India’s losing Rs 75,000 crore in taxes every year due to tax abuse by MNCs, individual evasion

Source: The Economic Times, Nov 21, 2020

NEW DELHI: India is losing over USD 10.3 billion (about Rs 75,000 crore) in taxes every year owing to global tax abuse by MNCs and evasion by private individuals, a report said on Friday. The State of Tax Justice report said globally countries are losing a total of over USD 427 billion in taxes each year to international corporate tax abuse and private tax evasion. This is costing countries altogether the equivalent of nearly 34 million nurses’ annual salaries every year — or one nurse’s annual salary every second.

With regard to India, the report said USD 10.3 billion, or 0.41 per cent of the USD 3 trillion GDP, is lost in taxes every year to global tax abuse.

Of this, over USD 10 billion is lost to tax abuse by multinational corporations (MNCs) and USD 200 million to tax evasion committed by private individuals.

The social impact of the lost tax is equivalent to 44.70 per cent of the health budget and 10.68 per cent of education spending. It also equals paying yearly salaries of over 42.30 lakh nurses.

It further said India is most vulnerable to illicit financial flows in the form of outward FDI and listed Mauritius, Singapore and the Netherlands as the trading partners which are most responsible for this vulnerability.

The State of Tax Justice report has been published by the Tax Justice Network, together with global union federation Public Services International and the Global Alliance for Tax Justice.
The report highlights the state of global tax abuse and governments’ efforts to tackle the menace.

CBIC gives partial relief to companies from compulsory e-invoicing

Source: Business Standard, Oct 01, 2020

New Delhi: The indirect tax board has given partial relief to companies from compulsory e-invoicing that will kick off from Friday.

The Central Board of Indirect Taxes and Customs (CBIC) said in a statement that the companies will not attarct any penalty if they move goods without e-invoicing, provided that they get invoice reference number (IRN) for such invoices within a month of the date of invoice. The relief has been provided for the month of October only. The GST Council has made e-invoicing compulsory for companies having an annual turnover of over Rs 500 crore. The deadline has been extended a couple of times. Although it was to be implemented from April, it was deferred till October. Companies had earlier said that there will be a disruption in their operations if e-invoicing is made compulsory for them from Friday. They demanded that e-invoicing be voluntary for three months before opening it to all those with an annual turnover of over Rs 500 crore.

Indian cos with foreign units fear domestic tax implications

Source: The Economic Times, Sept 29, 2020

Mumbai: Many Indian companies with foreign subsidiaries whose directors or senior executives are stranded in India due to the pandemic are now worried that they may have domestic tax implications under the place of effective management (PoEM) rule. Under the PoEM regulations, overseas subsidiaries could be treated as domestic entities for tax purposes if they are controlled and managed from India. In most cases, senior executives would travel to other countries where the subsidiaries are located, for some time every year, especially for board meetings. However, amid Covid-19, many executives and directors are now unable to travel – resulting in a situation where tax officials could construe that the decisions concerning the companies were made in India.

As it stands today, the Indian government has not announced any relaxations under PoEM for such cases, tax experts said. “In this ‘exceptional’ Covid scenario, an unintended side effect of the lockdown might trigger PoEM presence of foreign companies when their directors/managers, i.e. the key decision makers, are in India,” said Amit Maheshwari, a partner of CA firm Ashok Maheshwary & Associates. “The IT department can consider these companies as residents in India. While the OECD (Organisation for Economic Co-operation and Development) categorically states that this exceptional period should not be considered while determining PoEM, a relaxation from the CBDT (Central Board of Direct Taxes) on the same lines is very necessary to address the same,” Maheshwari added.

The government had introduced the PoEM framework in 2018, to tax the income of Indian companies’ foreign subsidiaries. Amid the pandemic, many companies are holding meetings over videoconferencing applications to take decisions. This raises questions over the taxability of their global income. “For many companies, the decision makers are stranded in India for a long time and the fear is that they may have to pay taxes on their global income in India or foreign companies may become resident under PoEM,” said Paras Savla, a partner at tax advisory firm KPB & Associates.

The tax applicable on the global income of such companies could be as high as 42%, said tax experts. Worse, most of the companies would have to cough up this amount in the coming months and pay that as advance tax.

