Sunday, 15 April 2018

Employee Canteen Expenses - Subject to GST?

On 26.3.18 Advance Ruling Authority of Thiruvananthapuram, Kerala have ruled that


"recovery of food expenses from the employees for the canteen services provided by the company would come under the definition of Outward Supply as defined under section 2(83) of the CGST Act, 2017 and therefore, taxable as a supply of service under GST"

This ruling goes against the Press Release dated 10.7.2017 which reads as below


"It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST"

The advance ruling authority defines
  • Canteen services as "Business" under section 2(17) of the CGST Act, 2017
  • Employer as "Supplier" under section 2(105) of the CGST Act, 2017
  • Recovery from employees towards canteen  services as consideration under Section 2(31) of the CGST Act, 2017
In view of the above definitions canteen services will be subject to GST as per Authority for Advance Ruling.

This ruling brings in another dimension to this canteen services.  Employer and Employee are "Relatives" as per definition under section 15(5) of the CGST Act, 2017.  This will trigger valuation as per Rule 28 of CGST Rules, 2017 which states as below

The value of the supply of goods or services or both between distinct persons as specified in sub-sections (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c)  if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:

This ruling has opened up a new front for debate and litigation. 


RUPEE - Q1 2018 performance & where it is headed?

Q1 2018, witnessed a battering for Indian Rupee, which is depreciated by 2% or 8% on an annualised basis


The depreciation had been consistent over the quarter one of 2018.  What has caused this?

Factor One - Ballooning Trade Deficit -  16% higher in 2018

Q1 2018 imports are at record levels of US$ 121 billion compared to an average of US$ 110 billion in the 2017 quarters.  Exports are also better in Q1 2018 but it has not increased at the same levels of imports compared to 2017.  Trade Deficit in 2018 is 16% higher in Q1 2018 as compared to average of all months in 2017 
                                     in USD Million
Month
Exports
Imports
Trade Deficit
Qtly Deficit
Forex Reserves
Months of Import
       
Jan-17
  22,356
  32,261
    -9,905
 
   361,558
          11.21
Feb-17
  24,726
  34,248
    -9,522
 
   364,011
          10.63
Mar-17
  29,300
  39,950
 -10,650
 -30,077
   369,955
            9.26
Apr-17
  24,635
  37,884
 -13,249
 
   372,732
            9.84
May-17
  24,014
  37,856
 -13,842
 
   381,168
          10.07
Jun-17
  23,562
  36,522
 -12,960
 -40,051
   386,539
          10.58
Jul-17
  22,543
  33,993
 -11,450
 
   392,868
          11.56
Aug-17
  23,818
  35,463
 -11,645
 
   398,123
          11.23
Sep-17
  28,613
  37,595
    -8,982
 -32,077
   399,657
          10.63
Oct-17
  23,098
  37,117
 -14,019
 
   398,761
          10.74
Nov-17
  26,195
  40,025
 -13,830
 
   401,942
          10.04
Dec-17
  27,030
  41,910
 -14,880
 -42,729
   409,367
            9.77
Jan-18
  24,383
  40,682
 -16,299
 
   421,915
          10.37
Feb-18
  25,834
  37,813
 -11,979
 
   420,758
          11.13
Mar-18
  29,110
  42,800
 -13,690
 -41,968
   424,361
            9.91

Forex reserves though higher in terms of value, in terms of coverage of imports has dropped below 10 months in March 2018.


Factor Two - Increasing Oil Prices - 7% in Q1 2018


Crude Oil is moving up significantly due to decision of OPEC to cut production till end of 2018.  Oil is projected to go up further and estimate is that it will cross US$ 70 per barrel soon and may even cross $ 75 considering the current conflicts going on.
                                  US$ per barrel



Oil & related products account for 25% of Indian imports and when these prices move up there is significant pressure on Rupee

Factor Three - Increasing Gold Prices - 4% in Q1 2018


On back of weak dollar and trade conflict between US & China gold is moving up significantly
                                         in Rs.per 10 gram



8% of India imports is gold.  With prices of gold moving North there will be pressure on Rupee


Factor Four - Growing External Debt (borrowings)


in Billion US$
Month
External Debt
  
Jan-17
     455.9
Apr-17
     471.8
Jul-17
     485.7
Sep-17
     495.7
Dec-17
     513.4


External debt is a part of the total debt that is owed to creditors outside the country.  Not only the volume of increase in debt is high, it is also increasing at a good pace, compared to January it has increased by 13% in December.  Another factor is interest rates especially of US which is slated to move up will further increase the debt burden. This higher debt burden plus higher interest rate burden will weigh upon the Rupee and will be depreciating it further.

Factor Five - Tax Cut in US


The recent corporate income tax rate cut in US from 35% to 20% and also reductions in personal income tax rates is slated to improve growth rates of US.  This means a stronger USD which had depreciated the Rupee.

Summary


Rupee will continue to be under pressure of depreciation both due to domestic factors and international factors.  Expect a depreciation of 2% every quarter for the year 2018.