introduction of the new tax system, there was stagnation dur- has gone up 110% to 124% in recent times. ‘’For somebody ing the initial two years and, subsequently, there was negative who came into politics about five years ago, it strikes me fast growth due to the pandemic. GST runs counter to the princi- how shaky the system is for something that is supposed to ples of federalism. When taking part in the debate on the GST serve a country of a billion plus almost 400 million people. Bill as a Member of Parliament, he contended that true feder- “If you put all of the pieces together, one thing that is very alism will be negatively affected by introduction of GST, Mr. clear is the fear of loss of autonomy (of States) has been fully Balagopal recalled. realized,’’ the Tamil Nadu Minister said. What he said at the Equally vehement in his criticism of GST was Tamil Nadu end is what sums up the situation in the best manner possible: Finance Minister Palanivel Thiagarajan during the FICCI GST has ended up taking away States’ freedom on taxation- event. Blaming the Centre for collecting indirect taxes in the related issues, giving back little to them. name of cess and not sharing it with the States, Mr. Mohammed Raseef is Director, KCCI . Thiagarajan said the ratio of cess to the total quantum of taxes Kerala Chamber Business News | 51 | December 2021
GGoSfoTrANALYSIS compounding in real estate sector KKeerraallaa CChhaammbbeerr BBuussiinneessss NNeewwss || 5522 || DDeecceemmbbeerr 22002211
Stanly James When the Goods and Services Tax (GST) was introduced, the rate of tax applicable to sale of residential flats, apartments, etc., by builders was pegged at 12% (effective rate of tax) after factoring in 1/3rd value towards the undivided share of land. However, the Government of India subsequently felt that the rate appli- cable to residential flats was on the higher side and decided to reduce the tax for residential apartments/flats. Thus, under a notification (No. 03/2019 dated 29.03.2019), the government reduced the tax rate to 1% for affordable housing projects and 5% for other than affordable hous- ing projects. The government did this under the impression that the price of flats would come down substantially and would become more affordable for the customers. However, in reality, the prices of flat increased. This happened due the following reasons: Builders are not eligible for input tax credit on purchase of construc- tion materials such as iron and steel, bricks, cement, etc. The GST ap- plicable to cement is 28% and that on iron and steel, bricks, etc., is 18%, with no provision to set off the input GST against output tax liability. This could not but result in the cost of construction shooting up and the builders have no other option but to pass it on to the buyers. They began charging higher rate for each square feet area. Needless to say, this price hike affects the economy adversely. Moreover, the real estate sector is now struggling due to the sharp spike in the prices of cement and iron and steel. As a result of this price flare- up, the effective rate of tax after availing input tax credit for registered purchase of raw materials from the market would work out to 7% to 7.5%. How can we resolve this issue? The above mismatch can be addressed and the disparity in GST rate resolved by opting for compounding as used to be done prior to the rolling out of the GST. In the pre- GST pe- riod, there were two methods for filing returns under VAT and Service Tax, viz., compounding and non-compounding. After the introduction GST, the two taxes got merged. All that needs to be done is to continue with the compounding method. Builders who are interested to avail input tax credit can be given an oppor- tunity to claim it and allowed to switched over to 12% GST. This will help the builders to resolve the various complexities that now exist in the real es- tate sector. To summarise, builders can either opt for 5% GST rate without ITC or 12% with eligibility for project-wise input tax credit. The Real Estate Regulatory Authority (RERA) also stipulates that the real estate developers would maintain accounts project wise and certi- fied by Chartered Accountant on a quarterly basis. Hence to opt for 5% or 12% GST project-wise would be more viable to the builders than the present tax regime. Stanly James is a Chartered Accountant in Kochi. Kerala Chamber Business News | 53 | December 2021
SynergiesIndia-US economic relations I ndia and the U.S. have been working hard over the past Forum (TPF), co-chaired by Commerce and Industry, few years to arrive at a trade pact, but to no avail. The Textiles, Consumer Affairs and Food & Public Distribution biggest bottleneck to a trade agreement materialising was the Minister Piyush Goyal and U.S. Trade Representative policy tantrums of the Trump Administration, imposing Ambassador Katherine Tai, has sent out sufficient signals steep penalties on Indian exports such as steel and branding about a big turnaround in Indo-US economic relations. That India as one of the nations taking away American jobs. the TPF met after a gap of four years is in itself a clear indica- While Trumpian tantrums might have helped the former tion of the keenness of the Bidan Administration to have President to become the darling of the hyper nationalistic au- India on its side on trade as well as defence issues. dience back home, it did not certainly help instilling confi- The key outcome of the meeting was an open commitment to in- dence in India as a trading partner. The Biden Administration tegrate the economies of the U.S. and India across sectors “to har- appears intent on turning a new leaf in Indo-US relations, ness the untapped potential of the bilateral relationship”. deepening trade relations besides, of course, seeing to it that Reports indicate that the Forum resolved to take economic India remains a strong phalanx against an expansionist China ties between the two countries to the ‘next high level’ and ex- in the Asian region. changed views on ‘potential targeted tariff reduction’. It may The just-concluded two-day meeting of the Trade Policy be recalled that tariff barriers have been one of the key irri- Kerala Chamber Business News | 54 | December 2021
