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GST in India among most complex in the world, is second highest in tax rate: World Bank

Published

7 years ago

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GST

If the goods and services tax (GST) system and rates have got you reaching out for pills to quell a headache, you will derive satisfaction from a World Bank report that agrees with you.

The GST system introduced by Narendra Modi government in India on July 1 last year is among the most complex in the world and is the second highest in tax rate, said the World Bank in a report covering 115 countries with similar indirect tax system.

The World Bank, in its bi-annual India Development Update released on Wednesday, March 14, said the complexity of India’s GST, was due to “higher tax rates and large number of tax slabs” compared with similar systems in other countries. GST has multiple tax rates of 0, 5, 12, 18, and 28%. Separately, gold is taxed at 3 percent, precious stones at 0.25 percent.

Further, there are several exempted sales and exports are zero rated, which allows exporters to claim refund for taxes paid on inputs that go into production process.

Alcohol, petroleum products, stamp duties on real estate and electricity duties are excluded from the GST and continue to be taxed by the state governments at state-specific rates.

This compares unfavourably with other regimes across the world as most countries have a single rate of GST. For example, the report said, India’s highest slab of 28% is the second-highest among 115 sampled countries and the highest in Asia.

The report said that 49 countries use a single rate, 28 use two rates, and only five including India use four non-zero slabs. The countries that use four or more rates of GST include Italy, Luxembourg, Pakistan and Ghana. Thus, India has among the highest number of different GST rates in the world.

The threshold of Rs 1.5 crore of annual turnover under GST for companies to opt for a simpler compliance regime with a flat tax rate called ‘composition scheme’ is also highest among 31 countries, the report said.

The World Bank report also argued against exemptions provided in the GST structure as these reduced the tax base and compromised on the logic of the GST by reintroducing cascading of taxes. “While exemptions allow easing the tax burden on items with high social value, such as healthcare… it creates incentives for vertical integration to keep the exempt status and raise compliance costs by making it necessary to allocate input taxes between exempt and non-exempt output when manufactured or traded together,” the report said.

The World Bank report said the introduction of GST has been accompanied by state administrations experiencing disruptions in initial days after GST’s introduction. This included lack of clarity on discontinuation of local taxes, for example, in Tamil Nadu where the state government devolved an entertainment tax to local governments in order to impose it over and above a 28% GST. To preserve revenue collections, Maharashtra has also increased motor vehicles tax to compensate for losses due to GST.

There also have been reports of an increased administrative tax compliance burden on firms and a locking-up of working capital due to slow tax refund processing, the World Bank said. “High compliance costs are also arising because the prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate. Along with the need to apply the correct rate, firms are required to match invoices between their outputs and inputs to be eligible for full input tax credit, which increases compliance costs further,” it added.

“While international experience suggests that the adjustment process can affect economic activity for multiple months, the benefits of the GST are likely to outweigh its costs in the long run. It added that the key to success of GST was a policy design that minimises compliance burden by cutting number of rate slabs and limiting exemptions with simple laws and procedures, an appropriately structured and resourced administration,” the report said.

The GST was intended to replaced multiple tariffs and levies imposed by the centre and states and bring a uniform system. While the GST Council — the decision-making body for GST — had put well over 200 items in the highest bracket of 28% at the time of roll-out, it has since reduced the items under the slab to 50.

Finance minister Arun Jaitley has said there’s scope to merge 12 percent and 18 percent slabs in order to make it more transparent, efficient and tax payer-friendly.

While the government assured that GST will help curb black or untaxed money and steadily expand the base of taxpayers, complicated tax slabs and lack of proper IT infrastructure have become a problem for businesses.

But there is “positive impulse” expected from GST system as it is likely to improve the domestic flow of goods and services, contribute to the formalization of the economy and sustainably enhance growth, the World Bank observed.

However, notwithstanding the recent momentum, India will have to address several structural challenges to attain a growth rate of 8 percent and higher on a sustained basis, the World Bank said.

India would need to boost private investments and exports – its two lagging engines of growth – while maintaining its hard-won macroeconomic stability to boost growth.

“This will require continued impetus for structural reforms. Resorting to countercyclical policies will not help spur sustained growth and India should not compromise its hard-earned fiscal discipline in order to accelerate growth,” said Poonam Gupta, lead economist and the main author of the report.

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Adani, Torrent compete to purchase Gujarat Titans from CVC Capital

The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

Published

2 months ago

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July 19, 2024

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The Adani Group and Torrent Group are currently negotiating a deal with private equity firm CVC Capital Partners to offload a controlling stake in the Indian Premier League franchise Gujarat Titans. According to sources, close to the development, reports say CVC Capital Partners will be looking to sell a majority interest while retaining a minority share in the franchise.

