NIRC SEMINAR
27 DEC 2014
NEW DELHI
VIJAY KUMAR GUPTA
BCOM(H),FCA
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Tax on consumption
Who pays tax?
- rather it is tax on consumer
- it is not a tax on businesses
What is the status of businesses?
- they are only agents of government to collect tax (unpaid tax
collectors)
Exemptions create distortions
Levied on import to ensure neutrality
Turnover based vs. value addition
Tax on Value Added = turnover based tax – input tax credit
As credit is allowed, businesses want invoices
WHAT IS GOODS & SERVICE TAX
(GST)?
 Goods
& Service Tax (GST) as the name
suggests, is a tax on supply of goods or
service.
 Any Person, providing or supplying goods
or service will be liable to charge GST.
 The person Supplying the goods or service
is allowed to take credit for taxes paid on
purchases, consequent to which, GST
becomes a tax on the value added by the
supplier.
Major indirect taxes
Levied by
Rate
Levied
(range)
Nature of tax
• Vat
State
1% to14.50%
0n purchase & sale of goods
• Entry tax/octroi
State
1% to 12.50%
On entry on good into local area
• Entertainment tax
State
15% to 45%
On entertainment & events
• Luxury tax
State
15% to 30%
On specified luxuries
•Electricity tax
State
5% to 20%
On supply of electricity
• Motor vehicle tax
State
5% to 25%
On motor vehicles
•Stamp duties
State
5% to 25%
On specified transaction
• Central excise
Central
1% to 12%
On manufacture of good
• Custom
Central
2.5% to 24%
• Service
Central
12%
On import or export of good
On provision of taxable service
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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
WHY GST???
World over in more than 150 countries there is GST
or VAT, which means tax on goods and services.
Under the GST scheme, no distinction is made
between goods and services for levying of tax. In
other words, goods and services attract the same
rate of tax.
GST is a consumption based tax where ultimate
burden of tax fall on the consumer of goods/
services.
Most of the countries follows single GST Structure.
Canada and brazil have a dual VAT structure
EFFECTS OF GST
 Less tax cascading
 Increase in investment
 Improved competitive position of Indian
Producers
 Improved factor productivity
 Broader tax base, lower rates
 Simpler and rational tax structure
 Improved tax administration
 Reduced red tapism
CURRENT SYSTEM
PROPOSED GST REGIME
Multiple state indirect taxes – Entry tax, GST to subsume most state taxes, thus
Luxury tax, Tax on lotteries,
single tax at state level ensuring better
Entertainment tax
compliance & administration
Threshold limits for VAT liability varies
from state to state
GST proposes to have a threshold limit
of Rs. 10 lacs across states
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 Single
Rate GST
 Dual Rate GST
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Dual GST signifies that GST will be levied by
both, the Central Government and the State, on
supply of goods or services.
Under the Constitution, the taxing powers are
presently split between the State and the
Centre. In case of certain transactions, the
power to tax is vested with the Centre and
while in certain others, the power is vested with
the State.
Under GST, the power to tax on supply of all
goods and services rendered will be vested in
the hands of both, the State and the Centre.
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WHAT IS DUAL GST?
• In certain cases, such as the interstate
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transactions, the power to tax will be vested
with the Central Government, while the
revenue will in some appropriate manner, get
distributed to the States.
Considering the dual taxation power to tax
transactions under GST, the structure is
referred to as Dual GST.
Considering the basic framework of the
constitution and keeping its structure intact,
Dual GST appears to be implementable
solution for India scenario.
1) The goods and services tax council shall make recommendation to the
union and the states
 The taxes, cesses and surcharges levied by the union, the states and the
local bodies which may be subsumed in the goods and services tax
 The goods and services that may be subjected to, or exempted from the
goods and services tax
 Model goods and services tax laws, principle of levy, apportionment of
integrated goods and services tax and the principle that govern the place
of supply
 The threshold limit of turnover below which goods and services may be
exempted from goods and services tax
 The rates including floor rates with bands of goods and services tax
 Any special rate or rates for a specified period, to raise additional
resources during any natural calamity or disaster
 Special provision with respect to the states of Arunachal Pradesh, Assam,
Jammu and Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, Himachal Pradesh and uttarakhand and
GST COUNCIL
2) The goods and services tax council shall recommend the date on which the
goods and services tax be levied on petroleum crude, high speed diesel,
motor spirit (commonly known as petrol), natural gas and aviation turbine
fuel.
3) While discharging the function conferred by this article, the goods and
services tax council shall be guided by the need for a harmonised structure of
goods and services tax and for the development of a harmonised national
market for goods and services.
4) The goods and services tax council shall determine the procedure in the
performance of its functions.
5) Every decision of the goods and services tax council shall be taken at a
meeting, by a majority of not less than three-fourths of the weighted votes of
the members present and voting, in accordance with the following principles,
namely:a) The vote of the central government shall have a weightage of one-third of
the total votes cast, and
b) The votes of all the state governments taken together shall have a
weightage of two-thirds of the total votes cast,
In that meeting.
