As SEBI reforms startup listing, SMEs must ensure funds are not misused

SME ExchangeAmid SEBI banning as many as 239 entities for alleged money laundering, taxation consultancy PwC has called for a three-year locking-in for the entire pre-listing capital held by promoters to curb tax evasion and other illegal activities through market platforms.

The agency has called for imposing a similar lock-in even for preferential allotments, as prescribed under the capital and disclosure requirement (ICDR) norms so that only serious investors access the market. The PwC report is part of a BSE-mandated review of SME listing process.

The premier bourse last week said that 100 entities were trading on its SME platform. The regulator Securities and Exchange Board (SEBI) on June 29 banned four publicly traded SMEs and 235 other related entities for alledgely misusing the exchange’s platform for money laundering and tax evasion.

The SEBI, in an interim order alleged that these entities made Rs 614 crore in illegal gains through suspected money laundering and tax evasion activities. The four companies banned are EcoFriendly Food Processing Park, Esteem Bio Organic Food Processing, Channel Nine Entertainment and HPC Biosciences. These are traded on the BSE SME Platform.

“The institutional trading platform (ITP) could be utilised as a tool for tax planning by staying invested in an SME for a period more than 12 months and exiting at a very high stock price thereby making huge gains with no tax liability,” PwC said in the report.

Accordingly, the report has suggested that the entire pre-listing capital held by promoters should be locked in for three years as “such restrictive conditions would discourage people from accessing the platform only for tax planning”. The BSE had launched ITP for its SME platform to facilitate start-ups and other SMEs to list without the mandatory IPO process which is time-consuming and capital intensive that small companies can hardly afford.

According to PTI, in addition to allowing SMEs and start-up companies to raise capital, the BSE SME platrfom also provides easier entry and exit options for informed investors like angel investors, venture capitalists and private equity players, apart from offering better visibility and wider investor base and tax benefits to long-term investors.

Meanwhile, the report also called for a reduction in trading lot size and shorter interval for review of lot size after many SMEs, merchant bankers and market-makers cited this as a disincentive for entering the market. The report said market participants want the timeframe to review the lot size to be reduced from the current six months and lower the trading lot requirement of Rs 1 lakh to attract retail investors to the segment.

As SEBI continues to make business easier, it is important SMEs do not eye illegal gains through suspected money laundering and tax evasion activities.


SEBI calls for stringent laws against erring auditors, valuers

SEBI has proposed giving the board of directors of the company the authority to take appropriate action after conducting an investigation against the individual or firm that violates any regulations or submits a false certificate or report.

India’s capital market regulator has proposed amendments to tighten laws governing auditors and other third-party individuals hired by listed companies for auditing financial results, among other things.

The Kotak Committee, formed to come up with proposals for improving corporate governance, last year recommended that the Securities and Exchange Board of India (SEBI) should have clear powers to act against auditors and other third-party individuals or firms with statutory duties under the securities law.

Auditing lapses have caused several frauds to go unnoticed for years and the capital market regulator has had no direct control on the auditing firms.

SEBI has proposed giving the board of directors of the company the authority to take appropriate action after conducting an investigation against the individual or firm that violates any regulations or submits a false certificate or report.

The proposed changes come months after Punjab National Bank, India’s second largest state-run lender, stunned markets after uncovering a $2 billion loan fraud that had gone undetected for years.

Merchant bankers, credit rating agencies, custodians, among others, are registered and regulated by SEBI but chartered accountants, company secretaries, valuers and monitoring agencies do not come under any direct regulators.

The amendments would mean auditors must ensure certificates or reports issued by them are true in all material respects and they must exercise all due care, skill and diligence with respect to all processes involved in issuance of the report or certificate.

The auditors would be responsible to report in writing to the audit committee of the listed company or the compliance officer on any violation of the securities law they noticed.

In January, SEBI barred Price Waterhouse from auditing listed companies in India for two years after an investigation into a nearly decade-old accounting fraud case in a software services company that became India’s biggest corporate scandal.

