GST in India

Ketan Jog | 25.Dec.14

Sulzer Chemtech

Sulzer Chemtech

GST?
G Goods
S Services
T Tax

Monthly Finance Meet - GST| 24.Jun.13| slide 2

Contents

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History of GST concept in India.

Constitutional Setup for levy of Indirect Taxes.
Advent of GST in India and Taxes Subsumed.
Basic Concept.
Modus Operandi.
Benefits.
Impact on certain categories of Goods & Services.
Challenges Ahead.
Global Scenario.
Latest Updates.

Monthly Finance Meet - GST| 24.Jun.13| slide 3

History of GST concept in India

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In 2003, Finance Minister of India in his budget speech Introduced Fiscal

Responsibility and Budget Management (FRBM) Bill to attain a ZERO Fiscal
deficit.
Task Force formed under Shri Vijay Kelkar recommended a single GST (Goods
and Services Tax) replacing numerous taxes in existence.
In due course, an empowered committee (EC) of state finance ministers was
formed to take steps to implement Kelkar Committee recommendations.
Its been 12 Years of negotiations between Centre and States!!!
Single GST concept was rejected in favor of a DUAL GST One for the Centre
(CGST) and other for State (SGST).
It has now become CGST, SGST and IGST!!!. IGST is Integrated GST on Inter
State Transactions.
Monthly Finance Meet - GST| 24.Jun.13| slide 4

Constitutional Setup for levy of Indirect Taxes

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Taxes levied by Central Government and State Government(s)

Authority to levy a tax is derived from the Constitution of India

Which allocates power to levy various taxes between the Centre and State
Article 265 of the Constitution which states that "No tax shall be levied or collected except
by the authority of law

Article 246 of the Indian Constitution, distributes legislative powers including

taxation, between the Parliament of India and the State Legislature
Schedule VII enumerates use of three lists;

List - I Where the parliament is competent to make laws

List - II Where only the state legislature can make laws

List - III Where both the Parliament and the State Legislature can make laws upon
concurrently

Monthly Finance Meet - GST| 24.Jun.13| slide 5

Constitutional Setup : Current

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Taxes levied under authority of the Constitution

Union List

Income Tax
Custom Duty
Excise Duty
Service tax
Central Sales Tax
Stamp duty in respect of
bills of exchange,
cheques, promissory
notes, etc

State List
Taxes on lands and

buildings
Excise duty on alcoholic
liquor etc
Entry tax (Levied by
State)
Sales Tax
Road Tax
Luxury Tax
Stamp duty in respect of
documents other than
those specified in the
provisions of List I

Concurrent List
Stamp duties other than

duties or fees collected

by means of judicial
stamps, but not
including rates of stamp
duty

Monthly Finance Meet - GST| 24.Jun.13| slide 6

Constitutional Amendment Bill (CAB)

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Changes to constitution are to be approved by 2/3rd Majority in Both Houses.

Finance Minister, Shri Arun Jaitley presented the Constitution Amendment Bill
(CAB) in the Loksabha on 19.Dec.14
Proposed Constitutional structure for Tax Levy

Both Parliament and States may make laws with respect to Goods & Services Tax.

Only Parliament can make laws with respect to Goods & Service Tax in course of
Interstate Trade or Commerce.

Concept of Declared Goods or Goods of Special Importance is proposed to be

removed
Additional 1% Tax for 2 years on Interstate Trade, 5 Years compensation to states
for Loss of Revenue on account of CST.
Voting power between Centre and States defined :

Centre has 33.33% of voting Power

Remaining 66.67% with States. Votes of state to be calculated as per formula :

Votes of all States / No. of States Present & Voting * No. of States in Favor

GST Council comprising Union and State Finance Ministers to find a way forward
Monthly Finance Meet - GST| 24.Jun.13| slide 7

GST in India Taxes Subsumed

Service
Tax

Taxes on
lotteries,
betting,
gambling

CVD

Excise
Duty
(Others)

SAD

Addnl.
Excise
Duties

Central
Excise
Duty

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Luxury Tax

Cesses and
surcharges on
goods and
services

Entertainment
Tax (except
levied by local
bodies)

CST

Central

All
Surcharge
s & Cesses

Octroi, Entry,
Purchase Tax

State

VAT/Sales Tax

Dual GST
Monthly Finance Meet - GST| 24.Jun.13| slide 8

Constitutional Setup : as per Proposed CAB

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Taxes levied under authority of the Constitution

By Union
Income Tax
Custom Duty
Excise Duty
Service tax
Central Sales Tax
Stamp duty in respect of
bills of exchange,
cheques, promissory
notes, etc
Interstate sale of Goods
& Services (IGST)
Excise on Petrol, Crude,
Diesel, ATF, Tobacco
products.( ? Notified
Date ?)

By States
Taxes on lands and

buildings
Excise duty on alcoholic
liquor etc
Entry tax (Levied by
State)
Sales Tax
Road Tax
Luxury Tax
Stamp duty in respect of
documents other than
those specified in the
provisions of List I

By Both Union &

States
On all Goods & Services

except Alcoholic Liquor

(CGST and SGST)
Stamp duties other than
duties or fees collected
by means of judicial
stamps, but not
including rates of stamp
duty

Monthly Finance Meet - GST| 24.Jun.13| slide 9

Definitions

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Goods & Services Tax : Article 366A (Clause 12A) of the Constitution of
India :
means any tax on supply of goods or services or both except taxes on the
supply of the alcoholic liquor for human consumption.
Services : Article 366A Clause (26A) of Constitution says Services
means anything other than goods.
Goods : means every kind of movable property other than actionable
claims and money; and includes stock and shares, growing crops, grass,
and things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale.