The problem has occurred for both multinationals as well as individuals. ET had first written on April 11 that for several rich Indians, who shuffle between countries to avoid staying in India beyond the stipulated time to pay tax here, Covid-19 has come as a double blow, as they may have to pay tax in India. For several multinationals too this could create problems, as the tax department could look at whether they could be taxed on their entire income in India.

Industry trackers said the tax department could trigger PoEM despite a recent directive from the OECD that asks countries to provide relief from regulations due to the Covid-19 situation. Tax experts said while some of the larger companies might not face any problems from it, smaller companies, that do not have an independent board or other things to establish independence, would face issues.

Parliament gives its approval to Taxation Bill

Source: The Hindu Business Line, Sept 22, 2020

New Delhi: Parliament on Tuesday approved a Bill to amend eight taxation laws for giving compliance relief during the Covid pandemic. It also prescribes tax exemption for contribution in PM CARES Fund.

The Rajya Sabha returned “The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill,” to Lok Sabha. The Bill intends to replace the ordinance promulgated on March 31 and also prescribes some changes in tax laws to boost investment.

The Bill did not see detailed debate in the upper house as several opposition parties boycotted the House proceedings protesting suspension of eight members. The Lok Sabha had cleared the Bill on September 19.

The reliefs in the Bill include extending deadlines for filing returns and for linking PAN and Aadhaar. The Bill amends the provisions of the Income Tax Act to provide the same tax treatment to PM-CARES Fund as available to the Prime Minister’s National Relief Fund.

Replying to a short debate on the Bill, Finance Minister Nirmala Sitharaman said the ordinance was necessary to defer various compliance deadlines under GST and Income Tax (I-T) Act during the Covid-19 times. She said as a Bill was being brought to replace the ordinance, the government incorporated other matters like facilitating investment in the IFSC Gift City.

Tax on capital gains

The changes say income from securities or capital gains arising from their transfer shall be taxed at 20 per cent for FIIs and 10 per cent for specified funds. Surcharge for FIIs will be capped at 15 per cent. The new provision will entail due date for payment without additional payment under Vivad se Vishwas to be extended till December 30.

Also,with the help of changes approved, SEZ units that were unable to commence business before March 31, 2020 can start operations before March 31, 2021 and claim the tax holiday provided they satisfy the other conditions. Faceless Assessment Scheme will now cover Transfer pricing proceedings, DRP, appeal to ITAT.

According to the Bill, the due date to file the income tax returns for FY 2019-20 is November 30, 2020. Accordingly, the due date to file all other related forms and reports (such as Transfer pricing report, tax audit report, etc) is October 30, 2020.

It prescribes interest for delay in payment of income-tax (e.g. advance tax, TDS, TCS), Equalization Levy, Securities Transaction Tax (STT), Commodities Transaction Tax (CTT) due for payment from March 20 and June 29 to be charged at reduced rate of 9 per cent per annum, if the payment is paid by June 30. Further, no penalty/ prosecution will be initiated for these non-payments. The date for passing of order or issuance of notice by the authorities and various compliances under various direct taxes and Benami Law which are required to be passed/issued/made by December 31 2020 has been extended to March 31, 2021.

A dispute on definition of “intermediary” puts $147 bn IT sector in a tax quandary

Source: The Economic Times, Sept 08, 2020

New Delhi: Country’s $147 billion IT and ITES industry including back offices of several multinationals such as Genpact and WNS Global has sent an urgent request to the government on denial of export status, which has made them liable to 18% goods and services tax (GST).

Industry fears it could cascade into denial of refunds on taxes paid on inputs, audits and investigation and tax recovery notices for tax.

The industry has sought immediate government intervention in the matter.

According to industry estimates, close to 200 plus companies have some form of dispute on the definition of “intermediary” services. There is no GST levied on goods or services exported, but intermediary services are taxed even if supplied to foreign entities. Back office services such as BO were in pre-GST regime treated as exports and not taxed.

GST authorities have started disputing the export status of different streams of revenue and seeking to treat the same as “intermediary” services.

