Professional Documents
Culture Documents
Presented by:
Pooja Baderia
MBA
Department of Business
Economics
University of Delhi
GOODS AND SERVICES TAX
Biggest indirect tax reform since 1947
Function of the GST is to transform India into a uniform market by breaking the current fiscal
barrier between state
Officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014
Biggest advantage would be in terms of a reduction in the overall tax burden on goods
Taxes such as excise duty, service, central sales tax, VAT (value added tax), entry tax or octroy will all
be subsumed by the GST under a single umbrella.
The GST will be instrumental in helping the GDP of India to grow by 2 percent
OBJECTIVE OF GST
o Making the Value chain more strong to ensure availability of input credit.
o To put control over extra taxation schemes.
o Making easy process of tax administration and compliance.
o Putting administration procedures, tax base, laws into a line.
o Cutting extra numbers of tax slabs for avoiding classification complexity.
o Putting all the states into an equality proportion.
o Increasing the tax base for strictly adherence
NEED FOR GST IN INDIA
Introduction of a GST to replace the existing multiple tax structures of
Centre and State taxes are not only desirable but imperative in the emerging
economic environment.
Currently, imports of most goods attract customs duty of 29.44 per cent at the
standard rate. This includes basic customs duty (10 per cent), plus additional duty or
countervailing duty (CVD) equal to excise duty at 12.5 per cent, plus 4 per cent
special additional duty (SAD) and an education cess at 3 per cent.
Under the GST regime, only basic customs duty will remain. Additional duty and
SAD will be abolished and IGST (inter-state GST) is expected in their place.
IGST
Explanation 1.- A supply of goods and/or services in the course
of import into the territory of India shall be deemed to be a supply
of goods and/or services in the course of inter-State trade or
commerce.
o Thus, IGST shall apply to inter-state transactions and import as well as export
This would certainly impact the valuation, working capital and management
of cross border transactions.
The major import gaining sectors include leather and leather products; furniture and fixtures; agri
IMPORT TAXES AT THE PORT ?
The Basic Customs duty would remain. Remaining all taxes would be
subsumed under IGST. Goods thereafter can be moved to any state and the
IGST would be carried over as tax credit. The IGST credit can be used in the
consuming state to cover for the SGST and CGST there. Any deficit in IGST
would have to be paid additionally.
The key difference here would be that since taxes are collected at one point
and through one since mechanism refund and exemptions would be easier
and more predictable. Based on this it seems that when GST kicks in some of
the issues would be automatically resolved
EXPORTATION OF GOODS AND SERVICES:
Export is exempted from GST. Exporters are allowed to claim the GST bill during export of
processed import products, formally known as duty drawback. An exporter is liable to pay
customs duty at the time of exportation, however under GST, it will be zero rated.
The beneficial factor in GST is that, if the company delivers goods to the local forwarding
agent for the purpose of export to an overseas client, no GST is needed to be charged from
the overseas client by the company.
In case of machinery fault imported for export production, the export of service is zero
rated, whereas If any parts are newly implemented then GST will be levied during import of
machinery, if the only service is carried out on existing machine, GST will not be charged.
The sectors with relatively high proportional increase in exports include textiles and readymade garments; beverages; industrial machinery
GST improves ease of doing business. With uniform taxation and cost efficiencies owing to reduced
time and costs in transportation, one obvious effect would be that Made in India products would now
be more cost competitive in the global markets.
For instance, New Zealand implemented GST in CY1986 and saw it exports jump from $5,880 million
in CY1986 to $7,195 million CY1987, a growth of 22.36%.
Australia, which implemented GST regime in CY2000. Australias exports grew at a CAGR of 7.9%
from $63,870 million in CY2000 to $86,565 million in CY2004.
The present system of differential multiple tax regimes across sectors of production and locations
leads to distortions in allocation of resources as well as supply chain and warehouse structuring.
Exporters will be able to get the refund and rebate of the state taxes (SGST) which
is presently not available to them.
The duty drawback rates may go up because the GST rate would be higher than the
present rate of Central Excise. The component of service tax is quite low at present.
The refund procedures may become simple as all the data of GST is available
online
All export data will be available on GSTN domain. It will be quite transparent and
no scope for the tax Department or the exporters to dispute or manipulate it.
The refund/rebate on the export of services may be increased substantially and
With this in mind, one can first look at the Export Schemes in some countries where GST is already in
force.
Destination based Consumption type GST should
be adopted as it contributes towards increased
international competitiveness and sustainability
of domestic industries
o The objective of GST is to make the supply chain leaner and flexible, while the major impact will be seen
in the warehouse industry.
o The growth in Indian warehouse industry is driven by the domestic consumption, increase in
international trade, increase in private and foreign investments in infrastructure.
With GST implemented, there will no longer be necessity of having a
warehouse in every state, where a firm does business. The same
decisions will be free from tax consideration prospective and will
purely based on operational and logistics efficiency.
Service Sector contributes significantly in export as well as provide a large
scale employment. Indias services sector covers a wide variety of activities such
as trade, hotel and restaurants, transport, storage and communication, financing,
insurance, real estate, business services, community, social and personal
services, and services associated with construction.
Governments Revenue
Costlier Services
In GST tax structure both supplies of goods and services will be treated once
with the unique rate of tax respectively.
BENEFITS TO MANUFACTURERS AND TRADERS:
One tax
Common market
No entry tax
member state
GST, which is expected to eliminate these distortions is being rightly seen as a once in a lifetime
opportunity to improve industry competitiveness and enable much larger participation in global
markets.
Recent studies examining the gains from reduction of internal and external barriers to trade in India,
suggest that the combined benefits will be of a very significant scale- roughly a 20 % increase in
economic welfare, with reduction in internal barriers trade accounting for over half that number.
Indians transition away from agriculture will require productive opportunities for workers and firms
in manufacturing and services. GST will have a big impact on both ease of doing business and on
world competitiveness rankings. If the economy evolves as is hoped, the GST council can rest easy
over its revenue concerns a policy reform of this magnitude and reach will surely deliver the
necessary growth and, quite likely, a good bit more.
HOW GST CAN BENEFIT MAKE IN INDIA
Duty on manufacturing (goods) will come down from the present level of 26.5 per cent
(Centre: 14 per cent, state value-added tax: 12.5 per cent). This will happen mainly
through a more balanced sharing of the tax burden between the goods and the services
sector.
The same GST rate will apply to both imports and domestic manufacturing
Taxation by the Centre and the states of the same taxable base from raw material to
retail will facilitate better compliance verification
The GST will encourage small units to grow and reap the benefits of scale
IMPACT
The introduction of the GST would negatively impact the real estate market
Critics claim that CGST, SGST and IGST are nothing but new names for Central
Excise/Service Tax, VAT and CST and hence GST brings nothing new to the table .
The GST will not have a positive impact on: the States fiscal, and therefore, political
autonomy.
IMPLEMENTATION CHALLENGES
1. Lack of adaptation