The Hon’ble Finance Minister presented the budget speech for the year 2017-18 on 3rd March 2017, in the Legislative Assembly. FM did not welcome demonetisation and remarked that it has shattered lives of common man. No new tax proposals recommended by FM in the wake of the new legislation GST.
FM appreciated the seamless input tax credit of tax paid in earlier stages will be allowed from the point of manufacture to the point of consumption. He also welcomed removal of barriers on inter State transactions. He also appreciated that the concept of GST will totally eliminate the ‘tax on tax’. It will reduce the tax burden on all goods. The tax administration will be smooth and efficient.
FM has also informed the legislature that the software and servers are ready to switch over to GSTN. It is his wish that the centre would fully compensate the States for five years.
FM could not make the Centre decide on all matters. The most important was the rejection of the demand that State should have a higher share of the GST rate than Centre. It was also demanded that concessions should also be granted for co-operative sector as in the case of agriculture. This was not positively considered by the centre. Subsuming of lottery tax in GST in the Constitutional amendment itself is a set back. It was demanded that the tax rate on luxury goods should be higher than that of Central rate. Centre shall also fund the compensation from its own revenues rather than levying cess. This was also not accepted.
There would be four rates, viz., 5%, 12%, 18% and 28% in GST. The tax rate of each goods is yet to be decided. The general guideline to be followed in fitment will be to place the item to the nearest percentage of the combined excise and VAT tax inclusive.
It is considered that GST will be advantageous to Kerala. First, GST is a destination based tax. The credits of tax deposited earlier would accrue to the place of last sale. Hence, it would be beneficial to a consumer State like Kerala. Such States will be eligible to get tax on goods coming into Kerala through e-Commerce. Henceforth, States will be eligible to get the tax (IGST) on such inter State transactions. Service sector is prominent in Kerala. Sixty-five per cent of the State revenue is from service sector. Henceforth, State will be able to get the right share on service tax also.
VAT Amnesty Scheme
Before the implementation of GST, the thrust of the department would be in completing the assessments and re-assessments relating to VAT. As in KGST, FM intends to launch an extensive amnesty scheme for redressing the disputes by granting the relief from excessive penalties and interest. Levying penalty has become automatic. Concept of contumacious conduct in levying penalty is given a go by these days. This concept is totally opposed to the principles of natural justice.
The following amnesty scheme is proposed to be implemented in the Kerala Value Added Tax Act.
1) In the case of VAT dealers, if the tax arrears of the assessment years from 2005-06 to 2010-11 is completely remitted, the interest thereon and 70% of the penalty amount and interest on penalty, shall stand waived.
2) All arrears pertaining to any year shall be settled together.
3) An assessee opting to settle arrears under this scheme shall withdraw all cases, revision and appeals pending before any forums.
4) Tax arrears and interest shall be calculated as on the date of submission of application.
5) Arrears under CST Act for the above period can also be settled under this Scheme.
6) The last date for filing option under this scheme shall be 30th June, 2017. Amount reckoned under the scheme shall be paid by equal instalments on or before 31st December, 2017.
Department will issue the forms for amnesty scheme so that dealers can avail the same in the case of omissions or commissions. Many of the assessments are made by making frivolous additions by comparing the annual returns, mismatch shown in the system between annual return and purchase data uploaded. Many of the dealers assessments are done without examination/verification of the books of the dealer. The author is of opinion that the scheme is not welcome in the case of genuine dealers.
Presumptive Tax Dealers
In 2016-17 budget, an amnesty scheme was declared for presumptive tax dealers in VAT Act. Considering the request from various trade organisations, it has been decided to simplify the provisions of the scheme. To settle the cases as per the scheme, total turnover will be calculated adding 5% gross profit on unaccounted purchases along with the sales turnover declared as per return. If the total turnover calculated for a year by adding 5% gross profit on unaccounted purchase is below the threshold limit as per section 6(5), then such dealer shall pay tax at the rate of half per cent. If the turnover thus calculated is above the threshold limit as per section 6(5) and up to rupees one crore, then the dealer shall pay tax at the rate of 1% for the turnover above the threshold limit. And if the turnover is above rupees one crore, the dealer shall pay tax at the rate of 2% for the turnover above rupees one crore and 1% for the turnover in between threshold limit and up to rupees one crore. In general, 0.5% shall be paid for the turnover up to threshold limit. Option to settle under the scheme shall be submitted before the assessing authority on or before 30th June, 2017. The assessing authority shall intimate the applicant, the amount to be paid as per the scheme within 15 days from the date of receipt of the option. The applicant shall pay 30% of the amount within 15 days from the date of intimation and balance amount on or before 31st December, 2017. The dealer shall opt for this scheme for all those years for which he has unaccounted purchases. Assessment and revenue recovery steps will be intensified for those who have not opted under this scheme. No statutory reexamination or refund will be allowed in cases settled under this scheme. This scheme is also applicable for those dealers who have opted amnesty scheme for 2016-17 but had defaulted payments. There will be no other changes in the conditions prescribed under the amnesty scheme for 2016-17.
