Formulating “place of supply”, so as to determine the point at which tax is to be charged
  5. Most important and crucial, is the designing of an effective information technology infrastructure and enable the credit flows

India is a country that thinks too much and is hesitant to implement it. There are around 132 countries who have implemented the GST with different names and in different forms. But are all those GST reforms perfect?? As a matter of fact, they are not. They have implemented them with certain predefined form and are improving based on the experiences witnessed. Sometimes the best way to achieve something is to just implement it first, and then go on improving the same. Anyway, despite all the roadblocks, it’s always important to be optimistic enough to believe that the GST will be rolled out next year and India will become the fastest growing emerging economies, probably. Lets hope the bill is passed in the monsoon session of the rajya sabha where the NDA Govt will have to face some more opposition stunts.

Thank you. 🙂

NDA Govt..Has it Fared Well so far ??

NDA Govt will complete a year in power on May 26th. It came in power with promises to implement some reforms that will make India one of the fastest growing economies.. The productivity and number of hours spent in the sessions seem to be promising from its rosy figures. But how far have they been able to keep up with their promises is still not clear from its actions so far. Hope you will get a clear look on whats been done and whats not!!

Modi

Here is a list some of the key Bills that are under consideration:

  1. The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 (Goods and Services Tax)
  2. The Insurance Laws (Amendment) Bill, 2015
  3. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015
  4. The Andhra Pradesh Reorganisation (Amendment) Bill, 2015
  5. The Motor Vehicles (Amendment) Bill, 2015
  6. The Coal Mines (Special Provisions) Bill, 2015
  7. The Mines and Minerals (Development and Regulation) Amendment Bill, 2015
  8. Citizenship (Amendment) Bill, 2015
  9. The Public Premises (Eviction of Unauthorised Occupants) Amendment Bill
  10. The Black Money Bill (Money Bill)

Each bill has to be passed in both the houses of the parliament, the Lok Sabha and Rajya Sabha. NDA with majority in Lok Sabha will have minimal troubles of getting them through. Although, in Rajya Sabha it looks a little difficult to get the bills through for approval ( having a strength of 47 out of the total 245 seats). It’s important to note that rajya sabha approval is required for bills which are not introduced as money bill(ex Black Money bill). Thats why NDA should be credited to roll out the black money bill. Black money bill although has been passed by Lok Sabha and is bound to be cleared by Rajya Sabha. Black money bill although has been passed by Lok Sabha and is bound to be cleared by Rajya Sabha. NDA has so far passed most of the bills. But GST might have to wait for a while more to be passed in the Rajya Sabha after recently being passed from the Lok Sabha. GST has recently been referred to a select committee for legislative scrutiny. The road ahead for GST and land reforms seems tough with a strength of 47 seats in the Rajya Sabha.

Overall speaking, the NDA Govt has fared well in the past year with some hurdles because of the strong opposition. But they seem to bring in the required reforms of GST which are proposed to be rolled out next year. NDA has sure shown signs of reforms from making GST a success story in Lok Sabha.The way forward is tough for the Govt but if they convert this hurdle into an opportunity, NDA will be credited for introducing the biggest reform(GST) after 1947 for the development of India as the fastest growing economy.

Next up is all you need to know about GST and the way forward for it to be rolled out next year. Do read. It will be very informative in nature.

***Heres something about what do you do when you have to vote the next time. Most of us are not aware of this *** 
Next time when you vote, visit this :http://www.prsindia.org/ …check out your constituency’s MP track record and how has he performed during the session, has he asked the right questions, has he put up some issues of his constituency..and more to read about them..Do visit.. It might make us more aware about how things are and whom should we vote the next time 🙂

Thank you.

“Bears” in action..”Bulls” seem far-fetched..

bullbear

Bulls and bears are the trends when we speak about the stock markets. Indian stocks markets these days are witnessing a bearish (downward) trend amid various issues. Stock markets have tumbled in the past two weeks because of the weak sentiments and rather weak implementation of reforms. Modi Govt has so far failed to maintain the sentiments of the bulls. Experts and investors are of the view that the Modi Govt has just been words till date. So why are we witnessing this bearish trends?

Indian markets are fairly dependent upon investments by FIIs( Foreign Institutional Investors) and FPIs( Foreign Portfolio Investors), also termed as “Hot Money”, which makes the Indian markets vulnerable to any uncertainties.

Presently, the MAT (Minimum Alternative Tax) issue seems to have reversed the bull run. (Here is a brief idea of what MAT is: It is a minimum tax to be paid by companies making substantial profits but which seem to have no significant income on paper due to deductions and exemptions)

” The hardest thing for a human being to understand is tax laws” – Albert Einstein

MAT as such is only applicable to the companies where the income tax calculated under the IT Act is less than 18.5% of the book profit. Companies coming under the exemption of DTAA(Double taxation Avoidance Agreement), 89 countries out of which 87 treaties are active, continue to enjoy the tax-free income from the capital gains. Roughly, a week ago, the IT Dept sent out notices to around 68 FII and FPIs demanding a tax liability of Rs. 602 Cr. This step created a havoc in the markets regarding the tax reforms in India. Post this, FPIs started pulling out money from Indian markets and thus putting downward pressure on the index. Although the MAT issue has now been resolved for the future years, MAT is still going to be applicable to FY 2014-15 capital gains and we might see a further bearish trend in the coming weeks.

On the domestic side of the economy, Indian steel and tyre industries are in a highly distressed condition. China and Japan who are currently sitting on a huge inventory of steel and tyre produce, are dumping the entire stock in the Indian markets at a price cheaper than persisting indian costs. Frankly, we cannot stop the supply from Japan because of the free trade agreement. China on the other hand can only be restricted by certain import duty changes. MoF needs to take some serious steps in regards to increase import duty on steel. Collectively, it has lead to weak corporate earnings and finally added to the ongoing bearish trend.

On the other side of the globe, Euro Zone has replaced US in investment grades. ECB’s QE(quantitative Easing) seems to have worked in reviving the economy and ending the deflation phase. Although, “Grexit” still remains a key concern in determining the direction of the Euro Zone. US has registered a GDP growth of merely 0.2% in the first quarter thus suggesting a slow progress. Reasons being the abnormally cold weather, cautious consumption and strengthening of the dollar. Fed interest rates hike is thus unlikely till about Sept this year.

In technical analysis jargon,  the index has breached the vital 200 DMA (Day Moving Avg), which indicates further fall from the current levels. The trend can be expected to continue in the same direction if the scenario remains unchanged. In fact, this can be an appropriate opportunity for the aggressive traders to grab the value stocks and gain appreciation of the value in the long run.

Thank you 🙂