Monthly Finance Meet - GST| 24.Jun.13| slide 10

Objectives

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The incidence of tax falls only on domestic consumption;

The efficiency and equity of the system is optimized;
There should be no export of taxes across taxing
jurisdictions;
The Indian market should be integrated into a single
common market;
It enhances the cause of cooperative federalism.

Monthly Finance Meet - GST| 24.Jun.13| slide 11

Basic Concepts

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Like a National level VAT on Goods and Services.

Tax on domestic consumption.
No differentiation between Goods and Services.
Tax leviable at each point of sale or provision of service.
Input Tax Credit is available at every stage.
Treats whole country as a single jurisdiction.
Uniform Tax rates across the whole jurisdiction.
No distinction in Tax rates on Imported or Domestic Goods.
Single Tax jurisdiction allows ease of allowing Input Tax Credit.
Destination based tax for interstate transactions (IGST)- ultimate tax will be
collected by the state in which goods are finally consumed.

Monthly Finance Meet - GST| 24.Jun.13| slide 12

Modus Operandi

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Single PAN based Tax Registration Number. Three additional digits would be
added to the current PAN to identify registration for the Centre and State GSTs.
A registered dealer is to charge GST on Sale (Output) and pay GST on claim
credit of GST on Purchases (Inputs). Difference in OUTPUT GST and INPUT
GST has to paid to the tax authorities.
Centre and States will legislate, levy & administer CGST & SGST respectively.
A Constitutional mechanism will be introduced to ensure uniformity in rates and
other relevant parameters between Centre & States. The rates can thereafter not
be changed by the Centre or any of the States, without approval of the same
mechanism.
Centre will give Input Tax Credit (ITC) only for CGST & IGST and the State only
for SGST IGST. Cross utilization of ITC between CGST & SGST not allowed.
Uniform procedures one common tax return for both taxes, with one copy given
to the Central authority and the other to the relevant State authority.
Monthly Finance Meet - GST| 24.Jun.13| slide 13

How will the Tax look on an Invoice

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Supply within State:

Basic value charged for supply of goods or services

10,000

Add: CGST @ 10%

1,000

Add: SGST @ 10%

1,000

Total price charged for local supply of goods or services

12,000

Supply from One State to Another

Basic value charged for supply of goods or services
Add: IGST @ 20%
Add: Additional IGST @ 1%

Total price charged for interstate supply of goods or services

10,000
2,000
100

12,100

Exports
Basic value charged for supply of goods or services
Add: CGST \ SGST \ IGST NIL
Total price charged for export of goods or services

10,000
Nil
10,000

The Base for both CGST and SGST is same no tax on tax
Tax Rate is assumed 10%
Revenue Neutral Rate as worked out earlier : 12%
Monthly Finance Meet - GST| 24.Jun.13| slide 14

Set Off or Input Tax Credit

Nature of tax paid on

purchase
CGST

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Can be utilized for payment of

CGST
IGST

SGST

SGST
IGST

IGST

CGST
SGST
IGST

Monthly Finance Meet - GST| 24.Jun.13| slide 15

Benefits

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Reduction in the number of taxes at the Central and State

level
Decrease in effective tax rate for many goods
Removal of the current cascading effect of taxes
Reduction of transaction costs of the taxpayers through
simplified tax compliance
Increased tax collections due to wider tax base and better
compliance

Monthly Finance Meet - GST| 24.Jun.13| slide 16

Some Peculiar Cases

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Threshold Limit for registration of GST dealers

(25 Lakhs / 1 Crore or?)
Separate Rate for Small Scale Dealers : ?1%
Area Based Tax Exemptions
Supplies to EOUs / SEZs / Backward Areas
Import of Services
Stock Transfers
Supplies for Exports to Dealers
Monthly Finance Meet - GST| 24.Jun.13| slide 17

Treatment of Certain Goods & Services

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Immovable Property
Transport
Health Services
Capital Goods
Precious Metals

Monthly Finance Meet - GST| 24.Jun.13| slide 18

Challenges

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Passage of CAB in the Parliament

Draft GST Law preparation and approval by Central and State elected bodies.
Standardization of systems and procedures all over India
Training/ Equipping Tax administration
States not willing to give Veto to Union
Compensation disbursal doubts
Additional IGST at 1% may be extended beyond 2 Years.
Monthly Finance Meet - GST| 24.Jun.13| slide 19

Globally

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More than 140 countries around the world have a GST regime.
Standard GST rate is between 10-20%.
SINGLE GST rate.
Full Tax Credits allowed for Inputs.
Few Countries allow very few exemptions from GST for specific cases.
Dual GST model in Brazil and Canada.
In US, no such National General Sales Tax exists.

Monthly Finance Meet - GST| 24.Jun.13| slide 20

Global Tax Rates

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China

17%

Indonesia

10%

Philippines

10%

UK

17.5%

Australia

10%

France

19.6%

Germany

16%

Denmark

25%

India

???
Principal Characteristic Single Tax Rate
Monthly Finance Meet - GST| 24.Jun.13| slide 21

Interactive

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QUESTIONS & COMMENTS?

Monthly Finance Meet - GST| 24.Jun.13| slide 22

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THANK YOU!!

Monthly Finance Meet - GST| 24.Jun.13| slide 23