An amnesty scheme was declared in 2016-17 budget for the assessment done and demand generated up to 31-3-2016 in case of assessment years up to 2004-05. The time limit prescribed was 28th February, 2017. This is extended up to 31st December, 2017. Those dealers who have defaulted payment under the previous scheme shall settle the arrears by paying balance amount under the new scheme.
Agricultural Income Tax Act and Tax on Luxuries Act
If the tax arrears of the assessment years from 2005-06 to 2010-11 is remitted, the interest thereon and 70% of the penalty amount and interest on penalty, shall stand waived. Other conditions will be same as that of VAT amnesty.
There were certain disputes in determining the nature of works contract involved in the installation of kitchen cabinet works, aluminium fabrication works, air-conditioning plant installation. In these cases, the tax determined under compounding scheme was reassessed and taxed at scheduled rate. Interest and penalty were also imposed. As the Constitutional Bench of the Hon’ble Supreme Court has widened the scope of the definition of works contract, one time settlement scheme for such cases is declared. In cases where compounded tax was paid by the contractors for such contracts, they shall be exempted from paying tax at scheduled rate, provided all the purchases are from within the State and such contractors shall pay 2% tax for total contract amount over and above compounded tax already paid. This scheme will be applicable for the assessments up to the financial year 2014-15.
The previous Government had exempted tax under VAT for natural rubber and its variants for the period from 20th December 2014 to 1st March 2015 by notification. But necessary provisions to this effect were not incorporated in the Finance Act. Hence, rubber dealers are liable to pay tax and interest for the above period. Considering the request from the trade sector to resolve the issue, it is announced that natural rubber and its variants is exempted from tax for the period from 20th December to 31st March 2015.
The tax rate for solar energy devices and spare parts is currently 1%. But 14.5% is levied for the installation of such devices, considering it as works contract. To encourage ‘Akshayorja Scheme’ the tax rate of such works will also be fixed at 1%. This will have retrospective effect from 1-4-2013 from the date on which the tax rate of solar energy devices was reduced to 1%. But, tax paid during this period based on the assessment done will not be refunded. Those dealers who opted to pay higher rate will be fools.
The Hon’ble Court has decided that packing materials used in exporting goods is liable to be taxed. The small medium scale units manufacturing these products did not levy tax due to ambiguity in VAT Act. Accordingly, such units have to bear heavy tax burden. The packing materials used in exporting goods will be exempted from tax, subject to conditions, for the period from 2005-06 up to the year on which the Division Bench of the Hon’ble High Court has rendered its judgment in such cases. Tax already paid during this period will not be refunded.
Simplification of Procedures
Considering the volume of appeals pending before the 1st Appellate Authority, the powers of revision against penalty orders were granted to the District Deputy Commissioners as per Finance Act 2014. The powers of second revision on these orders were with the Commissioner. Considering the enhancement of the post of Appellate authorities in 2016, it is decided to restore the position as it existed prior to 2014. The present revisions u/s. 57 pending with Deputy Commissioners and the present second revisions u/s. 59 pending with the Commissioner shall stand transferred to the first Appellate Authority and to the Tribunal respectively w.e.f. 1-4-2017.
FM wants to bring a special scheme for completing pending assessments and re-assessments in a time bound manner. Necessary amendment will be made in VAT Act empowering Government to issue guidelines for completing assessments in a fast-track mode. The time limit for assessments, including completion of assessments under sections 24, 25 of the KVAT Act shall be extended by another year. Necessary amendments will be made in the Act for this purpose. Such extensions are announced every year to cover the inefficiency of the department. It is high time, Courts interference in these matters will put an end to such unauthorised extensions. It will be a great relief to many of the genuine dealers.
In the current year, there is an increase of 18% in the income from the sale of lotteries. If there was no cancellation of Kerala lottery draws due to the negative impact of demonetisation, the sale would have increased to 30%. With the implementation of GST, the tax laws on paper lottery will become inoperative. This is a serious issue. We have to explore the possibility of new legislation within the legislative jurisdiction of State Assembly. Government is seriously considering to enact a new law for imposing licence fee on the draws of paper lottery. Considering the urgent requirement for such a law, Government has decided to present a new bill for the purpose with the coming Finance Bill. Lottery culture Jai Ho!