The rate cuts introduced by the GST Council on Saturday, July 21, 2018, have elicited mixed reactions from the cosmetics industry. While some industry stakeholders appear exulted by the development, some have expressed doubts about the impact of rate cuts on product prices.
In its 28th meeting held in New Delhi on July 21, 2018, the GST Council, under the the Chairmanship of Piyush Goyal, Union Minister for Railways, Coal, Finance & Corporate Affairs, announced a series of decisions with respect to GST rules. The Council also cut rates of several goods spanning across various industries including cosmetics and personal care. For example, the goods such as shampoos, hair lacquers, hair creams and dyes (natural, herbal or synthetic), tooth powders, dental floss, personal deodorants, etc., which attracted 28 percent GST rate so far will now attract 18 per cent rate. The new rates will be effective from July 27, 2018 onward. (See table: New GST rates applicable on cosmetic and personal care goods)
Simplification in procedures
GST Council has also introduced some new return formats and made associated changes in the law. In its 27th meeting held on May 4, 2018, the Council had approved the basic principles of GST return design and directed the law committee to finalize the return formats and changes in the law. The formats and business process approved on July 21, 2018 have been in line with the basic principles but with one major change i.e. the option of filing quarterly return with monthly payment of tax in a simplified return format by the small tax payers.
All taxpayers excluding small taxpayers and a few exceptions like ISD. Etc., will file one monthly return. The return, the Council claims, is simpler with two main tables: one for reporting outward supplies and one for availing input tax credit based on invoices uploaded by the supplier. Invoices can be uploaded continuously by the seller and can be continuously viewed and locked by the buyer for availing input tax credit. This process would ensure that very large part of the return is automatically filled based on the invoices uploaded by the buyer and the seller. Simply put, the process would be “Upload – Lock – Pay” for most tax payers.
Council approved quarterly filing of return for the small taxpayers having turnover below Rs. 5 crore as an optional facility. Quarterly return will be similar to main return with monthly payment facility but for two kinds of registered persons – small traders making only B2C supply or making B2B + B2C supply. For such taxpayers, simplified returns have been designed called Sahaj and Sugam. In these returns details of information required to be filled is lesser than that in the regular return.
Migration window available
The GST Council has also opened the migration window for taxpayers, who received provisional IDs but could not complete the migration process. Under this provision, the taxpayers who filed Part A of FORM GST REG-26, but not Part B of the said FORM are requested to approach the jurisdictional Central Tax/State Tax nodal officers with the necessary details on or before August 31, 2018. The nodal officer would then forward the details to GSTN for enabling migration of such taxpayers.
The Council has also decided to waive the late fee payable for delayed filing of return in such cases. However, such taxpayers are required to first file the returns on payment of late fees, and a waiver will be effected by way of reversal of the amount paid as late fees in the cash ledger under the tax head. Taxpayers who intend to complete the migration process are requested to approach their jurisdictional Central Tax/State Tax nodal officers in this regard.
First, the euphoria…
Welcoming the government’s decision to cut tax rates, Murli Narayan, Proprietor, Cosmic International, an India-based export marketing company, said: “The rate reduction is good not only for cosmetics but for other industries too. It will surely boost sales.” Observing that although cosmetics are referred to as luxury goods, they have become essential daily use items, he demanded that the GST rate on all major items should be made uniform.
Murli also welcomed the government’s move of bringing simplification to tax filing procedure. “Simplification of return filing is a very good move as it would be cumbersome and tedious otherwise. I feel, if GST follows a reasonable structure, then it will be more acceptable within a year or two,” he opined.
Terming it a welcome move, Rishabh C. Kothari, Vice President, Fragrances and Flavours Association of India (FAFAI), opined that the lower rates would boost both, compliance and consumption. “It is a step towards eliminating higher tax brackets which should be imposed only in the case of ‘sin’ products. As we move towards a lower median, both manufacturers and consumers will benefit. Lower rates should definitely bring down prices and give a boost to consumption and sales.”
Commenting on the simplification of procedure introduced by the Council, he said: “One of the objectives of GST was unification of multiple taxes and simplification of regulations and regulatory requirements on businesses. Therefore simplification of filing requirements will certainly benefit smaller businesses who may not have the internal resources to invest in complicated and strenuous compliance requirements.” Rishabh is also the CEO of CKC Fragrances & Flavours.
… then, a reality check
The decision to simplify return filing procedure was much awaited as even today there exists confusion about GST. Imran Lucknowi, Proprietor, SL Lifestyle-Handbags and Skin Care, a retailer from Pune, expressed his anguish over the confusion surrounding GST even after one year of its introduction. “Even today I completely rely on our CA for GST filings. There exists tremendous confusion about the rates, rules and procedures related to GST.”
Speaking to Cosmedic India, Ms. Kajal Anand, managing director, Debon Herbals expressed her doubts about the impact of rate cuts implemented by the government. “Government needs to take a holistic view of taxation while introducing rate cuts. The GST Council has removed the tax sanitary napkins but there is no clarity about applicable GST rate on inputs. Removal of tax on end product without touching tax rates on inputs will surely create an imbalance eating into the margins of the product manufacturers.”
Such move, according to her, may actually result in price hikes instead of price reduction. “As manufacturers cannot claim input tax credit, their cost of operations will grow. They will be forced to pass on the burden to the consumer. The net effect may be some increase in the pricing of sanitary napkins,” she noted. Ms. Kajal is the Immediate Past President of All India Cosmetic Manufacturers Association and also Head of Women’s Wing for Maharashtra State of Confederation of All India Traders (CAIT).