The private security industry in India that invariably has to face dejection after every union budget with it being ignored when it comes to getting tax related concessions, this time had to face an even bigger challenge. The original roll out of GST slabs had in fact let it down abysmally. The industry that deals with safety and security was placed once again in the highest tax bracket of 28 percent. Even now as the GST rates get rolled out, it is keeping its fingers crossed for some relief.
The relief that did come its way thanks to the persistent and untiring efforts of Rajya Sabha MP and industry veteran Mr RK Sinha, and some major stalwarts and trade associations of the security industry, came in shape of the GST Council deciding to lower the GST rate on some items such as CCTV cameras and Recorders, Coaxial and Optical Cables to 18% from the originally proposed 28% bringing partial relief for the security industry. The move came after delegations visited several senior ministers to convince them of the unfairness of placing life safety products such as fire and security items in the highest tax bracket reserved for ‘Demerit / Luxury and Sin Goods’, such as cigarettes, tobacco products and luxury consumer electronics.
The industry was shocked when almost all security and fire products had been put in the highest slab of 28 per cent in the earlier GST notification.
Making full use of the credibility and respect that he enjoys within the government and political circles, Mr. Sinha at the request of industry leaders and trade bodies agreed to visit union ministers including Union Home Minister Mr Rajnath Singh, Union Minister of State for Finance Mr Santosh Gangwar, Union Transport Minister Mr Nitin Gadkari, Union Labour Minister Mr Bandaru Dattatreya, Food Processing Minister Smt. Harsimrat Kaur Badal, Finance Minister of Uttarakhand Mr Prakash Pant and the Minister of Commercial Taxes of Chhattisgarh, Mr. Amar Agarwal, apart from speaking to many others in the short span of a few days.
The industry delegations that were led by Sh. RK Sinha and other industry leaders such as Mr Aditya Khemka, MD of CP Plus, Mr. Shiv Charan, President of Asian Professional Security Association -India Chapter, Mr. GB Singh, Vice Chairman of International Institute of Security and Safety Management, and Group Editor of SECURITY TODAY, Mr. Roop Singh Kuntal, Chairman of IISSM-Delhi Chapter and Maj. Gen. Rakesh Arya, Deputy Director General of IISSM, among others had earlier also impressed upon Mr. Santosh Gangwar, Union Minister of State for Finance (Revenue) to apprise him of the anomalies related to categorising and taxing Goods and Services pertaining to the Security & Fire Industry. This was followed by the delegation’s visit to other union ministers in a bid to convince the government why security and life safety products did not qualify to be taxed in the 28 per cent GST slab.
As a part of their efforts, the delegation had attempted to explain to the ministers that the public needs to be incentivised, as has been done in many western countries, and not penalised for investing in these essential life safety items. In fact, in Australia a GST of 10% is charged on fire & security systems and there is no/nominal import duties/tax. In Malaysia the GST is just 6%.
The delegation pleaded with the ministers that these goods may be moved from the De-Merit List to list of Essential Items and either not charged any GST or a maximum of 5%, as is being done by a few States in India. Similarly, services related to their installation and service should also not be taxed or taxed nominally, so that maintenance of CCTV, fire and other systems can be done economically. Thanks to the untiring efforts of Mr. Sinha and his ability to convincingly present his case, the delegation through its sustained efforts has succeeded in a part in its mission and is hopeful of further relief.
The items that have now been given relief include CCTV Cameras, Recorders, Coaxial & optical fibre cables, UPS & Power supplies and monitors under 17 inches which have been shifted from 28 per cent to 18 percent. As of now there is no intimation on fire safety products such as fire extinguishers and fire and burglar alarm systems that were also in the 28 percent slab and the industry is hopeful of more good news on that front.
A case for charging GST correctly for manned guarding services was also made out to the government, as it is felt that the present Service Tax and the proposed GST under which the Service Tax will get subsumed is being charged wrongly. At present if a security agency, for example, raises a bill of Rs 10,000 for the services of a security guard on its client, the agency charges the client 15% service tax on the whole bill amount of Rs 10,000. Under the proposed GST this 15% will be raised to 18%.
