Goods & Service Tax

Dual GST Based on Thirteen Finance Commission Task Force Report published on 15.12.2009
Corporate Fiscal, India

Corporate Fiscal

What is GST
It is collected on value added at each stage of sale or purchase in the supply chain. GST is a comprehensive value added tax on goods and services No differentiation between Goods and Services as GST is levied at each stage in the supply chain 100% input tax credit throughout the supply chain

Corporate Fiscal

Why is GST considered as the preferred tax structure?

A simple tax structure with only one or two rates of taxes Uniform single tax across the supply chain Reduced transaction cost in the hands of the tax payers Increased tax collections due to wider tax base and better compliance Improvement in international cost competitiveness of indigenous goods and services Enhancement in efficiency in manufacture and distribution due to economies of scale

Corporate Fiscal

Single GST versus Dual GST

Single GST
Single GST cannot be implemented without the States losing their fiscal autonomy. This is not feasible since revenues from State VAT account for substantial proportion of States revenues.

Dual GST
Task Force Recommended Dual GST imposed concurrently by the Centre and the States called CGST and SGST Both the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST) should be levied on a common and identical base.

Corporate Fiscal

Type of GST
The Centre and the States should adopt a consumption type GST, i.e. there should be no distinction between raw materials and capital goods in allowing GST credit. Only this GST variant is equivalent to a retail sales tax. The tax base of both CGST and SGST should Comprehensively extend over all goods and services including immovable property going up to the final consumer (retail level), reflecting the tax base of a typical consumption VAT.

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Taxes to be Subsumed under Central Taxes GST State Taxes

Central Excise Duty (including Additional Excise Duties); Service Tax; Additional Customs Duty (commonly referred to as CVD); Surcharges and all cesses
VAT/Sales Tax Entertainment tax Entry taxes not in lieu of Octroi; Stamp duty; Taxes on Vehicles; Taxes on Goods and Passengers; and Taxes and duties on electricity. Other Taxes and Duties

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Tax principal of gst

Destination Principal:
The GST should be structured on the destination principle. As a result, the tax base will shift from production to consumption whereby imports will be liable to both CGST and SGST and exports should be relieved of the burden of goods and service tax by zero rating. Consequently, revenues will accrue to the State in which the consumption takes place or is deemed to take place

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Exemption
Current Area based tax exemption scheme should not be continued under the GST framework . Tax exemptions, remissions etc. related to industrial incentives to be converted into cash refunds schemes after collection of tax so that continuous chain of set-offs in GST scheme is not disturbed.

Comment: List of exempted goods and services are still not notified as there is no consensus among the states and centre. Initially Government may adopt a list of exempted items of local importance similar to VAT regime.

Corporate Fiscal

Method of Computation
Credit Method is recommended
The credit method requires that the amount of VAT charged be explicitly stated on the invoice associated with any taxable transaction. The amount of tax a dealer submits to tax authorities is simply the difference between the tax he collected on his sales and the tax he paid on his purchases.

Corporate Fiscal

Treatment of Capital Goods

Task Force recommended:
Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods (including GST on capital goods) in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.

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Registration
All persons with annual aggregate turnover of goods and services exceeding Rs.10 lakh (excluding CGST and SGST) should be required to register and obtain a GST registration number. Persons with lower turnover may be allowed an option to register. The GST registration number should be a twelve digit alpha numeric number. The first ten digits should be the alpha-numeric Permanent Account Number (PAN) followed by a space and two more digits indicating the state code. There will be a single GST registration number for all branches in a State. Therefore, a dealer having branches across States will have as many GST registration numbers as the number of States in which he operates.

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Threshold limit for Registration

Small dealers (including service providers) and manufacturers should be exempted from the purview of both CGST and SGST if their annual aggregate turnover (excluding both CGST and SGST) of all goods and services does not exceed Rs. 10 lakh. Task Force also recommend small dealers with annual aggregate turnover of goods and services between Rs. 10 lakh to Rs. 40 lakh may be allowed to opt for a compounded levy of one percent, each towards CGST and SGST. However, no input credit should be allowed against the compounded levy or purchases made from exempt dealers.

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Treatment of Special Economic Zones

Task Force has recommended that there should be no incentives to the developers of, or units in, the Special Economic Zones, Since the GST is designed to ensure that all producers and distributors are treated as complete pass- through and exports are zero-rated.

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Treatment of Inter-State transactions Integrated Goods and Service Interstate transactions Tax(IGST) as per a new would be taxed innovative model of Integrated GST.
Integrated GST would be levied by centre. IGST = Centre GST + State GST.

and

IGST will apply on all inter-state supplies of taxable goods and services. Person making sale would charge IGST and he can utilize input IGST, Centre GST and State GST in order to discharge the output IGST.

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GST RATE OF TAX

Task Force has recommended following rates:
The rate of CGST and SGST on all non-SIN goods and services should be fixed at a single positive rate of 5 per cent and 7 per cent, respectively. In addition, there should be a zero rate applicable to all goods and services exported out of the country.

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PERIODICITY OF GST PAYMENT

Task force has recommended VAT period should be a calendar month to ensure a periodic flow of revenue to the exchequer subject to a minimum compliance burden on taxpayers and risk of revenue loss. It would be mandatory for all registered dealers to make electronic payment of CGST and the SGST by electronically remitting it in to the RBI, SBI or any authorized bank.

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Present Credit Mechanism

Federal Tax *(I) CENVAT (Excise) + Service Tax
Excise and Service tax have

been integrated Can be set off against each other

State Tax *(II) VAT

Input VAT can be set off against payment of output VAT/CST

(III) CST

No set off: Always a cost

*I & II are parallel levies and cannot be set off against each other Credit set off possible Set off not possible

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GST Tax Credit Mechanism

CGST CGST
SGST CGST IGST

IGST
Continued :

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GST Tax Credit Mechanism

IGST CGST SGST IGST
Continued:

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Appellate Authority

Task Force has recommended a common appellate authority. Similarly, the Authority for Advance Ruling should also be common. Best international practices should be embedded in the Central-GST, particularly in respect of laws relating to levy of penalties, and circumstances and method of prosecution. No authority should have any power to make preventive detention for the purposes of CGST and SGST

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Thank You CA. RITESH GOYAL

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