GST has been a boon for sports goods makers in West UP, while pharma is struggling
The outskirts of Meerut host a thriving sports goods manufacturing hub where activity is bustling.
The Goods and Services Tax (GST) regime implemented by the BJP government at the Centre while testing a leather cricket ball. GST has acted as a catalyst for the country’s advancement and has streamlined operations.
Other micro, small, and medium enterprises (MSMEs) involved in sports goods manufacturing in the region also echo Sharma’s sentiment. The implementation of a 5% GST on clothing has been beneficial for their business, as they previously incurred costs for purchasing untaxed fabric.
The BJP’s ‘Modi ki Guarantee 2024’ manifesto pledges to simplify GST regulations and laws, provide digital credit facilities, and improve the tax portal to streamline operations for MSMEs. On the other hand, pharmaceutical distributors have a contrasting experience. In Muzaffarnagar and Meerut, they are worried about disrupted local trade and receiving unexpected tax notices.
An anonymous small pharma distributor expresses frustration, noting that they are now being issued notices for minor errors dating back four years, a situation that did not occur previously.
As per Section 43B(h) of the Income Tax Act, starting from April 1, companies are required to settle payments with MSMEs within 45 days of the agreement. Data from the MSME Samadhaan Portal indicates that over 182,000 complaints have been lodged by small businesses, seeking payment of more than Rs 42,000 crore, as of March 31.
State governments owed the highest amount (Rs 5,886.9 crore), followed by central public sector undertakings (PSUs) (Rs 5,074.4 crore), and proprietors (Rs 3,747.7 crore).
A manufacturer of mint essential oils in Moradabad, is awaiting a payment that now has a deadline extended to 90 days, compared to the previous 45 days.
A manufacturer of brass and iron raises concerns about the increasing prices of raw materials. As of March 31, around 60% of the amount due in resolved applications was paid by the Micro and Small Enterprise Facilitation Council. Central PSUs led in settlements with Rs 1,075.2 crore, followed by state governments at Rs 786.5 crore, and proprietors at Rs 407.7 crore.
The government’s efforts to safeguard MSMEs in tender processes and enhance access to bank loans. However, there are concerns about the Government e-Marketplace (GeM) as it affects profitability due to re-auction bids, despite the platform being instrumental in securing tenders nationwide. As per a response in the Rajya Sabha, MSMEs contributed 29.1% to the country’s GDP in FY22, slightly lower than the 30.5% contribution in FY20.
Significant GST relief for foreign airlines and shipping lines is expected after the elections
The government is actively addressing the ‘related party transaction’ clause within the Goods and Services Tax framework to make it more accommodating for foreign companies operating in India.
A senior government official indicated that this change is expected to occur within 100 days post-elections. It will entail exempting airlines and shipping lines from GST payments upon importing services, allowing them to pay GST upon service disbursement instead.
According to GST regulations, a related party transaction pertains to the exchange of goods or services between entities that share common ownership or management.
The official explained that all companies engaged in related party transactions, including airlines and shipping lines, import supplies from their parent companies located outside India. Currently, under GST, such related party transactions are taxed at 18%, and compliance requirements are quite stringent for foreign companies. To improve the ease of doing business and reduce compliance burdens, the government is considering easing these regulations.
The tax department issued numerous notices to foreign airlines and shipping lines, which are subsidiaries of overseas parent companies, for failing to pay GST on imported services. The government is contemplating providing relief in compliance for companies involved in related party transactions under GST. It may involve the potential exemption of GST payment for such transactions, with full eligibility for input tax credit (ITC). This would enable subsidiary companies to defer GST payment until the services are discharged. Any necessary legal changes for implementing this relief are also being considered.
The GST’s fitment committee will thoroughly review the issue and present it to the Council immediately following the general elections, according to the official. The potential easing of the related party clause under GST hinges on the availability of full input tax credit (ITC); otherwise, it would add to companies’ compliance burden. Discussions among GST authorities are centered on how companies and the tax department interpret this clause.
The relief implies that if an Indian subsidiary company imports services from its parent company without initially paying GST, the tax authorities may issue a demand notice. In such cases, the deemed supply is taxed at 18 percent, but input tax credit can be claimed later when the company makes further supplies. However, if the Indian company defers GST payment on imported services and pays the entire tax upon supplying services, the tax department should not intervene, as clarified by the official.
