Experts suggest Singapore GST model

Citing the Singapore model, experts have suggested the introduction of new user-friendly measures to ensure ease of Goods and Services Tax (GST) compliance in India.

“The grievance redressal mechanism under the Singapore GST is very refined unlike Indian GST where the help lines are mostly of no help and advance ruling authorities are heavily revenue biased, failing to achieve the purpose with which they were formed,” said Sandeep Chilana, managing partner, Chilana & Chilana law offices.

Ease of compliance is the foremost thing India needs to learn and adopt from implementation of value added tax or Goods and Services Tax in developed jurisdictions, including Singapore, he said.

“While India is shortly moving to a single form regime, the information required to be filed is still extensive. The other important aspect is clarity in law. Despite two years having passed, there are still many grey areas such as inter-office services which require immediate attention,” Chilana added.

Explaining the grey areas, he said GST laws currently provide for a "deeming fiction" where common services undertaken from head offices such as accounting, financing and HR for all branches are treated as supply of services by head office to branch requiring payment of the GST.

“The issue becomes more complex in case of industries outside GST regime such as alcohol/petroleum, as the said deeming fiction applies to such services as well. And in such cases, GST so paid is dead cost,” Chilana said.

According to Atul Temurnikar, co-founder and chairman of the Global Schools Foundation, Singapore’s GST implementation has several good points, including the fact that it is well-planned and systematically executed.

“Singapore’s system (of GST) is very user-friendly and transparent in its accountancy practices,” he said.

Gujan Mishra, partner at law firm L&L Partners, said there is need for a “de minimis (about minimal things) rule” for claiming input tax credit under GST in India.

For instance, he explained, Singapore's de minimis rule allows GST-registered businesses, excluding financial institutions, to claim input tax on exempt supplies related to financial services if the value of exempt supplies made does not exceed the specified monthly threshold of Singapore $40,000 a month; and 5 per cent of the total value of all taxable and exempt supplies made in that period.

“To address the problem of apportionment and disallowance of input tax credit of goods or services used for making of exempt supplies of financial services, India should consider introducing a de minimis rule on the lines of Singapore,” Mishra suggested.

He said this will relieve the businesses from the requirement of allocating inputs to any supply of financial services where the annual or monthly turnover received from these services, such as interests and dividends, is less than the prescribed de minimis threshold.

“The de minimis threshold should be such that all firms supplying financial services on an incidental basis are excluded under the de minimis test, and not have to allocate any inputs to their supplies of exempt financial services,” Mishra said.

Generally, input tax credit of goods or services is available only to the extent it is attributable to the making of taxable supplies including zero-rated supplies, he said.

Hence, the credit is disallowed to so much of the input tax as is attributable to making of exempt supplies including non-taxable supplies, Mishra said.

“Virtually all businesses are engaged in making exempt supplies to some extent, especially engagement in financial activities such as depositing of funds or purchasing term deposits, bonds or shares. However, for most firms these activities are only ancillary to their main activities,” he said.

In the absence of any special rules, these firms are currently not permitted to claim input tax credits for tax paid on purchases that are used in the provision of financial services, he said.

“This disallowance of input tax not only adds to the cost of business but also increases the cost of administration and compliance,” Mishra added.