to the fore tants in the trade ties between the two countries. manner. The idea is to deliver tangible benefits to farmers and businesses of both countries by resolving outstanding market Generalized System of Preferences access issues. With the two sides failing to reach a mutually acceptable under- Mutual market access standing, Indian demand for restoration of the GSP (Generalized System of Preferences) benefits by the U.S. has been hanging fire A key area of concern on the agricultural front has been the for long now. At the TPF meeting, India raised the issue once absence of an agreement providing for mutual market access. again and the U.S. side reciprocated with the assurance that the The Forum has now decided to craft an agreement to facilitate demand has been noted ‘for suitable consideration’. The Indian U.S. market access for mangoes, grapes, and pomegranates, argument is t that a GPS would help industries from both sides in pomegranate arils from India, and reciprocate with similar integrating their supply chain efficiently. access in the Indian market to cherries, pork/pork products As decided at the meeting, working groups of the Trade Policy and alfalfa hay for animal feed from the United States. Forum (TPF) on agriculture, non-agriculture goods, services, Discussions will also be held on enhancing market access for investment, and intellectual property would be activated to products such as distillers’ dried grains with solubles from the address issues of mutual concern in a mutually beneficial U.S. and resolving market access concerns for water buffalo Kerala Chamber Business News | 55 | December 2021
The biggest bottleneck to a trade agreement happening was the policy tantrums of the Trump Administration, im- posing steep penalties on Indian exports such as steel and branding India as one of the nations taking away American jobs. meat and wild caught shrimp from India. meeting to be held by mid-2022. Totalisation Agreement De-risking global pharma supply chains The Forum also agreed on the significance of negotiating a Social Meeting as they did at a time when the dark shadow of Security Totalization Agreement in the interest of workers from Covid-19 still envelopes global economies, India and the U.S. both sides, and pursuing further engagements for reaching such were unanimous that they must partner with allies to develop an agreement. ‘a secure pharmaceutical manufacturing base’ so as to de-risk The totalisation agreement, being pursued for over a decade, global supply chains in such critical sectors like health. would allow workers from both countries to move their retire- On the services front, the Forum discussed ways in which le- ment savings, the lack of which particularly affects Indian IT gal, nursing and accountancy services could facilitate growth workers in the U.S., who lose billions of dollars in statutory U.S. in trade and investment. The resolve of the meeting was to social security contributions that they cannot repatriate home. work together on electronic payment services and the digital economy so that the goals on the services front could be WTO and Indo-US ties achieved. The two sides decided to continue engaging on visa issues to India was once a staunch critic of the U.S. in the World Trade facilitate the movement of professionals, skilled workers, ex- Organisation (WTO), particularly on issues relating to agri- perts, and scientific personnel, which was one of the key con- cultural subsidies. It appears that the two countries (or at least cerns of the Indian side. During the deliberations, India wel- India) have decided to put those difference behind them in comed the recent U.S. decision to permit fully vaccinated the context of the new global realities. Indians to travel there. Indicating as much, the two sides agreed at the TPF meeting The U.S. is also reported to have indicated an interest in sup- to work towards ‘collaboration and constructive engagement’ plying ethanol to India for its goal of 20% ethanol blending in various multilateral trade bodies including the WTO and with petrol by 2025. the G20 for achieving a shared vision of a transparent, rules- The significance of the sweep and scope of the deliberations at based global trading system among market economies and the Trade Policy Forum would not be lost anyone who has democracies. Quite significantly, the Forum also decided to been observing the India-U.S. trade ties because there more find mutually agreed solutions on outstanding WTO disputes downs than ups in the relations between the two countries between the two countries. during the Trump era. For one, it shows that the Biden ad- Ms. Tai and Mr. Goyal have directed the TPF working groups ministration is keen to deepen the ties between the two coun- to develop plans of action for making substantive progress by tries which share values of democracy, independent judiciary March 2022, which would include identifying specific trade and free enterprise like never before in their history. outcomes that could be finalised for an inter-sessional TPF Kerala Chamber Business News | 56 | December 2021
