Some
states have expressed that they are depositing taxes in some other
states where they are not due as per the GST rules and regulations of
Place of Supply (PoS). Photo: Mint
New Delhi: In
order to prevent incorrect allocation of GST revenue among states, the
Directorate General of Audit has been asked to scrutinise the accounting
software of large service providers like
banks and telecom companies,
an official said.
The issue concerning allocation of revenue in
case of inter-state supply of services was raised by some states during
high-level meetings between the Central and state tax officers to
analyse reasons for Goods and Services Tax (GST) revenue shortfall, the
official said.
Some states have expressed the apprehension that
service providers might not be depositing the taxes collected from
customers to the state exchequer where they are rightfully due. Instead,
they are depositing in some other states where they are not due as per
the GST rules and regulations of Place of Supply (PoS).
Under the
PoS rules, the taxes are required to be paid at the place of
consumption. However, in case of services it becomes difficult to
identify the place of consumption and hence, the GST regulations have
laid down elaborate rules for appropriation of taxes by states.
“The
DG Audit will check whether the accounting softwares of service
providers who are operating in different states are depositing the taxes
with the states where they legitimately accrue,” an official told PTI.
The DG Audit has been asked to give its report within three-four months.
The
official said that since GST is a new tax, it is likely that the
service providers may not be depositing the taxes correctly to the
states which are entitled, especially with regard to banking and
telecommunication sectors.
In case of banking and financial
services, the PoS is the location of the recipient of the services.
However, in case the location is not known, the PoS would be deemed to
the location of the supplier of services.
In case of post-paid mobile connection, the PoS is the billing address of the recipient.
As
regards pre-paid vouchers for mobile, internet or home television, the
PoS would be deemed to the address of the selling agent or distributor
as per the record of the supplier.
However, in case of online
recharges, the place of depositing GST will be the address of the
recipient of service on record with the telecom companies.
For the hospitality industry, the PoS would be the location of the immovable property.
Similar
regulations have been laid down for other services like insurance,
passenger transportation and transportation of goods including by mail
or courier.
The DG Audit would go into the details of software
being used by service providers to ensure whether the GST collected is
flowing to the states as specified under the regulations, the official
said.
Finance Secretary Hasmukh Adhia has met GST officers, both
from central and state tax departments, in certain states to understand
issues plaguing the GST collections.
A discussion to shore up
revenues has already happened with six states — Punjab, Himachal
Pradesh, Puducherry, Jammu & Kashmir, Bihar and Uttarakhand.
The
states faced an average 16% shortfall in GST mop up in the first year
of implementation (July 2017-March 2018), which has come down to 13%
during April-August period of current fiscal.
While only six
states — Mizoram, Arunachal, Manipur, Nagaland, Sikkim and Andhra
Pradesh — are facing revenue surplus in the current fiscal, 25 states
are staring at revenue shortfall and have to be compensated by the
Centre.
The 10 states which are facing maximum revenue shortfall
during April-August are Puducherry (42%), Punjab and Himachal Pradesh
(36% each), Uttarakhand (35%), Jammu and Kashmir (28%), Chhattisgarh
(26%), Goa (25%), Odisha (24%), Karnataka and Bihar (20% each).
In
2017-18, the Centre had released ₹41,147 crore to the states as GST
compensation to ensure that the revenue of the states is protected at
the level of 14% over the base year tax collection in 2015-16.
In current fiscal, there has been a spike in the bi-monthly GST compensation paid to the states by the Centre during June-July.
The
Centre paid ₹14,930 crore to compensate states for revenue loss
incurred in June and July, a nearly four-fold jump compared to ₹3,899
crore paid for the months of April and May, according to the latest
available data.
AMRG & Associates Partner Rajat Mohan said
there are a large chunk of compliant taxpayers who have by mistake paid
taxes according to wrong ‘Place of Supply’, leading to incorrect
allocation of revenue among the states.
“This issue would result
in widespread litigation, not only between taxpayers and states, but
also among different states,” Mohan said.