Industry body Nasscom has represented the matter to the finance and commerce ministries for expeditious resolution.
“There are increasing cases where the GST authorities have aggressively interpreted the scope of intermediary services to cover ITeS/ BPM,” it said in a representation, seen by ET.

The implication of treating ITeS/ BPM as “Intermediary”, it said, is that the exports get taxed at 18%. “In the immediate refund claims on input credit of GST are denied. This is resulting in denial of refunds, excessive investigations, litigation and making ITeS/ BPM in India uncompetitive,” it added.

The issue arose following a Maharashtra Appellate Authority for Advance Rulings decision in case of VServe Global. The AAAR in February, 2019 upheld an AAR decision that ruled that back-office support services to overseas customers were intermediary services and hence liable to tax and not eligible for tax refunds.

The Central Board of Indirect Taxes and Customs (CBIC) attempted to clarify the issue via a circular in July, 2019, but that created more confusion as interpretation of whether the service would qualify as exports was left to tax authorities.

It led to issuance of a spate of notices and denial of credit by authorities.

The circular was subsequently withdrawn. A revised circular, as announced by the GST Council meeting in September 2019, is yet to be issued.

“NASSCOM has discussed this in detail with the CBIC and they seem to agree with our suggestion, but clarity is still awaited,” said Keshav Murugesh, group chief executive officer of WNS Global Services, a NYSE listed company in the Business Process Management business.

India has more than 500 global in-house delivery centres, employing over 350,000 people. As per industry, an 18% levy on these services will derail the cost dynamics of the back-office model that operates on thin margins and faces competition from other low-cost jurisdictions.

“It’s time due importance is given to ‘Served from India’ as ‘Make in India’ and necessary clarifications are issued to put to rest these disputes,” Bipin Sapra, partner, EY.

Genpact recently filed a writ in Punjab High Court.

“A more permanent solution could be to amend the GST law to carve out the IT-BPM sector in the GST “place of supply” provisions and clarify export status. This has been done recently for the Pharma R&D sector as well,” said Mahesh Jaising, Partner and National Leader Indirect tax, Deloitte India.

A Genpact spokesperson said regulatory clarity will help.

“The IT / BPM industry is a significant employment generator and source of revenue for India. This issue requires clarification, which will go a long way in enabling us to continue to be a country that is easy to do business with and a market of choice for multinational companies,” the spokersperson said.

Govt notifies tax rules for non-resident e-commerce players

Source:, Jul 04, 2020

NEW DELHI: The income tax department has notified rules for levying 2% tax on non-resident e-commerce players which kicked in from April. Payment for the first installment is due on July 7.

Last minute changes were made to the tax filing form and the notification of Income-tax (16th Amendment) Rules, 2020 signed off on Friday and published on Saturday. This shows the government is going ahead with the new digital economy tax despite calls from global bodies, like the US-India Business Council, representing technology giants, seeking a delay in its implementation.

The Finance Bill 2020 expanded the ‘equalisation levy’ introduced in June 2016 on payments made to non-resident service providers for hosting online advertisements to include other supply of services such as online sale of goods by e-commerce operators. The levy is 6% for payments for hosting online advertisements, while it is 2% in the case of other e-commerce activities. This levy is not considered as income tax and is not covered by the tax treaties India has with various countries.

The expansion of India’s digital economy tax comes at a time when there is little consensus on the issue among Organisation for Economic Co-operation and Development (OECD) nations. There is also a raging dispute between the US and some of the European nations on digital economy taxes targeting major US-based tech giants. “Taxpayers need to act immediately to determine their tax liability based on the material currently available, seeking appropriate advice where necessary, to ensure appropriate compliance with the law as it stands, so as to make the payment by 7 July 2020. Not doing so may needlessly invite not only interest but penalty consequences as well,” EY said in a note on the issue on 2 July, highlighting the need for more clarifications in the form of frequently asked questions.

E-way bill generation showing green shoots of economic recovery: GSTN

Source: Business Standard, Jul 05, 2020

New Delhi: E-way bill generation has signalled that the process of economic recovery has begun, GSTN said on Sunday. The IT infrastructure provider for GST said the data substantiates the indications given by the surge in GST collections in July.

