Goods and Services Tax will avoid double taxation

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Question: Will the price of new houses in India come down after the introduction of the Goods & Services Tax which is expected to come into force on or after 1st April 2017? What benefits are expected from this tax? R V Sathe, Doha

Answer: Currently builders pay multiple taxes, like value added tax, service tax, central sales tax, etc. The Goods & Services Tax will replace all these taxes and avoid tax on tax. Therefore, there will be a more transparent basis of taxation and consumers should stand to gain as a result of lower prices. The tax structure is yet to be determined and will be done by the GST Council which will be set up after more than fifty percent of the State Legislatures ratify the GST Constitution Amendment Bill which was recently passed by Parliament.

The GST Council will not only decide the rate applicable for residential and commercial immovable properties, but will also consider whether input credit will be available in respect of goods and services purchased by a builder. If the input tax credit is not available to builders, the final price may be higher than at present. The tax on the final price would be at the standard rate of GST which is currently expected to be around 18 per cent. It is possible that for small sized apartments, a lower tax rate may be levied to make housing affordable for the common man.

Q: My son and I are planning to settle down in the United Kingdom to start a financial consultancy service firm. The services would include advice on taxation and other allied matters. I believe some stringent measures have been proposed recently by the British Government. Is this information right? P R Malik, Dubai

A: Last month, the British Government proposed a plan to impose hefty fines on financial advisers who peddle tax avoidance schemes. This was announced by the Secretary to the Treasury who stated that such schemes deny the country of vital tax revenue and that Britain is determined to plug all avenues of tax avoidance and evasion.

The clamping down by the British Government is on account of revelations made in the Panama Papers. Millions of documents have been found showing the use of offshore companies, trusts and other entities for the purpose of tax evasion. This announcement of the British Government is yet to be put into action. Industry has been asked to give its feedback on the proposals contained in the plan before the necessary legislation is enacted.

Q: Many of the insurance companies operating in India are joint ventures which are controlled by two or three entities. As a result, full information is not available in the public domain. Does the regulatory authority have adequate control over these companies? C K Ratnakar, Doha

A: The Insurance Regulatory & Development Authority of India has come out with a discussion paper to propose listing of shares on the stock exchange by general insurance companies, including those companies which provide health insurance. It is proposed to make it mandatory for insurance companies to get listed on a stock exchange after completing eight years of operations. Those insurance companies which have already completed ten years of operations will have to do so within three years from the date of issue of the guidelines. At present, the IRDAI has power to direct an insurance company to list on a stock exchange if circumstances so warrant.

Prior to these mandatory guidelines being issued, insurance companies have been advised to initiate steps to ensure that the level of disclosure in public domain is brought up to the level of listed entities. These disclosures would cover such aspects like embedded value, segment-wise issue and lapsing of policies and segment-wise contribution to profitability. The listing of shares of these companies would enable retail and institutional investors to have the requisite information which would enable them to form a judgment.

The writer is a practicing lawyer, specialising in tax and exchange management laws of India. Views expressed by him are his own and do not reflect the newspaper's policy.

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