A SPECIAL STUDY REPORT ON GST AN OVERVIEW

Table of Contents
Chapter No. 1 2 3 4 5 6 7 8 PREFACE FORWARDD EXECUTIVE SUMMARY METHODOLOGY SURVEY ANALYSIS AND INTREPRETATION ROAD AHEAD SALIENT FEATURES OF GST LAST WORD Chapter Name

PREFACE
The proposed implementation of the Goods and Services Tax (GST) in India has generated a significant amount of discussion and debate in the industry. Marking a major departure from the way tax will be levied, the GST, when introduced, will have an impact on businesses, organizations, Government, traders and consumers and their operations. Simply put the GST is a comprehensive value added tax on goods and services. It is levied and collected on value addition at each stage of sale or purchase of goods or supply of services with applicable set-offs/credit in respect of the tax already paid at various stages. Ideally, the GST mechanism envisages no distinction between taxable goods and taxable services and they are taxed at a single rate in a supply chain of goods and services till the goods/services reach the consumer. It is basically intended as a tax on final consumption. Indirect taxes in India which include Customs Duty, Central Excise Duty, Service Tax, Value Added Tax (VAT) and Central Sales Tax (CST) constitute a major part of the Governments exchequer. These indirect taxes have undergone significant changes in the current decade. The changes, which include permitting inter-sectoral credit of taxes paid on goods and services and implementation of VAT across the country, were introduced with the aim of making these taxes more transparent and reducing the cascading effect of taxes at various levels. With the Indian economy set to enter the next phase of globalization and aided by the buoyancy in revenues, the Government believes it to be the right time to introduce more reforms in the structure of indirect taxes. Introducing a unified GST would represent a move to adopting global standards and would tackle the challenge of the multiplicity of taxes imposed in India.The introduction of the GST regime is perhaps the single most important tax reform in India. The proposed GST seeks to integrate multiple indirect taxes on goods and services at the State and Central levels, remove the cascading effect of taxes and improve competitiveness of Indian Industry. The proposed GST will be a Dual GST with the Union and State Governments having power to legislate, levy and administer the Central and State GST respectively. It is expected that the two taxes; Central and State GST will operate parallelly and throughout the supply chain.

FORWARD
The proposed introduction of the GST signals the next generation of tax reforms designed to address the barriers to trade and to expand the tax base. The Survey was initiated to gauge receptivity of trade and industry to the implementation of GST in April 2010 and analyse the feedback for wider communication, including to the policymakers. The Survey results demonstrate an almost unanimous consensus that GST will be beneficial to the Indian economy. But the suitability of Dual GST which seems to be the only practical alternative in the short-term is not favoured by a majority of the respondents. In addition, the possibility that a few states may not join the GST bandwagon presents as area of concern. Coverage by GST of current multiple levies, uniformity of rates, option to claim refund of excess tax credit and need to introduce binding common directives came out loud and clear. The respondents were divided over extension of GST to products of conspicuous consumption which attract high tax rate or the manner of availability of tax credit on capital goods. The most significant point to note out of the Survey, not entirely unexpected, is the view that the appropriate date for GST introduction is April 2011. This clearly points toward perception of lack of preparedness on the part of trade & industry and of the Government. It is also interesting to note that Easier compliance Efficient administration and Increased tax collection are ranked in that order as critical success factors. Clearly there is a message to the Government where the implementation efforts should be aimed at. The results of the Survey reveal the expectations, apprehensions and concerns of the trade & industry and provide an insight to the policymakers to address the same for a successful implementation of the GST.

EXECUTIVE SUMMARY

THE PRE GST SURVEY

The Survey is designed to capture the views of Indirect tax, finance & Accounts professionals, Officials and public having a wide range of experience. The participants of the Survey represented different respondents such as Chartered Accountandt, Cost Accountant, Chartered Secretary and Government officials and general stake holders. The survey included wide variety and distribution of participants. The Survey was administered in such a manner to ensure that the sample was truly representative. Thus, the Survey comprehensively covers the views of the different Stake holders. This web based Survey contained multiple sections with questionnaires covering all aspects from design to implementation and industry expectations. The Survey remained open for around fifteen days. The Survey received an extremely encouraging response.