SEBI has sought feedback and comments on the draft regulations over the next 30 days.


Link: Business Today

GST mop-up on track; fisc not under threat

A monthly collection of around ₹80,000 cr appears sufficient to meet the Centre’s and States’ needs

The Goods and Services Tax (GST) collections for December 2017 show an increase, but despite this there are concerns that the tepid collections since July could pose a problem on the fiscal deficit front.

However, a closer look at the numbers shows that these fears are misplaced. The Centre’s tax collection, as per the CGA (Controller General of Accounts), appears to be on track to achieving the Budget estimates for 2017-18. There are, however, many trouble spots in the new regime.

The complexity of the GST, which combines many of the indirect taxes of the Centre and States, has made it quite difficult to estimate the expected monthly collection target.

At a press conference in August 2017, Finance Minister Arun Jaitley said that the collections in July were better than the target of ₹91,000 crore for that month. This figure has been used since then as a ball-park figure for measuring monthly GST collections.

If we use this figure, GST collections in October (₹83,346 crore), November (₹80,808 crore) and December (₹86,703 crore) are well short of the target. But that may not really be the case.

To estimate the targeted monthly GST collection, we worked backward to see the projected revenue in the Budget estimate for 2017-18 from goods and services that have been put under GST. While service taxes have mostly moved under GST, only about a third of excise duty collections are under GST since the taxes on many petroleum products are still outside the new regime. Under Customs duty, almost 64 per cent of the collections are now under GST.

Using this basis, around ₹43,000 crore of GST need to be collected by the Centre monthly towards its indirect tax collections. A portion of this will devolve to the States as part of their share in the Centre’s revenue.

States totally have to be disbursed ₹43,000 crore every month, assuming 14 per cent annual growth from their 2015-16 revenue. Working with these numbers, a monthly GST collection of around ₹80,000 crore appears sufficient to meet the Centre’s and States’ needs.

Actual numbers

The fact that the Centre has not fallen short in its indirect tax collections is borne out by the numbers from the CGA. Gross tax revenue of the Centre for the period between April to November 2017 was ₹10,87,302 crore, up 16.5 per cent from the amount collected in the same period in 2016-17.

Interestingly, gross indirect tax collection of the Centre in this period was up 18.2 per cent, having risen from ₹5,08,924 crore to ₹6,01,904 crore.

While the devolution to States was 25 per cent higher, the Centre’s net tax revenue has managed to increase 12.59 per cent, showing that the Finance Minister will not have too much difficulty in balancing the fisc.

The catch

While the Centre’s collections are on track, allocations to States can pose a problem. “Due to the fact that IGST revenue is disbursed over a period of time, there is a thinking amongst States that there is a revenue shortfall,” explains Gautam Khattar, Partner, Indirect tax, PwC.

Disputes on input-tax credit claimed by businesses in the provisional GSTR 3B form are another issue that could impede calculations. “Definitely, this is the major concern for the Department because invoice matching is the backbone of GST,” says Vishal Raheja, DGM, Taxmann.


Source: Press Reader


Taxman plans to match GST invoices to plug leakage

Move in response to falling GST revenue collections

The GST Council may move the sales and purchase invoice matching system to the back end. It will do so to keep tabs on missing transactions and check over-claim of input tax credits in the goods and services tax (GST).

At present, assessees claim input credits themselves by filing summary input- output returns, and the tax authorities do not have any clue whether the claims are correct or not. The process of invoice matching was supposed to be done by the assessees, though it was deferred till March. However, slowing GST revenues have now prompted the government to design an alternative mechanism, under which tax officials will do the matching themselves.

“Instead of asking taxpayers to match invoices, we may do it ourselves at the back end. We may follow a risk-based approach; when the gross level of transactions does not match, we may match invoices,” an official said, adding the proposal was under consideration.

