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GST: With exceptions coming in, companies begin tax planning

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You can blame businesses for tax evasion but not for tax planning. Within hours of the GST Council reducing rates on 88 items, companies and tax consultants have got down to look at ways on how to make the best use of the mechanism to protect their margins, while staying on the right side of law to avoid anti-profiteering action.

A tax partner at a leading consulting firm said, “GST was expected to end loopholes created through carve-outs and exemptions. But, it is slowly making a comeback, giving space for tax planning.”

Based on Saturday’s decision, footwear has emerged as an area where many companies plan to reduce retail prices of some of their products. “If there is a product in the Rs 1,100-1,200 segment, there is scope for the price to be reduced to push volumes based on the lower levy,” said a consultant.

There are others who are looking at showing a retail price of Rs 999 to stay within the proposed 5% GST levy, but will only offer the price if a pair of socks or some other accessory is bundled. While the GST rate on footwear was fixed at 18%, an exception was made for those that cost up to Rs 500 with 5% tax. While demand for an across-the-board reduction in GST to 12% was rejected by the fitment committee (comprising officers) citing revenue loss, the panel noted how the dual rate structure had resulted in compliance problems.

The newly-introduced exemption for caps that cost up to Rs 1,000 — a move that is seen to be aimed at benefiting Muslims — will create similar issues as most of the manufacturers are not even in the tax net.

Officials said the decision to offer 18% GST only for TV sets up to 25-inch will create problems. “There would have been few litigations by keeping all products under one rate. But these types of exceptions are going to create problems,” said an officer. For instance, they expect disputes related to whether the frame is included in calculating the “screen size”.

A tax consultant said a 25-inch was not the preferred screen size and manufacturers in other countries may have to make more sets of this size. “When definition of a small car — based on length of the vehicle — was introduced, it initially benefited one manufacturer. The others took time to catch up,” the consultant said.

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