ACKNOWLEDGEMENT

1. The Members of Chartered Accountant Association of India

2. The Members of Cost and Work Accountant of India

3. The officials of Government of India

4. Guide

5. Students of B.K. School of management, Gujarat University

6. Other Respondents

DESIGN The current indirect tax structure in India consists of Federal and State levies on goods and services which are administered by the Central and State Governments respectively. The present structure has its own drawbacks in the nature of multiple taxes of cascading nature, higher administration cost, complex compliance, fragmentation. The standard model adopted globally is a national /unified GST wherein a single / common tax is levied on all supplies of goods and services across the territory. However, some countries (e.g. Canada and Brazil) representing Federal and State structure have opted for dual GST. However, the design of the dual GST, for discussions or otherwise, is yet to be released in public domain. Nevertheless, it has been observed that in a typical Dual GST structure, the Central and the State Governments concurrently levy tax on a common base for supply of goods and services. The respondents views were sought whether such a structure will be beneficial to the Indian economy. GST will be beneficial to Indian economy The Survey results reveal an overwhelming response that the GST will benefit Indian economy. Respondents expect that the GST will bring transparency, simplicity, harmonisation of tax base, reduction in cascading effect and improved international competitiveness. Suitability of Dual GST to India Notwithstanding their belief about the benefits of GST to the Indian economy, the trade & industry seems uncertain about the suitability of the Dual GST model. This could be because of the apprehension that division of power to legislate, levy and administer the GST could result in a lack of common framework of law and the resultant complexities. The Questionnaire was in the form of multiple choice. Likard Scale was widely used in the Questionnaire for collecting primary data from respondents.

ANALYSIS AND INTERPRETATION

1)

Are you aware about the salient features of the proposed GST model?

Y % 92.0

N 8.0

Are you aware about the salient features of the proposed GST model?
92.0 100.0 80.0

60.0 40.0 20.0 0.0 Y N 8.0

Response

Are you aware about the salient features of the proposed GST model?
8.0

Y N 92.0

VERDICT: MAJORITY OF THE RESPONDENTS WERE AWARE ABOUT THE PROPOSED GST.

1) What should be the rate structure under GST? 2)

Below 10 % 50

10 to 15 % 42

15 to 20 % 8

Above 20 % 0

What should be the rate structure under GST?

50 50 40

42

30 20 10 0 Below 10 % 10 to 15 % 15 to 20 % Above 20 % 8 0

Response

What should be the rate structure under GST?

8 0

50 42

Below 10 % 10 to 15 % 15 to 20 % Above 20 %

VERDICT: MAJORITY OF THE RESPONDENTS WANT THE RATE STRCTURE TO BE UPTO 10%.

10

3)

What should be the Threshold limit for GST? Upto 100 Lacs 4 Above 100 Lacs 4

Upto 10 Lacs % 38

Upto 50 Lacs 54

What should be the Threshold limit for GST?

54 60 38 40

20 4 0 Upto 10 Lacs Upto 50 Lacs Upto 100 Lacs Above 100 Lacs 4

Response

What should be the Threshold limit for GST?

4 4 38 Upto 10 Lacs Upto 50 Lacs 54 Upto 100 Lacs Above 100 Lacs

VERDICT: MAJORITY OF THE RESPONDENTS FAVOURED THE THRESHOLD LIMIT TO BE FIFTY LACS.
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2) Are you confident that GST will be implemented in the year 2012? 4) Absolutely Yes % 4 Most Likely 22 Definitely No 14

Unlikely 60

Are you confident that GST will be implemented in the year 2012?
60 60 40 22 14 4

20 0

Absolutely Yes

Most Likely

Unlikely

Definitely No

Response

Are you confident that GST will be implemented in the year 2012?
14 4

22 Absolutely Yes Most Likely Unlikely

60

Definitely No

VERDICT: MAJORITY OF THE RESPONDENTS WERE NOT SURE ABOUT THE IMPLEMENTATION OF GST IN 2012.
12

5)

Do you feel that the proposed GST would be a success story in India? Absolutely Yes % 24 Most Likely 56 Definitely No 6

Unlikely 14

Do you feel that the proposed GST would be a success story in India?
56 60 40

24 14 6

20 0 Absolutely Yes Most Likely

Unlikely

Definitely No

Response

Do you feel that the proposed GST would be a success story in India?
6 24 Absolutely Yes Most Likely Unlikely 56 Definitely No

14

VERDICT: MAJORITY OF THE RESPONDENTS FELT THAT PROPOSED GST WOULD BE A SUCCESS STORY IN INDIA.

13

Sr. No. 1

STATEMENT GST should be introduced.

1 52

2 20

SCORE (%) 3 18

4 10

5 0

GST should be introduced

60 50 40

52

30 20 10 0 1 2

20 18 10 0 3 4 5

Score

GST should be introduced

10 18 52 1 2 3 20 4 5 0

VERDICT: MAJORITY OF THE RESPONDENTS WERE IN FAVOUR OF IMPLEMENTATION OF THE PROPOSED GST.

14

Sr. No. 2

STATEMENT GST will really benefit the industry, trade and agriculture.