ARTICLE When corporates came to Kerala’s aid CSR was on full view during 2018 Kerala floods Abhilash N.M. Corporate Social Responsibility (CSR) has caught the atten- The 2018 floods, which devastated large parts of Kerala, was one tion of the nation in different ways—while some criticise it as of those rare occasions when CSR outreach proved a major boon being a ploy of the corporates to divert attention from their for the Kerala Government. The worst floods in 100 years had wrongdoings, some see in it strong elements of altruism claimed at least 400 lives and displaced over one million people. among corporates, especially those that have been crafted out The State sustained losses estimated at ₹19,512 crore. of the blood and sweat of their leadership. Here is a look at how the various corporates fulfilled their so- In post-liberalisation India, CSR activities have played a ma- cial responsibility during this time of mass displacement and jor role in filling gaps in the development narrative—support- loss. Most corporates came forward to mobilise financial and ing the dispossessed and those with disabilities, building logistical support for the State. Amazon and Flipkart (e-tail- school classrooms, providing hospital beds, extending health- ers) and BigBasket (grocery delivery app) tied up with care assistance to the needy, etc., being some of the easily rec- non-profit organisations to let shoppers buy and donate goods ognisable activities. There are many more avenues where CSR to flood relief camps free of shipping charges. has left its imprint. Zomato (food delivery app) tied up with Akshay Patra and In India, around 14,000 companies are required to spend on vari- donated meals for people at the relief camps. Paytm intro- ous social projects under Section 135 of the Companies Act. As duced a new facility to transfer funds directly to Chief per law, a company must spend 2% of its profit on CSR from the Minister’s Distress Relief Fund (CMDRF). The sum thus re- current fiscal year if it has a turnover of ₹1,000 crore or more, or ceived crossed ₹10 crore in a month. Hyundai India and TVS net worth of ₹500 crore or profit of ₹5 crore or more. donated ₹1 crore each to the CM’s Relief Fund. Kerala Chamber Business News | 57 | December 2021
ARTICLE Facebook’s safety check feature allowed users to mark themselves outreach arm of the Adani Group, provided ₹1 crore as safe on the social media platform, thus bringing down the anx- (US$141,000) for immediate relief and another ₹1 crore for ieties of their near and dear living and working away from home. rehabilitation and resettlement. Reliance Foundation chair- It also started a crisis response page that collected data from de- person Nita Ambani announced a donation of ₹21 crore pendable sources to update the flood situation in Kerala. (US$2.96 million) to the CMDRF. Facebook itself donated $250,000 to the community resilience Major oil companies of India such as BPCL, HPCL, IOCL and fund for Goonj, a Delhi-based non-profit engaged in disaster re- others collectively donated ₹25 crore (US$3.53 million) to the lief, humanitarian aid and community development. CMDRF, in addition to providing relief materials and helping Twitter hashtags such as #keralaflood and #Keralaflood2018 in the rescue operations. also connected people on Twitter Lite. Google activated its Dr. Azad Moopen, Chairman and Managing Director of Aster Person Finder tool for Kerala. Tracking as many as 15,000 DM Healthcare, donated ₹2.5 crore to the CMDRF, and another people, the tool helped connect victims with their loved ones. ₹12.5 crore for rebuilding houses in the flood affected areas. Google also added pinned locations of a host of relief and res- Companies’ directly donating to the Chief Minister’s relief fund cue centres on Google maps. are covered under the CSR provisions of the Companies Act. Pre-paid customers in Kerala got data and call benefits from During the Kerala floods, the Ministry of Corporate Affairs also telecom operators Airtel, Jio, Idea, Vodafone and BSNL. A extended a helping hand to the flood victims by agreeing to di- Kozhikode based social networking app Qkopy helped spread vert funds collected through companies spending on corporate traffic-related information during the floods. social responsibility to Kerala CM’s Relief Fund. Doctor, entrepreneur and philanthropist Dr. Shamsheer A business in the long run must also fulfil some social respon- Vayalil donated ₹50 crore (US$7.05 million) for the relief of sibilities. This is important to protect our environment as well flood victims to address housing, education and healthcare is- as our society. During the Kerala floods, so many businesses sues. UAE-based Indian businesses today donated ₹18.85 extended a helping hand to the State. A few crores spent to crore. Chipsan Aviation provided 3 helicopters for rescue and provide relief to the people would certainly have created a relief operations. KP Hussain, chairman of Fathima positive impression in the minds of the people about these Healthcare Group, donated ₹1 crore (US$141,000) to the corporates. For, at the end of the day, the success of any busi- CMDRF and another ₹4 crore (US$564,000) in medical relief. ness is dependent on credibility and the societal perception Canara Bank, leading nationalised public sector bank, donat- that the businesses would stand by the people when they face ed ₹5.01 crore (US$706,000) to the CMDRF. It also donated crisis like the 2018 floods in Kerala. 10,000 kg of rice using its CSR funds. Star India, its parent Abhilash N.M. is Assistant Professor, Dept. of Commerce, company 21st Century Fox and their employees together do- Christ Nagar College, Maranalloor, Thiruvananthapuram. nated ₹5 crore (US$705,000). Adani Foundation, the CSR, sustainability and community Kerala Chamber Business News | 58 | December 2021
Kerala Chamber Business News RNI No. KERENG/2008/25119 ₹100/ Vol. 9/Issue 02 December 2021
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