The point which the industry is making is that the Rs.10,000 includes the wages, the EPF, ESI, Bonus, Gratuity, Leave compensation and other statutory benefits that it pays to the guard. These must not be taxed! What the industry is saying is that suppose the billed amount has a service charge component of Rs. 1,000 out of the total Rs 10,000, then the current Service Tax or the proposed GST should only be charged on this amount, as is being done in the case of the tour operators and the advertising agencies under the abatement available to them. So, a GST of 18% on a Rs. 10,000 bill should only be Rs.180 and not Rs. 1800, as is currently happening and is likely to happen in future if this situation is not corrected. It is hoped that the government will see pragmatism in this valid demand. This move will benefit the consumer as guarding services will become affordable and also lead to employment generation.
Several Private Security Industry Associations have now vowed to continue their efforts to apprise the government of the negative impact of placing security related products in the 28% slab in GST. Industry associations say that the high tax is too much for the consumer to pay and this would immediately give a fillip to products that are available in the grey market and sold without bills, thereby promoting smuggling. A senior industry player emphatically asked, “How can you ask the consumer to pay Rs. 28000 as GST on a sale of Rs. 1 Lakh? It’s just too much!”
In the 14th GST Council Meeting held on 18th May, 2017 in Srinagar, which was chaired by the Union Finance Minister, Sh. Arun Jaitley, the Council broadly approved the GST rates for goods at NIL, 5%, 12%, 18% and 28% to be levied on certain goods. Products like CCTV Cameras and Recorders, Burglar and Fire Alarm systems and other related security gadgets falling under Chapter 85 of the Harmonised System of Nomenclature (HSN), which are considered as life safety goods had been placed in the highest bracket of 28% in the GST, which is usually for De-Merit, Luxury and Sin Goods, entertainment electronics and other white goods Significantly, the government in its quest for developing its Smart City Projects will need the active assistance of private players in the security industry for the procurement and installation of fire extinguishing systems, fire and burglar alarm systems etc and other life safety systems and if these are bracketed with luxury products at a slab of 28% taxation, the price of these will automatically skyrocket.
Experts say, this will almost certainly result in people shying away from installing these products, leading to more insecurity. And, insecurity will impact growth and investments, including FDI. This is sure to have a negative impact on consumers wanting a secure life.
Another negative impact which is sure to happen is that consumers would now trim down the level of their security and safety to manage costs, which would eventually give rise to crime. Another senior industry player asked, “After all, when does a common man install CCTV or burglar alarms? Only when he perceives a threat to his life or assets.” “This is an unnecessary expense for him, he has to incur this because the state is failing in its duty to provide him with security,” he went on to add. The use of CCTV cameras has significantly improved policing in the country. In the recent acid attack case and ATM robbery case, video footage from the CCTV cameras turned out to be of great help for the police. Police forces pan India have come out in the open to say that CCTV has been a huge asset to them in cracking serious cases and maintaining law and order in the country. The very fact that city surveillance projects are now coming up in virtually every city is a clear message that police forces need them to secure the country.
In the Nirbhaya gang rape case also, the bus was identified from the video footage received from one of the CCTV cameras installed in a shop. Interestingly, even in the pre GST era, a 12.5 % VAT on these essential products was levied by most states. However, some proactive states like Karnataka, Andhra Pradesh and Gujarat, realising the necessity of these items, had placed them in a 5% VAT category recently and now even the 18 percent slab is considered steep.
Since most of the security electronics are currently imported into the country as the ‘Make in India’ activity has really not taken off in the real sense, the cost of these essential products will shoot up. As per the Model GST Law, GST will subsume Countervailing Duty(CVD) and Special Additional Duty (SAD), however, Basic Customs Duty will continue in the import bills. BCD has been kept outside the purview of GST and will be charged as per the current law only.
Amongst the points raised in the petition that has been handed over to several ministers by industry leaders is the fact that threats to India’s internal security are increasing due to various internal and external factors. Happenings such as 26/11 Mumbai terror attacks, Kashmir insurgency, cross border terrorism, increasing Maoist activity, cybercrimes, cultural conflicts and other real and alleged threats have reiterated the importance of protecting the Indian citizens from the potential maelstrom.
The petition notes that there are just not enough policemen to patrol the streets and protect every person, community, building, home and business in India. Our criminal apprehension and conviction rates are among the lowest in the world. The climate thus becomes conducive for people to take to criminal activity and the crime graph, in testimony, has been steadily climbing. Considering the shortage of trained men, our law enforcement and other agencies need to adopt technological tools such as CCTV Systems, Intrusion Alarms and Access Control Systems etc to enhance their reach and effectiveness.