In a statement, the Network said June 30, the last day of Unlock 1.0, ended with the generation of 1.83 million E-way bills worth over Rs 54,500 crore, which is the highest since the lockdown was enforced.

Bill generation, which used to be around two million a day normally, had drastically come down after the lockdown was enforced.

March 2020 recorded the steepest fall, plunging to a low of approximately 50,000 on the 25th of the month, the lowest on the first day of the nationwide lockdown, GSTN said.

Month-on-month, April had a sharp dip as the numbers reached 8.45 million bills worth Rs 3.90 trillion totally. As restrictions were eased, the number grew rapidly between May and June.

“The data substantiates that the Indian economy is gathering pace with the movement of goods rebounding close to pre-lockdown levels and goods and services tax (GST) collections rising sharply,” GSTN said.

GST collections stood at Rs 90,917 crore in June, recovering from Rs 62,009 crore the previous month and Rs 32,294 crore in April. However, a part of the reason for the surge in collections is that businesses filed the previous months dues in June due to relaxation in the filing schedule given by the government.

The upwards trend means Unlock 2.0 is going to have more reasons to cheer, the Network said.

“Based on the current trend, it is expected that the cargo movement will further accelerate in the Unlock 2.0, which along with other indicators is a healthy sign of an early economic recovery and stability,” it said. E-way bill is required to be generated by a registered GST taxpayer for the movement of goods if the value of the consignment exceeds Rs 50,000 for inter-state movement. For intra-state movement, limits vary from state to state.

Centre releases Rs 36,400-crore GST compensation to states

Source: Business Standard, Jun 04, 2020

New Delhi: Ahead of the Goods and Services Tax (GST) Council meeting next week, the Centre on Thursday released compensation worth Rs 36,400 crore to states for three months up to February 2020.

The much-delayed compensation comes at a time when state finances are under severe stress due to the Covid-19 lockdown.

“Taking stock of the current situation due to Covid-19 where state governments need to undertake expenditure while their resources are adversely hit, the central government has released the GST compensation for the period between December 2019 and February 2020 on Thursday,” the Ministry of Finance said in a release.

The GST compensation of Rs 1.15 trillion for April-November 2019 was released earlier, the government said. This stands against Rs 95,551 crore collected as cess in the compensation fund in 2019-20 (FY20).

The compensation mechanism to states under GST has come under strain due to inadequate cess collection amid bleak consumer demand.

Under the law, if states’ GST revenue does not grow by at least 14 per cent over the base year of 2014-15, the Centre pays them the difference, on a bi-monthly basis for the first five years of GST implementation.

States have been up in arms with the Centre over non-payment of compensation dues, while the Union government has conveyed its inability on account of cess shortfall.

Besides dwindling cess collection in the compensation fund, the rising dependency of states on the promised GST compensation amid sharp fall in revenue due to the Covid-19 pandemic has compounded the challenge.

In FY20, the Centre used Rs 47,271-crore surplus cess from 2017-18 and 2018-19.

The compensation cess is levied on luxury and sin items such as aerated drinks, coal, paan masala, cigarettes, and automobiles over the peak rate of 28 per cent.

The government is exploring a slew of options, including borrowing from the market and extending the cess period further, to repay.

The monthly GST compensation requirement is estimated at Rs 20,250 crore in 2020-21, against Rs 13,750 crore last year.

Under the GST structure, taxes are levied under 5, 12, 18, and 28 per cent slabs. The GST Council in its meeting held in March deliberated on whether it could go for borrowing if the compensation cess collections fall short of the requirement of states. It will seek opinion on various legal issues – who will give guarantee to the borrowing, how will it be repaid, how interest is to be paid, impact on the fiscal responsibility and budget management Act, etc.

Double whammy for service companies: Required to pay GST on defaults, bad debts

Source: The Economic Times, Jun 04, 2020

MUMBAI: As customer defaults mount due to the Covid-19 crisis, Indian services companies have been dealt a twin blow: Of unpaid bills, and Goods and Services Tax (GST) liabilities on those incidents on non-payment.

Under the current GST framework, there is no provision to allow adjustments of GST paid on supplies for which recoveries are not made. Companies have to pay GST when they raise the invoice or generate the bill, which often is at least a month or two before the customer pays the money.