1 44

2 34

SCORE (%) 3 16

4 2

5 4

GST should be introduced

44 34

50 40

30 20 10 0 1 2 3 4 5 16 2 4

Score

GST should be introduced

2 16 44 1 2 3 4 34 5 4

VERDICT: MAJORITY OF THE RESPONDENTS WANTED THE GST TO BE INTRODUCED.

15

Sr. No. 3

STATEMENT GST will benefit the small entrepreneurs and small traders.

1 28

2 26

SCORE (%) 3 32

4 12

5 2

GST will benefit the small entrepreneurs and small traders

40 30 28 26 32

20 10 0 1 2 3

12 2 4 5

Score

GST will benefit the small entrepreneurs and small traders

12 2 28 1 32 2 3 4 26 5

VERDICT: SPLIT VERDICT ON THE ISSUE OF GST BEING BENEFITIAL TO SMALL ENTREPRENURS AND TRADERS.

16

Sr. No. 4

STATEMENT GST will benefit the common consumers.

1 28

2 24

SCORE (%) 3 34

4 10

5 4

GST will benefit the common consumers

40 30

28

34 24

20 10 10 0 1 2 3 4 5 4

Score

GST will benefit the common consumers

10 4 28 1 2 34 3 4 24 5

VERDICT: SPLIT VERDICT ON THE ISSUE GST BENEFITING THE CONSUMERS.

17

Sr. No. 5

STATEMENT The overall burden of tax in general would fall under GST.

1 22

2 38

SCORE (%) 3 22

4 16

5 2

The overall burden of tax in general would fall under GST

38 40 30 22 22 16 2 1 2 3 4 5

20 10 0

Score

The overall burden of tax in general would fall under GST

16 2 22 1 22 2 3 4 38 5

VERDICT: MAJORITY OF THE RESPONDENTS FELT THAT OVERALL BURDEN WOULD FALL UNDER GST.

18

Sr. No. 6

STATEMENT You agree with the Dual GST model proposed.

1 26

2 14

SCORE (%) 3 20

4 26

5 14

You agree with the Dual GST model proposed

30 25 20 14 26 20 14 26

15 10 5 0 1 2 3 4 5

Score

You agree with the Dual GST model proposed

14 26 1 26 14 2 3 4 5 20

VERDICT: SPLIT VERDICT ON THE PROPOSED DUAL GST MODEL.

19

Sr. No.

STATEMENT You are comfortable with the idea of a particular transaction of goods and services being taxed simultaneously under Central GST (CGST) and State GST (SGST).

SCORE (%) 3

24

16

20

18

22

You are comfortable with the idea of a particular transaction of goods and services being taxed simultaneously under Central GST (CGST) and State GST (SGST)
24 25 20 16 20 22 18

15 10 5 0 1 2 3 4 5

Score
You are comfortable with the idea of a particular transaction of goods and services being taxed simultaneously under Central GST (CGST) and State GST (SGST)
22 24 1 2 18 16 3 4 20 5

20

Sr. No. 8

STATEMENT The Existing tax incentives should be continued.

1 16

2 20

SCORE (%) 3 26

4 10

5 28

The Existing tax incentives should be continued

30 25 20 16 10 26 28

20

15 10 5 0 1 2 3

Score
The Existing tax incentives should be continued
28 16

20 10

1 2 3 4 5

26

VERDICT: MAJORITY OF THE RESPONDENTS WANTED TAX INCENTIVES TO CONTINUE UNDER GST.

21

Sr. No. 9

STATEMENT The Proposed GST should offer some Fresh tax incentive in thrust area.

1 20

2 40

SCORE (%) 3 28

4 6

5 6

The Proposed GST should offer some Fresh tax incentive in thrust area
40 40 30 28 20

20 10 0 1 2 3 4 5 6 6

Score
The Proposed GST should offer some Fresh tax incentive in thrust area
6 6 20 1 28 2 3 4 40 5

VERDICT: MAJORITY OF THE RESPONDENTS FAVOURED FRESH TAX INCENTIVES UNDER THE PROPOSED GST.

22

Sr. No.

STATEMENT Tax credit mechanism and Refund option and Stock Transfer Declaration mechanism should be Simpler.

SCORE (%) 3

10

48

24

18

Tax credit mechanism and Refund option and Stock Transfer Declaration mechanism should be simpler
48 50 40 24 18 8 2 1 2 3 4 5

30 20 10 0

Score
Tax credit mechanism and Refund option and Stock Transfer Declaration mechanism should be simpler
8 18 48 1 2 3 4 24 5 2

VERDICT: MAJORITY OF THE RESPONDENTS WANTED SIMPLER MECHANISM. UNDER PROPOSED GST.