This becomes important because it is aligned with the end of the lock-in period by the Board of Control for Cricket in India (BCCI), which restricts any new teams from selling stakes until February 2025. The three-year-old franchise Gujarat Titans is reportedly worth $1 billion to $1.5 billion. CVC Capital Partners had paid ₹5,625 crore for the franchise in 2021.

A source close to the development pointed out that IPL franchises have attracted many investors’ interest since the league has proved an asset with a good reputation for money-making capabilities and cash flows. This growing interest of investors embodies the financial value and stability that come with the IPL franchises.

Gautam Adani, who owns teams in the Women’s Premier League and UAE-based International League T20, is understood to be one of the serious buyers. In 2023, Adani’s group won the Ahmedabad franchise in the WPL with a bid of Rs1,289 crore, the highest offer. His interests in this potential deal signal his commitment to expanding his footprint in the cricketing world.

Arvinder Singh, COO of Gujarat Titans, exuded confidence in the financial future of the franchise. He said the team was confident of turning profitable in the next media rights cycle, referring to even the original ten IPL franchises that took four to five years to turn profitable. He added confidently that the Gujarat Titans would not only turn profitable but significantly enhance in brand value.
 
This surging interest of investors in it is evidence of the growing financial attractiveness of IPL franchises, driven by healthy revenue streams and an increasing global footprint. The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

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India News

PayTm share price slips 2 per cent over SEBI warning

Published

2 months ago

on

July 16, 2024

By

Paytm

The share price of PayTm fell by nearly 2 per cent on Tuesday following a warning from the the Securities and Exchange Board of India (SEBI).

PayTm’s parent One 97 Communication had got SEBI’s administrative warning letter on some transactions involving the PayTm Payments Bank during fiscal year 2021-2022. The bourses reacted strongly leading to PayTm shares falling by 1.88% to Rs 460.80 per share on the Bombay Stock Exchange.

SEBI said it had noted the violation with concern and said these matters are being viewed very seriously. The regulator warned the company to exercise caution going forward and improve compliance to rules to prevent similar incidents in the future.

The markets regulator added that failure to comply with rules may force it to invoke enforcement actions as per the law.

In its response to SEBI, PayTm said in a media release that it has always followed listing regulations, as well as any change to these rules over time. The company said it would keep up its commitment to maintain and follow high standards of compliance. Paytm said it intends to provide an adequate response to SEBI on this matter.

PayTm said it has always followed Regulation 23 along with Regulation 4(1)(h) of the SEBI Listing Regulations, without including any change made to these rules over time. Paytm added that the letter from  SEBI has no influence on its finances, operations or other activities in any way.

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Zomato, Swiggy hike platform fee by 6% 

After the hike, the platform fee would be Rs 6 per order from an earlier Rs 5 per order.

Published

2 months ago

on

July 15, 2024

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The food delivery majors, Zomato and Swiggy, have recently increased their platform fee by 6 per cent for food orders initially in Delhi and Bengaluru.

The food giant is currently charging in the national capital and IT hub, Bengaluru, the platform fee is distinct from delivery fee, goods and services GST, handling charge and restaurant charges.

After the hike, the platform fee would be Rs 6 per order from an earlier Rs 5 per order. Gradually, the higher platform fee is expected to roll out to other cities as well.

Notably, this fee is applicable universally to all food orders, irrespective of customer enrollment in loyalty programmes offered by both food giants. The charges directly contribute to the companies’ revenue streams and cost management efforts. The platform fee goes to the food aggregators to apparently control costs and increase revenues.

In April, they charged Rs 5 per order, but now it’s been increased by Rs 6 per order. That’s a 20% increase in fees for food delivery. This change in their strategy to adjust the price in a market as they expand their services.

Increase in platform fees, impacting how much customers pay for their food deliveries across the board. When customers order food using the app, they will notice different charges, besides the platform fees. These include delivery fees, handling fees, GST (Goods and Services Tax), and charges from the restaurant.

The charges earned by the platform, directly go to the food delivery app, helping to manage all expenses and boost their wages. The food delivery platform aimed to make between Rs 1.25 to Rs 1.5 crore per day through the fee, the app charges.

In August last year, Zomato introduced platform fees of Rs 2 per order for the first time. In October, they raised their platform fees from Rs 2 to Rs 3 in most and in major cities. Additionally,  Zomato is a quick commerce platform.

According to reports, Zomato stock reached its highest price of Rs 232 on the Bombay Stock Exchange. This achievement has made Zomato founder and CEO, Deepinder Goyal, a billionaire. The company has experienced a strong upward trend over the past years, driven largely by the expansion and success of its quick commerce subsidiary in Blinkit.

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