GSTR-1 (sales) and GSTR-2 (purchase) returns have to be matched with GSTR-3 to ensure that claims by taxpayers are correct. Both GSTR-2 and GSTR-3 returns have been postponed.

A committee, under GSTN Chairman Ajay Bhushan Pandey, is looking at ways of making the filing of the GSTR-2 and GSTR-3 forms business-friendly. The time period for filing the GSTR-2 and GSTR-3 forms for the months of July to March is also being worked out. The committee has recommended merging the GSTR-1, 2 and 3 forms as one option to simplify filing returns.

According to estimates, there is a 15-20 per cent GST revenue leakage at the moment.

GSTR-1 is used to file details of outward sales of a dealer. After submission, the details of purchases made by the dealer are automatically populated in the GSTR-2 form. The dealer is required to verify the details and submit the form. Finally, GSTR-3 calculates a taxpayer’s tax liability and the available input tax credit.

GST revenue collections touched their lowest in November at ~808 billion. According t0o the government’s estimates, if this trend continues, there could be a shortfall of ~250-300 billion in indirect tax collections this fiscal year. The government had attributed the slowing revenue to postponement of features of the GST such as matching of returns, electronic way bills and the reverse charge mechanism.

The revenue slowdown prompted the GST Council to call an urgent meeting on December 16 and advance the introduction of the electronicway bill for inter-state movements of goods to February 1 and for intra-state carriage from June 1.

“It is important that the concept of invoice matching continues as it is part of the basic design of the GST. If it is not done electronically, it will be needed at the time of assessment or audit, which will lead to more paperwork. The process can, however, be simplified,” said Pratik Jain, leader-indirect taxes, PwC India.

M S Mani, senior director-indirect taxes, Deloitte, said invoice matching provided taxpayers the ability to view transactions and take corrective steps on an ongoing basis. “While this may be cumbersome for small businesses, there are significant benefits for taxpayers and the government. However, the technology challenges will have to be overcome so that the matching happens seamlessly online in real time,” he said.

Bipin Sapra, partner— indirect taxes, EY, said, “In the absence of invoice level matching, the alternative is to match revenues and credits with GSTR1 but since the process will not be automated, it will be possible for a limited number of clients on the basis of risk assessment.”

Tax authorities to scan GST transition credit claim of 162 companies

As many as 162 companies that have claimed GST transitional credit of over Rs. 1 crore are under the scanner of tax authorities who would verify whether the claims are eligible.

In the transitional credit form TRAN–1 filed by taxpayers along with their maiden returns for July, businesses have claimed credit of over Rs. 65,000 crore for excise, service tax or VAT paid before the GST was rolled out from July 1.

In view of such huge claims, the Central Board of Excise and Customs (CBEC) in a letter to Chief Commissioners said that as per the GST law carry forward of transitional credit is permitted only when such credit is permissible under the law.

“The possibility of claiming ineligible credit due to mistake or confusion cannot be ruled out … It is desired that the claims of ITC credit of more than Rs. 1 crore may be verified in a time-bound manner,” CBEC said.

It asked the chief commissioners to send a report on the claims made by these 162 companies to the CBEC, which is the apex decision making body for indirect taxes, by September 20.

To ensure that only eligible credit is carried forward in the GST regime, the CBEC has asked field offices to match the credit claimed with closing balance in returns filed under the earlier law. They would also check if the credit is eligible under the GST laws.

Till last week, as many as 70 per cent of 59.57 lakh taxpayers had filed returns for July resulting in a maiden revenue of Rs. 95,000 crore under the Goods and Services Tax (GST) regime.

However, out of this, the input tax credit (ITC) data for Central GST (CGST) claimed in TRAN–1 has shown that registered businesses have claimed over Rs. 65,000 crore as transitional credit.

The government had, in late August, come out with form TRAN–1 for businesses to claim credit for taxes paid on transition stock. Traders and retailers had 90 days time to file for claim. Also businesses have been allowed to revise the form once till October 31.

