Woefully taxing

Mohan R Lavi | Updated on March 09, 2018


Has GST become a ‘genuinely strenuous tax’?

If there is one song that can aptly describe the overall reaction to the GST laws that are in the public domain today, it would be Kya hua tera vaada (What happened to your promise?) from Yaadon Ki Baarat. GST was supposed to take on the gargantuan task of simplifying many of the taxing provisions in indirect laws. This would have been successful only if the laws were completely rewritten. Instead, the makers of the law have taken the easy way out and repeated many of the casually drafted provisions in the existing laws.

Indirect tax laws have had a tough time merging taxes on goods and services. This proved even tougher when an attempt was made to value services. After many court cases to the contrary, reimbursement of expenses was added to the cost of services, though most back-to-back reimbursements are only claimed and not charged.

The Draft Valuation of Supply Rules under the GST era make a determined effort to make the valuation of supply tougher. The rules focus on valuation, where the consideration is not wholly in money, transactions between related parties, supplies through agents, supplies based on cost and a residual method of valuation.

Akin to current rules, valuation under GST has specific provisions for certain supplies such as purchase or sale of foreign currency, travel booking and insurance contracts. The default norm for valuation appears to be open market value — a concept that by itself can let one’s imagination go wild.

Science fiction

In case the open market value is not available, the Valuation Rules come out with a norm that probably just falls short of science fiction. It reads as follows: “if open market value is not available, be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money if such amount is known at the time of supply”.

Just in case this does not fix the valuation number, the next clause intends to seal the deal: “if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality”. Litigation lawyers must be rubbing their hands with glee on seeing such imaginative drafting.

Where the value of a supply of goods or services or both is not determinable by any of the preceding rules, the value shall be 110 per cent of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services. Despite all this, where the value of supply of goods or services or both cannot be determined, the same shall be determined using reasonable means consistent with the principles and general provisions of the GST laws.

The GST Council also needs to deliberate on whether there need to be special valuation provisions for certain services such as forex brokers, insurance and travel agents. Would it not be better to bracket them at the lowest rate of GST instead of specifying options for valuation in detail? Similarly, the concept of pure agent has been copied from the existing service tax law leaving the debate on back-to-back reimbursements unanswered.

Till now, loosely drafted provisions under the GST law were being criticised. The closer we get to the appointed date, taxpayers have plenty of reasons to get genuinely concerned about these drafting disasters.

The writer is a chartered accountant

Published on April 17, 2017

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