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Goods and Services Tax in India

Contents
Journey of GST at a Glance Taxes subsumed in dual GST GST Rates Global Scenario GST Overview Proposed GST Model in India Proposed GST Model in India salient features Key Issues and Challenges Current Developments

Journey of GST at a Glance


1986: Introduction of MODVAT 1994: Levy of Service Tax 2002: Input Service Tax Credit 2004: Cross credits 2005: Implementation of VAT 2006: Deadline for GST laid 2007: Formation of JWC 2008: CST phased out to 2% 2008: Draft paper under way 2009: November First discussion paper by EC 2010: January Finance Ministry pushes for single-rate GST

Taxes subsumed in dual GST


Dual GST

Central Taxes CGST


Central Excise duty Additional Excise duty Additional duty of customs Service Tax Surcharges Cesses

State Taxes .. SGST


VAT/ Sales Tax Entertainment tax Luxury tax Octroi Lottery taxes Electricity duty State Surcharges Purchase tax

CST will be phased out Toll Tax, stamp duty, passenger tax, road tax are not proposed to be included in GST

GST Rates Global Scenario


Country Austria Argentina Australia Belgium Barbados Canada China Columbia Denmark France Finland Germany Rate (%) 20 21 10 21 15 7 16 16 25 19.6 22 16 Country Greece Ireland Italy Indonesia Japan Luxembourg Latvia Mexico Maldova Norway Netherlands Portugal Rate (%) 18 21 20 10 5 15 18 15 20 25 19 19 Country Poland Romania Spain Sweden Switzerland South Africa UK Zambia Rate (%) 22 19 16 25 7.6 14 17.5 17.5

GST Overview
Justification of GST & How does it works!!! Burden of Tax fall under GST Benefit of GST : - To industry, trade, exporters & agriculture - Small entrepreneurs and small trader - Common consumers Salient features of proposed GST model Why is Dual GST required? How would a particular transaction of goods and services be taxed under CGST and SGST Taxes proposed to be subsumed under GST

GST Overview
Rate structure proposed under GST Concept of providing threshold exemption for GST Scope of composition and compounding scheme under GST How will imports be taxed under GST? Cross utilization of credits between goods and services under GST??? Taxation of Inter-state transactions of goods & services under GST Introduction of GST require a constitutional amendment why?? Legislative steps being taken for CGST and SGST how? How will the rules for administration of CGST and SGST be framed?

Proposed GST Model in India Dual GST


Basic principle:

Liberal in assessment and ruthless in collection


Dual GST will comprise: - The Central GST and the State GST - Central GST and State GST, in themselves, would comprise both the goods tax and the services tax.

Proposed dual GST Model


Dual GST

Goods

Services Existing Rate: 10%

Existing Rate: 19-20%

GST: 16%

GST: 16%

8% - CGST 8% - SGST

8% - CGST 8% - SGST

Proposed GST Model in India


Formation of Empowered Committee (EC) Set up of Joint Working Group Suggestion of EC for dual GST comprising a Central GST and a State GST to Finance Minister (FM) FM has indicated that an agreement on the basic structure of the dual GST has been reached keeping in view the principles of fiscal federalism laid down in the constitution The Centre and State will each legislate, levy and administer the Central GST and the State GST respectively EC submitted First Discussion Paper on November 10, 2009

Proposed GST Model in India


States have agreed to have two basic rates of GST. Central GST will also be in conformity with the State GST - Standard rate in the range of 8% to 9% - Lower rate for essential commodities in the range of 4% to 5% - Special rate for precious metals is expected to be at 1% Small set of specified products will be exempt from the GST

Proposed GST Model in India


Flexibility to States on the choice of goods of local importance for exemption. Joint Working Group will work out - A framework of the GST law; and - The required Constitutional amendments The Centre has agreed in principle to compensate States for revenue loss, if any

Proposed GST Model in India


Illustrative Computation of dual GST Particulars
Manufacturer to Wholesaler Base Price Excise Duty @ 8.24% State VAT @ 12.5% (on 108) Central GST @ 8% (on 100) State GST @ 8% (on 100) Total Wholesaler to Retailer Wholesaler Price (assuming value add of 20) State VAT @ 12.5% (on value add of 20) Central GST 2 8% (on value add of 20) State GST @ 8% (on value add of 20) Retail Sales Price (inclusive of taxes) Retailer to Customer Retail Sales Price (assuming value add of 20) State VAT @ 12.5% (on value add of 20) Central GST @ 8% (on value add of 20) State GST @ 8% (on value add of 20) Cumulative tax price Total Taxes 167 27 164.5 2.5 1.6 1.6 162 22 159 144.5 142 2.5 1.6 1.6 139 136 122 100 8 14 8 8 116 100

No GST

GST

Proposed GST Model in India


Salient features of proposed dual GST Model

Classification - HSN to form the basis of classification of goods under Central and State GST - Classification of services based on global best practices and Indian realities Rates - Uniform rates for services - Multiple rates for goods

Proposed GST Model in India


Salient features of proposed dual GST Model
Taxable Events in GST - The Federal and State GST will both be leviable on supply of goods and services - Present taxable events of manufacture, for central excise, and sale of goods for State VAT, will have no relevance - Elaborate rules for determining the place and time of supply of goods and services will be formulated - Budget 2009 authorizes the Central Government to formulate such rules under present service tax dispensation