Highlights of the petition:
1. Currently, even the fire safety standards set for buildings are not adhered to by developers, builders and occupants alike due to the high cost of the fire equipments, thereby resulting in fire incidents where thousands of lives and crores worth of assets are lost each year, whereas, under the National Building Code of India, Fire Extinguishing and Alarm Systems are a must for every high rise building.
2. To encourage establishments and people of India to safeguard themselves from fire and security threats, citizens of our country and businesses need to be incentivised to invest in acquiring systems such as fire and burglar alarms and CCTV systems etc. Apart from protecting the individuals and businesses, these systems also help law enforcement in solving crimes. Many cases of crime are being solved daily across the country because of a private CCTV camera that caught the images of the crime.
3. Actually, the public needs to be incentivised, as done in many western countries, and not penalised for investing in these essential life safety items. In fact, in Australia a GST of 10% is charged on fire & security systems and there is no/nominal import duties/tax. In Malaysia the GST is just 6%. A detailed list for some countries is as given in the table . As such, the petition notes these goods need to be moved from the De-Merit List to list of Essential Items and either not charged any GST or a maximum of 5%, as is being done by 5 States. Similarly, services related to their installation and service should also not be taxed or taxed nominally, so that maintenance of CCTV, fire and other systems can be done economically.
4. It is relevant to note that currently a 12.5 % VAT is charged by most states on these goods, however some progressive states like Karnataka, Gujarat, Rajasthan, Andhra Pradesh, Telangana etc., realising the necessity of these items in securing the common man, businesses and the nation, had placed them in a lower 5% VAT slab recently. Higher rates of GST will now fail earlier initiatives of these States.
5. Fire & Security items: current rates of VAT and the proposed rates of GST are as given in the table below.
6. As a consequence of altogether removing the proposed GST on these items or nominally charging them, the revenue loss to the exchequer may be negligible and the resultant benefit to the nation will be huge. A lower cost will increase affordability of these products and thereby reduce losses due to fire and other crimes, leading to a secure climate encouraging economic development and investments, including FDI.
7. Lastly, as most of these systems are not currently made in India, they have to be imported. Since the tax concessions that the handful of manufacturers enjoy at present are also proposed to be withdrawn, thereby discouraging local manufacturing, a lower GST rate will also help such manufacturers.
The petition further states that homes and buildings, well equipped with fire & security systems will result in Safe Localities, Safe Cities and ultimately a Safe Nation. And it is only in Safe Nations that overseas investors come to invest and set up businesses that result in jobs creation in a thriving economic climate.
Listing the varied utilities of security related equipment, the petition explains why it is essential to consider this equipment a life safety product.
CCTV Camera Surveillance Systems: These systems play a great role in ensuring public security at airports, railway & bus stations, seaports, market places, places of worship, sports arenas, public gatherings, museums and heritage monuments. They also have high importance in protecting our international borders, strategic sites, nuclear power plants and other infrastructure assets of national importance.
Access Control Systems & Biometric Readers: High demand today for controlling access into restricted areas and identifying authorized personnel by using biometric (such as fingerprint & face recognition) attributes of humans places these systems in great importance.
Intrusion Detection Systems: These detect intrusion from breach in perimeters as well as within buildings. Protecting defense sites, critical infrastructure assets, banks and even individual homes, these systems form the first step in the building blocks of security systems.
Fire Alarm and Suppression Systems: Comprising of smoke and heat detectors and associated control equipment the Fire Alarm Systems detect and give early warning of fire. The fire suppression systems use water sprinklers, chemicals and gasses to extinguish fires automatically or manually before much damage can be caused.
Countries like China, Korea have become large feeders of electronic components and security products to the world. They have adopted and used mass production electronic security techniques much before us and their cost of manufacturing is also much lower due to the volumes that they produce. They have been manufacturing products for over one and half decades and have invested huge amounts of money towards R&D. Their mass production of electronic products which is achieved by robotic SMD assembly lines makes it impossible for countries such as India, where even the basic components such as Integrated Circuit (IC) chips are not made locally, to compete immediately.
As the products are set to enter homes, there is going to be a massive increase in their demand. Manufacturers are trying to make the products which are easier to operate, keeping in mind their suitability and affordability. There will be wireless facilities, linked to mobile apps so that consumers can protect their families and assets. The petition impresses upon the government that the above mentioned products are not a luxury but a necessity in the modern world and in reality they should not be taxed at all, as is the case in several countries. With the private security industry shocked by the high GST slab in which these products have been placed, it is expected that the consumer will eventually fight shy of using this equipment because of the high cost factor.