As we all know that the introduction of Goods and Service Tax (GST) will be the major tax reform in India since independence and it is most likely to be implemented from 01.04.2017. In this regard, I would like to point out some the potential impact of GST on service provider. The idea of this article is to provide an overview on impact of GST on service provider
Positive impact:
CENVAT Credit: CENVAT of SGST/CGST and IGST paid on Inputs and Capital goods is available under GST regime unlike in the present law were the credit of VAT/CST paid on Inputs was costs to the service provider and that have increased the cost of few services. Further, the credit of SAD paid on imports will also be available to service provider as it is likely to be subsumed into GST regime.
Composition levy: A new concept of composition levy has been introduced for service provider providing services upto the value of Rs.50 lakhs. Under which the Service Provider has to pay tax at the lower rate which shall not be less than one percent whereas the credit of input tax is not available. Therefore the small service provider may adopt this scheme as the tax rate will be very low.
Inputs held in stock: The Service provider will be entitled to get the CENVAT credit of Inputs held in stock in case where he is shifting from exempted category to taxable category. Further this credit can be utilised for the payment of output liability of tax in future.
Repairs & Maintenance of Plant and Machinery: The service provider providing repairs & maintenance of plant & machinery will be eligible to get the credit of both Input and Input services in GST regime unlike in the present law were only credit of Input service will be available.
No double taxation: In the present law Service provider providing works contract service have to pay both Service Tax under Finance Act, 1994 and VAT under State VAT Act on the same income at concessional rate which would be around 70% each. Thereby resulting in tax payable on the amount of 140% of service value resulting in double taxation on the income value to the of 40%. However, in the GST regime this double taxation on the same income will be taken care off as the works contract is deemed to be the supply of service.
Software Industry: At present the software industry is paying both Service Tax and VAT on Sale of software thereby increasing the cost of Software. Further, the same income is subjected two taxes. However, in the GST the same issue is expected to be resolved thereby reducing the cost of software to consumers.
Service Cost: with the introduction of GST the cost of inputs is expected to decline with the abolition of multiple taxes on inputs like Excise Duty, VAT, CST etc., and introduction of one tax, GST. Further, due to subsume of entry tax and Octroi the transportation cost for inputs will also be reduced and ultimately reducing the cost of inputs.
SSP exemption :The Service Provider under GST would be able to get the basic exemption upto the turnover of Rs.20 Lakhs when compare to Rs.10 Lakhs under Service Tax laws. However, the Service Provider in north eastern states will continue to get the similar benefit as in the present regime as the SSP limit for north eastern states is fixed at Rs.10 Lakhs only.(Decided in recent GST Council Meeting)
Negative Impact:
Rate of Tax: In the GST regime the expected tax rate that would be levied will be around 18% to 20%. Therefore, the increase in tax rate will increase the service cost for the end consumer.
No Centralised registration: In the GST regime, there is not concept of centralized registration for premises located in different states. Therefore, the service provider has to register himself in each state from where the services are provided and pay C/SGST in that state respectively.
Tax on free services provided: In the GST regime the service provider has to pay Service Tax even on services provided to its branch office or any free services provided as in the GST regime the supply made without consideration is also taxable. This could also lead to blockage of working capital for the business.
No centralized billing or accounting system: The service provider has to maintain books of accounts in the state from where the services are actually provided. There is no concept of centralized billing or accounting for GST purpose. The service provider has to main the books of accounts in each state from where the service has been provided.
No SSP exemption if services provided to other states: Unlike in the present law where the limit of SSP shall be computed bases on the aggregate value of taxable services provided in taxable territory under GST the supplier providing services in other states will not be eligible for SSP exemption.
Reverse Charge Mechanism: In the present regime, the service provider as to pay Service Tax under RCM at the time when payment is made to vendor. However, in the GST regime service provider has pay tax under RCM on earliest of the following:
- the date of receipt of service or
- date of payment or
- date of receipt of invoice or
- date of debit in books of accounts.
As a result of the above the service provider has pay tax early when compare to in present law thereby increase in cash requirement.
Value of Service: Value of service is the gross amount charged in the present law but in GST it is the transaction value which may include the value of free supply and post supply discount will not be available as deduction from transaction value unlike in the present service tax law where if the discount is due to re negotiation or short provision of service it can allowed as deduction as per Rule 6(3) of Service Tax Rules, 1994
Returns: The Supplier has to file as much as 37 returns a year from each premise from where the services are provided unlike in the present law where only two returns are sufficient for service provider providing services from different states if the centralized registration is obtained.
Availment of CENVAT Credit: CENVAT Credit of Services received will be available only when the supplier has filed his return and shown the said supply in his return. Therefore for the mistake of service provider the service receiver who has already suffered tax will be penalized.
Time limit for availing credit: CENVAT credit of GST will not be available if the return has not been filed. Further, no time limit for the availment of credit is given it has been mentioned that the credit will not be available after filing of final return or due date for filing of final return.
Works contract service: The Service provider providing Works contract service will not get the credit of Inputs and Input Services received for providing the service. Unlike in the present law where there is a restriction only on Inputs.
No Cross utilization: The credit of CGST and SGST cannot be cross utilised further in present law the credit of Service Tax paid is available.
Notice to Non-filers: If the return is not filed within due date the notice may be issued by Departmental officer demanding to file return within due date. There is no such concept in present law.
Invalid return: The return shall be valid only if the tax is paid therefore of the tax is not paid in respect of the return the return shall be invalid. There is no such concept in present law.
TDS/TCS on services: There are certain services where the service receiver has to deduct or collect the tax at source on services received. Therefore raising more complication in the taxation structure as to how the tax would be collected or deducted would be adjusted.
Assessment for non-filers of return:The Assessment of non-filer of returns is same as per present law the only difference is in present law it gives an opportunity for a person being heard but in GST there is no such concept.
Increased compliance burden: In the GST regime the compliance burden is expected to raise to service provider as they have to file as much as 37 return a year from each premises where the registration has been taken, Audit by Chartered Accountant if Cost or management accountant if the turnover exceeds certain limit, maintenance of books at different states Etc.
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