The change to the tax code has been called “one of the biggest economic and taxation reforms undertaken in India”. It was passed through parliament after a seven-hour debate, resulting in four separate pieces of legislation.
GST aims to streamline the tax code, and remove unwieldy multiple levies such as excise tax, VAT sales tax, service tax and others. The new tariff is levied at five flat rates – 0%, 5%, 12%, 18% and 28% – dependent on sector.
“18% tax on the gross commission received is a heavy blow”
However even before the start date, agency organisations such as the Association of Australian Education Representatives in India warned their members that they may not be included in exemptions granted for the education sector.
In an email, AAERI president Rahul Gandhi told members, “We strongly recommend that members should take a professional legal opinion in regards to the Indian GST”.
It was hoped agents would be included in the government’s plans to extend exemptions to education service providers. A second hope was that agents would be seen as exporting services – as much of the services sold pertain to activities outside of India.
But Ravi Lochan Singh, MD of Global Reach, explains a lack of clarity from the government has left agents unsure of where they stand.
“Unfortunately, there remains a divided opinion even amongst the experts [and] it will take either a court ruling or further clarification from the department over the coming months and years for the confusion to be removed,” he said in a recent blog.
This divided opinion has led to some agents not paying the 18% GST. According to Sushil Sukhwani, director at Edwise International, this is a risky move, prompted by the burden of a tax that businesses in the education service sector have nothing to offset against.
“The impact of 18% tax on the gross amount of commission received is a heavy blow,” Sukhwani told The PIE News. “Many other sectors of the economy can offset against inputs towards this GST. We agents don’t get any set off the GST for tax on foreign commission received thus our revenue is affected in a major way.”
But according to Kapil Dua, co-founder and CFO at Sannam S4, the change should not be a dramatic one as the real terms increase is only 3%, as long as agents had been using the old system correctly.
“Agencies don’t operate on a large enough margin to afford such a big impact”
“In general, as per the earlier tax regime, their services were chargeable to service tax at 15% under the Intermediary service category. However some of the agents were not charging service tax to foreign institutions by claiming exemptions under export of service laws,” Dua said.
Dua also disagrees that the new code is as complex as some agents claim, as their business is largely undertaken in India.
“All such services provided by agents are in fact delivered in India to Indian students as intermediary between foreign institution and students, hence subject to GST, even if charged to a foreign entity,” Dua told The PIE News.
He accepted there has been an initial hit to agents, but added that in the longer term agents will benefit from improved tax credits through the new input tax scheme.
“In the short term, all such services provided by agents have become costlier for foreign institutions and forced them to renegotiate their contracts,” he said. “In the midterm they will realise the real impact of the new GST law by having higher profits due to increased credit allowances.”
Sukhwani argued, however, that with little or no incoming expense to claim credits on, passing on the extra cost to institutions is the only option because however large the increase in tax burden for agencies, this will not necessarily be matched by added commission from the institution side.
“Agencies don’t operate on a large enough margin to afford such a big impact on the gross revenue,” he observed. “When closely looked at, it is 18% of our revenue but it is only 1.8% additional commission at the institution’s end.”
“The only option left for us agencies is to ask the institutions to pay it,” Sukhwani concluded.