Proposed GST Model in India


Salient features of proposed dual GST Model

Input tax Credits (ITC) - Full credits under the Central and the State GST that will operate in parallel - Cross-utilization of credits between Central GST and State GST not permitted - Refund of unutilized accumulated ITC Export

Proposed GST Model in India


Salient features of proposed dual GST Model
Tax Credit Mechanism
CGST CGST against IGST

SGST SGST against IGST This is transferred by the State of seller to Centre

IGST

IGST

against

CGST

This is transferred by the Centre to State of Seller

SGST

Proposed GST Model in India


Salient features of proposed dual GST Model

Compliance - PAN based identification number, with two extra digits to distinguish between Central & State GST - One periodic return to Central & State

Proposed GST Model in India


Salient features of proposed dual GST Model
Thresholds - Uniform thresholds under Central & State GST by FM - Rs. 10 Lakhs for State GST & Rs. 150 Lakhs for Central GST suggested by EC - Compounding Scheme Rs. 50 lacs with a tax @ 0.5%
Exemptions - Common lists for Centre and States with little flexibility for States to deviate - Exemption schemes proposed to be converted to post-tax cash refund schemes Crude and petroleum products, tobacco and alcohol will likely remain outside GST

Proposed GST Model in India


Salient features of proposed dual GST Model

GST on imports - Central & State GST on imports to replace Countervailing duty (CVD) and Additional Duty of Customs (ADC) currently levied on import of goods as part of customs duties - GST paid on imports available as input tax credits - Place of supply rules to determine the State in which the SGST on imports is payable

Proposed GST Model in India


Salient features of proposed dual GST Model

Inter-State transactions Goods - Goods to be taxed in the destination / importing State - Zero rating in the originating State - Tax of the importing State to be charged on inter-State supplies - Tax to be collected and deposited with designated Banks in the exporting State but to the credit of the importing State - Full offset against State GST at the time of supply in that State

Proposed GST Model in India


Salient features of proposed dual GST Model

Inter-State transactions (Contd.) Goods - Tax of the importing State to be charged on inter-State supplies - Tax to be collected and deposited with designated Banks in the exporting State but to the credit of the importing State

Proposed GST Model in India


Salient features of proposed dual GST Model

Inter-State transactions (Contd.) Goods - Administratively convenient No fund transfers between State Governments No requirement for prepare declaration forms No possibility of revenue leakages - Strong IT infrastructure is necessary to facilitate information exchange

Proposed GST Model in India


Salient features of proposed dual GST Model

Treatment of Services - Any economic activity which is not a supply of goods is a supply of services - All services to be taxed with few exceptions - Central GST on services relatively easy to collect - Services to be taxed in the State of consumption - State GST on services will be far more complex particularly on cross-border services

Proposed GST Model in India


Salient features of proposed dual GST Model

Cross-border services - Taxed at the place of consumption of services - Difficult to determine the actual place of effective use/enjoyment of services - Rules for place of supply of services to be framed - Currently no uniform practice exists - Administrative convenience + convenience of trade and industry to be factors in determining the place of collection of service tax.

Key Issues & Challenges


Federal GST law to be drafted Uniform State GST law model State GST code to be adopted Constitutional amendments required - To enable Central Government to tax beyond manufacturing stage - To enable States to charge service tax Rates - Integration of a large number of Central & State Taxes and obtaining of consensus amongst States to abolish multiple local taxes - Multiplicity of taxes and tax rates

Key Issues & Challenges

Thresholds - Rationalization of thresholds across excise, service tax and VAT Continuation of area specific exemptions Central GST and State GST Taxation of Inter-State supplies of Goods and Services - Significant challenge due to its complexity

Key Issues & Challenges


Operating a seamless input credit system - Pure VAT/no cascading Shift from origin based tax to the destination based GST Proper transition from existing tax systems Compliance related challenges ERP modifications / amendments

Issues & Challenges - Administration


Stakeholder communications Mindset changes moving to a fundamentally new tax Training Reorientation of administrative machinery for GST implementation Present administrative setup continues - No expected reductions in cadre / staff strength Standardization of systems & procedures Building of IT backbone

Issues & Challenges - Fiscal


Compensation to States for CST Phase out / GST introduction Protecting and balancing the present and future revenues of the Centre and the States - 13th Finance Commission - Commission on Centre-State relations (CCSR) - Views of trade & industry, economists Impact on backward States - Safeguarding the interests of less developed States with lower revenue potential

Current Developments
FM Pushes for Single-rate GST for Goods & Services Doubts for April 2010 deadline to roll-out GST Proposals of EC Comments of Union Government

A threshold of Rs. 10 Lakh for states and Rs. 1.5 A uniform threshold of Rs. 10 lakh or more for Crore for the Centre to protect small traders both the Centre and the states to avoid distortions VAT, entertainment tax, luxury tax, tax on Electricity duty, Octroi, purchase tax and taxes lottery, state cess, surcharge and entry tax to be levied by local bodies should also be subsumed subsumed in GST under GST Some states said they earn good revenue from Keeping purchase tax outside GST will give purchase tax and it should not be subsumed states a loophole to impose the tax on any under GST commodity. Alcoholic beverages may be kept out of the These should be brought under GST to remove purview of GST and sales tax/VAT continued to the cascading effect on GST paid on inputs be levied on it. Petroleum products should be kept outside GST These may be levied to GST and in select cases as is the prevailing practice and sales tax credit of GST paid on these items may be continued to be levied disallowed

never enough................

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