| Lack of clarity on ' supply rules' remains a barrier for GST rollout |
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New Delhi, 25 December Though the tabling of a constitutional amendment Bill for a goods and services tax ( GST) in the Lok Sabha is seen as kick- starting the tax reforms regime, industry isn't cheering the move yet. It feels the GST might not make much sense till supply rules are in place. As GST is a destination- based tax, it is difficult to identify the states where the tax will be imposed for some services. This is particularly true of services such as information technology and telecom, the consumption of which is spread across areas. What is unclear is whether the tax is to be levied based on the state where a company branch is located or that where its headquarters are based. For supply rules, the location decides where goods or services will be taxed. These rules are relevant in the case of inter- state supply of services, which could lead to different states seeking to tax the same transaction. "The government will have to draft supply rules in such a way that there is clarity on whether the state where the registered office is based is entitled to the GST or all offices using the particular service," said an industry participant. Tax experts say this crucial element of the levy has assumed more importance because of the surge in e- commerce and electronic delivery of services. "This aspect refers to rules that allocate the right to tax services between states. So far, it seems the importing dealer will get credit for goods and services supplied from another state. What is unclear is which state would have the right to tax different services," said Vivek Mishra, indirect tax partner, PWC. "This is the backbone of GST, which will ensure the services are taxed at the right jurisdiction. Without supply rules, there is a possibility of certain services escaping tax and some being taxed twice," said Prashant Desande, senior director, Deloitte. On December 19, a constitutional amendment Bill on GST was introduced in the Lok Sabha. It will be taken up by Parliament in the next session. The government plans to roll out the GST, which will subsume most indirect taxes, on April 1, 2016. Finance Minister Arun Jaitley has said the government is open to suggestions to improve the GST Bill. TAXING NORMS? |GST is a destination- based tax |That makes it difficult to clearly identify the states where the tax will be imposed for certain types of services |Place of supply rules decides where goods or services will be taxed |Supply rules become relevant in the case of inter- state supply of services which could lead to different states wanting to tax the same transaction |The rules are yet to be declared by the government and would be decided by the empowered committee on GST |
| KYC norms: A challenge for banks and their customers |
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Kolkata/ Mumbai, 25 December Banks are often criticised for using know- your- customer (KYC) norms as an excuse to complicate the process of opening accounts. Many have registered complaints on Grahak Seva, the government's customer- grievances portal, alleging banks repeatedly seek KYC documents, even after these are provided. Yet, time to time, banks are penalised by the regulator for violating KYC instructions. On December 17, the Reserve Bank of India ( RBI) imposed monetary penalties on ICICI Bank and Bank of Baroda for non- adherence to certain aspects of KYC norms, which allowed fraudsters to open fictitious accounts in the name of a reputed statutory organisation and use those for illegal transactions. The regulator also cautioned three other banks — Axis Bank, State Bank of India ( SBI) and State Bank of Patiala — for failing to adhere to its KYC directives. Shinjini Kumar, leader ( banking and capital markets), PwC in India, said: " A bank's ability to establish the identification of a customer can only be as good as that of the country. It can be poorer, but never better than the system's. Sometimes, it is difficult because there are constraints such as a large population and an inadequate database." Recently RBI simplified KYC norms, saying a single document will suffice as proof of identity and address. It added no separate KYC documentation would be needed while transferring accounts from one branch to another branch of the same bank. Those who don't have any "officially valid document" are allowed to open " small accounts" with banks. Intervals between periodic updating of KYC documents have also been increased. But challenges remain. Bankers say if an account is used for conducting a large transaction, they sometimes seek additional documents, fearing misuse. This, however, happens on a case- to- case basis. "The entire KYC process becomes difficult to negotiate when a customer has multiple accounts with different banks. If the accounts are split with different holders, it becomes even more difficult to carry out proper background checks. Banks need stronger technology platforms to weed out these discrepancies," said a senior official of a private bank. Many others agreed. K A Babu, head of retail banking at Federal Bank, said: " There are two parts to the KYC process — collection of documents and carrying out background checks. Generally, lapses happen in the second part. If a person is unemployed or new to a city, it is difficult for banks to conduct proper background checks. But the onus is on banks to ensure the customer's account is KYC- compliant." Experts feel the need for multiple documents is another concern. " In India, the lack of a unique national identifier is a key issue in implementing KYC rules. Dealing with multiple sets of documents, often issued by various authorities, poses significant challenges in terms of authentication and internal controls set up by banks," said Shashwat Sharma, partner (management consulting), KPMG in India. KV Karthik, senior director at Deloitte India, feels customer identification is only a part of the compliance process and the real challenge for banks is to create profiles of customers based on information collected at the on- boarding stage and using this to monitor transactions in his account. " For banks, the challenge is not only to ensure compliance, but also not to deny banking services and cater to financial inclusion. Compared to other developed countries, the complexity for banks ( here) is the wide variety of acceptable documentary evidence, which may or may not be verified electronically. Hopefully, Aadhaar will help banks overcome this," he said. Bankers say if an account is used for conducting a large transaction, they sometimes seek additional documents, fearing misuse |
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