23

SCORE (%) Sr. No. STATEMENT The Common basis of classification for all goods and services should be guiding force in GST. 1 2 3 4 5

11

42

28

24

The Common basis of classification for all goods and services should be guiding force in GST
50 40 42 28 24

30 20 10 0 1 2

6 0 3 4 5

Score
The Common basis of classification for all goods and services should be guiding force in GST
6 24 42 1 2 3 4 28 5 0

VERDICT: MAJORITY OF THE RESPONDENTS FAVOURED COMMON CLASSIFICATION UNDER GST.

24

Sr. No.

STATEMENT Cross utilization of credits between goods and services should be allowed under GST regime.

SCORE (%) 3

12

46

24

20

10

Cross utilization of credits between goods and services should be allowed under GST regime
46 50 40 24 20 10 0 1 2 3 4 5

30 20 10 0

Score

Cross utilization of credits between goods and services should be allowed under GST regime
0 20 46 1 2 3 4 24 5 10

VERDICT: MAJORITY OF THE RESPONDENTS FAVOURED CROSS UTILIZATION OF CREDITS BETWEEN GOODS SERVICES UNDER THE PROPOSED GST.

25

Sr. No.

STATEMENT The imports and exports should be brought under the ambit of proposed GST.

SCORE (%) 3

13

36

14

32

18

The imports and exports should be brought under the ambit of proposed GST
40 30 36 32 14 20 10 0 1 2 3 4 5 18

Score

The imports and exports should be brought under the ambit of proposed GST
18 0 36 1 2 32 14 3 4 5

VERDICT: MAJORITY OF THE RESPONDENTS FAVOURED IMPORTS AND EXPORTS UNDER THE AMBIT OF PROPOSED GST.

26

Sr. No. 14

STATEMENT The system of Self assessment along audit would suffice in GST Regime.

1 24

2 32

SCORE (%) 3 30

4 6

5 8

The system of Self assessment along audit would suffice in GST Regime
40 30 24 32 30

20 10 0 1 2 3 4 5 6 8

Score

The system of Self assessment along audit would suffice in GST Regime
6 8 24 1 30 2 3 4 32 5

VERDICT: MAJORITY OF THE RESPONDENTS FELT THAT THE SYSTEM OF SELF ASSESMENT AND AUDIT WOULD SUFFICE UNDER THE PROPOSED GST.
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Sr. No.

STATEMENT The proposed GST model would require reengineering of business model and supply chains.

SCORE (%) 3

15

22

34

28

The proposed GST model would require reengineering of business model and supply chains
34 40 30 22 28

20 10 0 1 2 3 4 5 8 8

Score
The proposed GST model would require reengineering of business model and supply chains
8 8 22 1 28 2 3 4 34 5

VERDICT: MAJORITY OF THE RESPONDENTS FELT THE GST WOULD REQUIRE REENGINEERING OF BUSINESS MODEL AND SUPPLY CHAINS.

28

Sr. No. 16

STATEMENT There should be higher GST on petroleum, liquor and tobacco products.

1 18

2 18

SCORE (%) 3 28

4 14

5 22

There should be higher GST on petroleum, liquor and tobacco products

30 25 20 18 18 14 28 22

15 10 5 0 1 2 3 4 5

Score
There should be higher GST on petroleum, liquor and tobacco products
22 18 1 14 18 2 3 4 5 28

VERDICT: SPLIT VERDICT ON THE ISSUE OF HIGHER GST ON SPECIFIED PRODUCTS.

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LAST WORD In short time , the country is set to embrace the most significant reform in the indirect tax space. The dual model of taxation of goods and services by both Centre and States call for landmark changes in the present structure of indirect taxes. Ground work steps include constitutional amendments and consensus building. A design acceptable to all, a framework that ensures smooth flow of goods & services and provisions that guard against revenue losses & leakages is a challenging task. Now there is a overwhelming will to implement it. . The direction that the Government is providing and the efforts that the empowered committee of State Finance Ministers is taking are commendable. Slowly but surely the consensus seems to be building. Indeed, a fine balance has to be achieved to maintain the fiscal autonomy of the states and yet provide uniformity that such a reform calls for. This would require the Government to mobilise its infrastructure in an unprecedented way to undertake internal reorganisation of roles & responsibilities, develop business processes & Audit manuals, train its resources and most importantly to achieve a degree of IT enabled environment that the checks and balances in GST require. It is no doubt a daunting task but not impossible given the resources at its command and will to implement. The time has now come for the business to assess impact, define strategies, form core teams and develop technical solutions to meet the challenges keeping in view of the proposed GST.

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