PwC India Partner and Leader (indirect tax) Pratik Jain said that the Rs. 65,000 crore amount looks high particularly given the fact that lot of large companies have not yet submitted TRAN–1.

Under the transition rules, traders and retailers are allowed to claim credit of 60 per cent of taxes paid earlier against the CGST or SGST dues where the tax rate exceeds 18 per cent. In cases where the GST rate is below 18 per cent, only 40 per cent deemed credit will be available against CGST and SGST dues.

Further, the government would also refund 100 per cent excise duty for goods costing above Rs. 25,000 and bearing a brand name of the manufacturer and are serially numbered like TV, fridge or car chassis.

To avail this, a manufacturer can issue a Credit Transfer Document (CTD) as evidence for excise payment on goods cleared before the introduction of GST to the dealer. The dealer availing credit using CTD would also have to maintain copies of all invoices relating to buying and selling from the manufacturer to the dealer, through intermediate dealers.

Source: The Hindu Business Line

1% of expected invoices uploaded to GSTN

There are all indications of a last-minute scramble near Sept 5 deadline and a clamour for extension

About 1% of the expected goods and services tax invoices had been uploaded on the GST Network more than a month after the facility opened, suggesting a last-minute scramble near the September 5 deadline and a clamour for an extension.


Only 4.4 million invoices have been uploaded as part of the GSTR 1 return filing, a facility that became operational on July 25.


“At least 440 million invoices should have been uploaded. The facility is open for 38 days, but only 4.4 million invoices have been uploaded. In last-minute filing, they will commit errors and the system will not accept the return,” said a GSTN official. Taxpayers would then seek an extension, he added.


“We will consider extending the deadline if people face genuine difficulties in filing GSTR 1,” said another official.


The last date to file provisional return GSTR 3B was extended from August 20 to August 25 after taxpayers faced difficulties in filing.


So far, 39.7 million returns have been filed by the 5.95 million entities registered for the GST in July, excluding those under the composition scheme. Based on this, 20-25% of those registered have not filed tax returns.


Experts pointed out taxpayers were grappling with GSTR 3B, the self-declaration form, for the first two months. This did not give them enough time to upload invoices, they added.


“People were busy filing GSTR 3B. They will start uploading invoices now,” said MS Mani of Deloitte.


Besides, the GSTN does not allow rectification or modification in returns submitted but not filed, making it a better option to wait. “In some cases, punching errors have increased the tax liability of assessees by crores of rupees, resulting in significantly high cash flows because the returns cannot be submitted without paying tax,” said Pratik Jain of PwC India.


He added the deadline for GSTR 2 of July was September 10, 2017, however, the offline utility was not yet available on the portal. In addition, there is an issue with the GSTN recognising existing SEZ units that migrated to the GST.


Companies were also grappling with filing input tax credit for pre-GST stocks with the offline utility tool unavailable. The government is expected to allow rectification of returns filed to claim credit.


With the offline utility for GST TRAN 1 form not available, companies faced difficulty in keying in the details. The lack of a provision for rectification of transitional credit claims may mean companies losing credit.


“In many cases, taxpayers had paid tax in cash. Till date, the credits of such cash payments are not reflected in the electronic cash ledger and the payments are shown as pending for banks’ confirmation,” Jain said.

GST relief


The government on the recommendation of the Goods and Services Tax (GST) Council on Friday waived the late fees for the GSTR 3B returns for July, filed after the due date. The announcement comes amid concerns raised over difficulties faced by the industry in filing returns.


The Council waived the late fees of Rs 200 (Rs100  each for State GST and central GST) for returns filed after August 25, the deadline.


“The Central Government, on the recommendations of the Council, hereby waives the late fee payable under section 47 of the said Act, for all registered persons who failed to furnish the return in FORM GSTR-3B for the month of July, 2017 by the due date,” said the notification.


Source: Business Standard