May 22, 2019

By Vijay Kumar

RIGHT now, I am travelling in the United States. My 'Vodafone Idea Mobile' has allowed me International Roaming facility at a cost of about 11000 rupees which includes 18% GST. I am an Indian currently in US taking the mobile service from a company operating in India. Am I liable to pay GST? Will 'Vodafone Idea' be required to pay GST on the charges they pay to the Mobile Network in USA which actually keeps me connected to India?

New Zealand faces a similar problem. See how they are trying to overcome it:

Revenue Minister Stuart Nash has issued a media statement on 17th May 2019 to the effect:

- New Zealand's tax rules are held up internationally as a model for a good way to levy and collect a Goods and Services Tax or a Value Added Tax.

- Ideally a GST or VAT should be broad-based with few exceptions and flexible enough to respond to changing circumstances and business models and commercial practices.

- Our system of GST works because of its simplicity and coherence. But that simplicity requires a lot of ongoing maintenance to keep pace with changes. For example, the previous government introduced GST on services purchased online such as music streaming.

- This work is continuing and later this year I will launch public consultation on a range of other important maintenance issues. A current example is the loophole which allows special rules for telecommunications services.

- These are now out of step with the OECD's guidelines for GST and VAT and for establishing taxing rights. This raises the possibility of a person either being taxed twice or not at all for using global roaming overseas.

- Inland Revenue has therefore released a consultation document which presents details on implementing proposals to align the GST treatment of most telecommunications services with the treatment of other remote services like digital downloads.

- Under the OECD's best practice guidelines, a consumer's usual place of residence is used to determine which country has the right to tax the consumption of remote services. This means a remote service should generally be subject to New Zealand GST when it is supplied to a New Zealand-resident consumer.

- The OECD guidelines define remote services as services where it is not necessary for the supplier and the consumer to be in the same place (for example, a digital download). The OECD's definition of remote services is broad and includes telecommunication services.

- Therefore, under these guidelines supplies of telecommunications services, for example on international roaming services, should be subject to GST when consumed by a New Zealand resident regardless of the consumer's location. It would ensure services rules are consistent with international best practice such as the United Kingdom and European Union.

- New Zealand has already adopted rules in 2016 consistent with the guidelines for most remote services other than telecommunications services. But the 2016 changes did not make that final step regarding telecommunications services. This proposal would close that loophole and protect the coherence of the system.

- To ensure that our GST rules remain fit for purpose, we need to conduct ongoing maintenance and keep pace with best practice.

Simultaneously, the 'Policy and Strategy, Inland Revenue, and the Treasury' of New Zealand released an official paper, "GST on telecommunications services", explaining the proposed levy.

The Problem as perceived by the Revenue is:

The approach of many countries is to apply tax to telecommunications services on a residency basis. As New Zealand's current rules are not aligned with international best practice, they could give rise to potential double non-taxation and double taxation issues. Outbound roaming services supplied to New Zealand-resident consumers temporarily offshore may not be taxed in any country (double non-taxation). On the other hand, inbound roaming services received by a non-resident in New Zealand could possibly be subject to tax in both New Zealand and in the country where the consumer is usually resident (double taxation).

Further, the nature of telecommunications services has changed significantly since the special GST rules were introduced in 2003. The lines between telecommunications services and content are now blurred and services that were once separate are now supplied together over data-based networks.

It does not make sense when these services are now so interconnected, for the supply of digital content to be treated differently (currently taxable under the remote services regime) from the telecommunications services through which the content is able to be provided or delivered. The current rules mean that a New Zealand resident would, for example, be charged GST on music that she has downloaded while overseas, but no GST would be charged on the roaming services that she has used to download the music.

The main proposal

The Government has proposed to repeal most of the special rules applying to telecommunications services. Repealing the telecommunications services rules would mean that telecommunications services would generally be treated as remote services. As such, their place of consumption would be determined by the residency of the recipient of the services.

However, for certain telecommunications services the consumer's residency is not an appropriate proxy for the place of consumption. These services require a person to be in a specific location to receive the services. For these specific telecommunications services, it is proposed that the location of the recipient of the services should be used for determining the place of consumption.

The Government proposes to make the change with effect from 1st October 2020 and they have placed all the facts, problems and proposals before the people on 17th May 2019 and interested parties are invited to make suggestions by 28th June 2019.

I really do not know the intricacies of OECD on GST and whether I am liable to pay GST on the international roaming charges collected by my Indian Mobile service provider, but I strongly believe this is how taxation laws are to be made. You should not be flushing out laws out of the North Block without a hint and make them applicable from yesterday. If you are making the laws for public good, do tell the public - well in advance, what good you are going to do.

In the Re-Modified GST administration, can we expect something like this?

Input Credit on renting of immovable property

As per Section 17(5)(d) of the CGST Act, input tax credit shall not be available in respect of ….. goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

This was the subject of a writ petition in the Orissa High Court which passed a landmark judgement that brought cheers to the construction industry.

The petitioners are mainly carrying on business activity of constructing shopping malls for the purpose of letting out of the same to numerous tenants and lessees. Huge quantities of materials and other inputs in the form of Cement, Sand, Steel, Aluminium, Wires, plywood, paint, Lifts, escalators, Air-Conditioning plant, Chillers, electrical equipment, special facade, DG sets, transformers, building automation systems etc and also services in the form of consultancy service, architectural service, legal and professional service, engineering service and other services including services of special team of international designers in every sphere of construction of Mall are required for the construction purpose.

One of the large shopping malls has been completed recently and the petitioner has made necessary arrangement for letting out different units of the shopping mall to different persons on rental basis. It is an undisputed fact that the activity of letting out the units of the shopping mall attracts CGST and OGST on the amount of rent received by the petitioner because the activity of letting out the Units in the Mall amounts to supply of service under the GGST Act/OGST Act. The petitioner having accumulated input Credit of GST amounting to Rs 34,40,18,028/-(Rupees thirty four crores forty lacs eighteen thousand twenty eight only) in respect of purchases of inputs in the form of goods and services is desirous of availing of the credit of input tax charged on the purchase/supply of goods and services which are consumed and used in the construction of the said shopping mall in order to utilise the said input credits to discharge and pay the CGST and OGST payable on the rentals received by the petitioner from the tenants of the said shopping mall and approached the revenue authorities in this regard. However, the petitioner was advised to deposit the CGST and OGST collected without taking input credit in view of restrictions placed as per Section 17(5)(d) and was warned of penal consequences if it did not do so.

The High Court held: [2019-TIOL-1088-HC-ORISSA-GST]

- The very purpose of the Act is to make the uniform provision for levy and collection of tax, intra state supply of goods and services both central or State and to prevent multi taxation.

- The provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted.

- The very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input credit on the GST, which is required to pay under Section 17(5)(d) of the CGST Act.

GST Appellate Tribunal - No appointments:

The Delhi High Court has ordered that the Government shall not, without prior intimation to the Court, proceed to appoint persons to the GST Appellate Tribunal till the next date. The next date is 26th July 2019. [See 2019-TIOL-1096-HC-DEL-GST]

Until next week