Explained: Crucial GST changes coming in from January 1
The crucial Goods and Services Tax (GST) changes kicking in from January 1 are first, 5 percent GST charge will now shift from restaurant to e-commerce food delivery provider. Implying that players like Swiggy, Zomato, Uber Eats, etc. will charge 5 percent from the consumer instead of restaurants who were charging this earlier and were in-built in your food bill.
So now, from January 1, there will be two levies, 5 percent GST on the food bill and 18 percent GST on other charges including delivery charge, etc. But, how will this make food orders expensive?
Firstly, there are many restaurants that are unregistered because they are below the threshold of Rs 40 lakh turnover per annum (i.e. Rs 3 lakh per month or with Rs 10,000 per day sales). For example, Dhabbas, hawkers, small kiosk, stalls, etc, so deliveries made of food supplied by them will also get taxed, which was earlier exempt.
Secondly, many restaurants are under a composition scheme, where they do not charge 5 percent GST to the consumer and do not take Input Tax Credit (ITC), but pay a lump-sum GST. Again, the consumer was not charged any GST if the food was supplied via such restaurants. But now, consumers will get charged 5 percent for food ordered from such restaurants.
Similarly, if food delivered was from unregistered restaurants that were illegally skipping from the GST system but were delivering via an e-commerce food delivery provider, so even those food supplies will be taxed at 5 percent.
But, the good news here is for those restaurants who were registered under GST and were delivering will get some breather on compliance, as neither will they charge GST nor will they have to file the return for this tax. But, this compliance burden will now shift to food aggregators, so their additional compliance cost might get passed on to the consumer.
For the taxman, again two things here. Firstly, there could be some possible tax leakages at the restaurants, as they might evade taxes by showing their own home delivery as delivery via e-commerce food operator which can save 5 percent for the restaurants.
Secondly, as the government had estimated that the tax loss to the exchequer due to alleged underreporting by food delivery aggregators, which was pegged at around Rs 2,000 crore over the past two years, is likely to be plugged. So this will be a benefit.\
Apart from this, 5 percent of GST will now be levied from January 1 for providing two-wheeler and three-wheeler passenger transport services by e-commerce players like Ola and Uber, etc.
That means booking a ride via Ola, Uber, etc, where a passenger was picking either a two-wheeler or three-wheeler, because of cost competitiveness, will now be charged a 5 percent GST on the fare value. As of today, consumers were paying a 5 percent GST only for the four-wheelers rides booked via e-commerce aggregators.
Thus, pinching the pockets of the consumers as an additional 5 percent of the fare value will be there for two-wheeler and three-wheeler rides. This is also partially likely to be shifted as aggregators, which might charge more commission from two-wheeler/ three-wheeler drivers and transport providers, to subside the GST return filing compliance cost burden of the e-commerce aggregators.
Again, here the taxman had brought in this change in the rule to avoid disparity and curb tax leakages.
But, important to note here is that Uber India has recently challenged this rule via a writ in Delhi High Court and Rapido has also filed a writ challenging the same rule in Telangana High Court.
Also, what changes from January 1 is the enforcement measure to block the availment of ITC, in case, the supplier has not raised the e-invoice and has not filed his GST return.
To put it simply, buyers can claim ITC, only when the supplier has raised an e-invoice in the GST system, and has also filed his return. In case, the supplier has not then, the buyer cannot claim even 5 percent of the total ITC due to him.
So there is a direct impact on the buyers and suppliers. Firstly, buyers will not buy from small suppliers as small suppliers have delayed compliance and often have a mismatch in e-invoices.
Secondly, the compliance completion responsibility of the value and supply chain will now move from the tax administration to buyers. So more compliance burden for the buyers.
Thirdly, working capital requirements which were being met via ITC claims are likely to give a tough time to the buyers as with a small mismatch and non-compliance of returns; the government will block the entire ITC for the buyer, which earlier provided a window of ease.
Again, the rationale here was to have an anti-evasion measure put in place which will curb fake-invoice generation and plug the undue claims of ITC. It will also help in better compliance at all levels of value chains.
But, this would mean a 100 percent matching of invoices and returns, which is a tough ask, as this rule has still not found any success even in advanced countries where GST came into effect long back and is expected to take a lot of time to be successful in India.
Other crucial changes are increasing the GST rate on textile from 5 percent to 12 percent and on footwear below Rs 1,000 will also now be taxed from 5 percent to 12 percent.
Here, too, the impact will be on the consumer and the industry both. The added costs will get shifted to the end consumer but sales are likely to decline as products will become expensive. The reason why the government had announced this rate change was to correct the inverted duty structure in these two sectors.
Some of the other anti-evasion measures brought in by the government kicking in from the New Year are mandatory Aadhar authentication for claiming GST refund, blocking of the facility of GSTR-1 filing in cases where the business has not paid taxes, and filing GSTR-3B in the immediate previous month.
Source:https://www.cnbctv18.com/finance/explained-crucial-gst-changes-coming-in-from-january-1-11961662.htm
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