As companies struggle with cash flows, they have to pay GST out of their own pocket even when the customer has defaulted. So, companies are seeking relief.

“The absence of a provision for allowing adjustment of GST paid on supplies for which recoveries are not made (bad debts) is a double whammy for businesses,” said Abhishek Jain, Tax Partner, EY. “It leads to a loss on account of consideration for supply not being received, coupled with an outflow of GST from their own pocket. While this has been a concern for businesses historically, in the current economically depressed times, the government should consider relief on this aspect.”

Customer defaults have been on the rise due to the Covid-induced job losses, salary cuts, business closures, and a general breakdown in corporate payment cycles.

“Companies have to pay GST based on point of taxation and the tax payout precedes the receipt of consideration for the supply. Often, leads to a situation when the supplier ends up paying the tax for which consideration is either not received or received after significant delay, thereby causing great financial and working capital issues for several service sectors and MSMEs,” said Abhishek A Rastogi, partner at Khaitan & Co.
Once a services company, such as a telecom or credit card company, raises the invoice, it has to pay GST to the government.

For instance, a telecom company generates a bill of Rs 1,000 to a consumer in the month of February, and levies Rs 180 as GST on that. The tax is paid in March by the company. However, if the consumer refuses to pay or delays the payment, the company is stuck with the outgo of Rs 180 in taxes and Rs 1,000 in unrealized revenue.

FinMin notifies retrospective amendment in CGST Law

Source: Business Standard, May 17, 2020

New Delhi: The Finance Ministry has notified retrospective amendment in the Central Goods and Services Act (CGST Act 2017). With this amendment the Centre has bought itself to disburse the pending input tax credit.

With this amendment in Section 140 of the Central Goods and Services Tax Act relating to transitional arrangements for input tax credit has formally been made effective, so as to prescribe the time limit and the manner for availing input tax credit against certain unavailed credit under the existing law. This amendment shall take effect retrospectively from July 1, 2017.

This amendment is expected to pose problems to every one except the petitioner of that ruling for claiming all pending transitional credit (technically known as input tax credit or ITC) till June 30. The Notification for the amendment says: May 18, 2020 is the date on which the provisions of section 128 of the said Act (Finance Act 2020, shall come into force.

The fine print of this amendment makes it clear that the power to prescribe a timeline now emanates from a law enacted by Parliament and not from the sub-ordinate legislation (read law). Since the Delhi High Court order focusses on rule, that is why notification will impact the claim settlement for number of businesses except the petitioners in the matter decided on May 5.

Rajat Mohan, Partner with AMRG, said that Delhi High Court’s landmark decision on Transitional Credits in favour of taxpayers would lose its grip in light of the defect occurring due to retrospective amendments brought in by the Finance Act, 2020. The Court had reasonably declared that the time limit of 3 years under the Limitation Act was relevant for transitional credit benefit, enabling all taxpayers to claim legitimate CENVAT credit till June 30, 2020.

“This ruling would have a far-reaching impact on the stressed revenue streams of the exchequer, however, now with the retrospective amendments, the tax authorities have tightened their grip around transitional credit,” he said.

Transitional credit refers to use of tax credit accumulated up to June 30, 2017, that is, last day of the erstwhile central excise and service tax regime.

After the introduction of Goods & Services Tax (GST), a special provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST. However, there were some conditions set. The credit will be available only if returns for the last six months — from January 2017 to June 2017 — were filed in the previous regime (that is if VAT, excise and service tax returns had been filed). And Form TRAN I (to be filed by registered persons under GST, may be registered or unregistered under the old regime) has to be filed by December 27, 2017, to carry forward the input tax credit which further March 31, 2019.

Later Commissioners were authorised to extend the date for submitting the declaration electronically in Form GST TRAN-1 but not beyond December 31, 2019. The Court had ruled that the time limit for transitional credit was only ‘directory’ and not ‘mandatory’ and not only the petitioner but all assessees can claim all pending transitional credit (technically known as input tax credit or ITC) till June 30. A ‘mandatory’ rule means it must be strictly complied while ‘directory’, means it would be sufficient for it to be substantially complied.