There are basically three components of
GST which are as follows :1. SGST- STATE GOODS & SERVICES TAX
2. CGST-CENTER GOODS & SERVICES
TAX
3. IGST-INTEGRATED GOODS & SERVICES
TAX
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• Dual-GST: Centre and States to levy GST on
common base
• Integrated-GST (IGST) for inter-state transactions
(CGST + SGST); (eliminating CST)
• GST credit mechanism:
• CGST credits to offset CGST, IGST liability
• SGST credits to offset respective SGST, IGST liability
• IGST to offset IGST, CGST or any SGST liability
• Minimum exemptions; incentives to be eliminated
• Exports to be zero-rated, ambiguity on treatment of
supplies to/ from SEZs
• Imports to be subject to basic customs duty, CGST
and SGST
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There will be a change in terminology on the following under the
upcoming GST law :
“SALE OF
GOODS”
“SUPPLY
OF
GOODS”
However there will not be any change in terminology on the
following under the upcoming GST law :
“RENDERING
OF SERVICES”
“RENDERING
OF
SERVICES”
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Single or
Unified GST
Dual GST
• Recommended by Kelkar
Task Force(KTF)
• Recommended by
Empowered Committee
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TAXES
SECTORS / PRODUCTS
Subsumed into GST
►At Center level
►Customs, Central Excise
►Service Tax
►Central Sales Tax (will remain 1%
for the period of two year or such
other period as GST council may
recommend)
►At State level
►State-VAT (sales tax)
►Entry Tax
►Other state levies such as Luxury
tax, Entertainment tax, Lottery tax etc
Outside GST structure
►At Center level
►Basic Customs Duty
►At State level
►Stamp duties
►State Excise (on alcohol)
►Taxes on entertainment and
amusements to the extent levied and
collected by a panchayat or a
municipality or a regional council or a
district council
Outside GST structure (agreed)
►Unprocessed Food
►Liquor (alcohol)
►Power (electricity)
Treatment ambiguous
►Real Property
►Tobacco
►Financial Services
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TAX CREDIT MECHANISM
UNDER GST
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CGST
SGST
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• The white paper recommends that upon introduction of
GST, the tax incentives, exemptions, remissions, etc., would
be converted into cash refund schemes.
GST, tax
incentives
,
exemption
s
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CASH REFUND
SCHEMES
It would be possible that upon the introduction of GST,
State Governments may restrict the refund only to SGST
and Central Government may restrict to CGST.
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1) Exempted goods
2) Special Rate
3) Concessional Rate
4) Standard Rate
5) Specified Rate
: The current list under
the state VAT law
: Precious Metals
: Necessities and
goods of basic
importance
: For all other goods
: Services
THRESHOLD LIMIT FOR
REGISTRATION
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The Empowered Committee has recommended a
uniform Thresholds under Center & State GST
Threshold of gross annual turnover of Rs.10 lakh
both for goods and services for all the States
and Union Territories.
It has been kept for CGST, at Rs. 1.5 crores and for
service may be higher than the present level of
Rs. 10 Lakhs. However, there is no decision taken
by the Centre on this issue.
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COMPLIANCE
PROCEDURES
 COMPLIANCE
- PAN based identification number, with
two extra digits to distinguish between
central & state GST
- One periodic return to CGST, SGST,
IGST
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Registration brings a person within the control of the tax
authorities. As per Task Force, all persons who are liable to
income tax or whose sales exceed Rs. 5,00,000 are required
to obtain a PAN. 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.
•
Each taxpayer would be allotted a PAN-linked taxpayer
identification number with a total of 13/15 digits. This would
bring the GST PAN-linked system in line with the prevailing
PAN-based system for Income tax, facilitating data exchange
and taxpayer compliance.
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The Empowered Committee has recommended
that there should be a compounding/
composition rate of tax for the small taxpayers
turnover not exceeding Rs. 50 lakhs.
Since, by the introduction of the GST, it is
expected that it will broaden the tax base and
many dealers which hitherto not within the tax
net, would come, therefore, it is required to
make the taxation simpler for them.
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• It is expected that under the GST
registration shall be linked to PAN or it
would be a PAN-based registration.
Discussion is going on whether to have a
single registration or two/ multiple
registrations for SGST and CGST.
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• Separate returns are required to be filed under a common
format under both SGST and CGST.
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However, efforts are being made for making single
registration possible for greater convenience of the tax
payer’s.
Return
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The illustration shown below indicates, in terms of a
hypothetical example with a manufacturer, one wholeseller
and one retailer, how GST will work.
Let us suppose that GST rate is 10%, with the manufacturer
making value addition of Rs.30 on his purchases worth
Rs.100 of input of goods and services used in the
manufacturing process. The manufacturer will then pay net
GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs
(i.e. Input Tax Credit) from gross GST of Rs. 13.
The manufacturer sells the goods to the wholeseller. When
the wholeseller sells the same goods after making value
addition of (say), Rs. 20, he pays net GST of only Rs. 2, after
setting-off of Input Tax Credit of Rs. 13 from the gross GST of
Rs. 15 to the manufacturer.
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Similarly, when a retailer sells the same goods after a value
addition of (say) Rs. 10, he pays net GST of only Re.1, after
setting-off Rs.15 from his gross GST of Rs. 16 paid to
wholeseller. Thus, the manufacturer, wholeseller and retailer
have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the
value addition along the entire value chain from the
producer to the retailer, after setting-off GST paid at the
earlier stages. This is shown in the table below. The same
illustration will hold in the case of final service provider as
well.
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In the proposed GST, interstate transfers are
proposed to be taxed under IGST scheme.
However, there is no clarity whether the stock
transfers to the branch or consignment sale would
be covered under the said scheme.
However, when there would be inter-branch
transfer within the same state there would not be
any levy of the tax.
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WHAT ARE THE BENEFITS OF
SHIFTING TO A DUAL GST
SYSTEM?
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• Dual GST is expected to be a simple and
transparent tax structure with only few rates
of taxes. The result would be :
• Reduction in the number of taxes at the
Central and state levels
• Cut in effective tax rate for many goods
• Removal of the current cascading effect of
taxes
• Reduction of transaction costs for taxpayers
through simplified tax compliance
• Increased tax collections due to wider tax
base and better compliance
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BENEFIT
OF GST
• Under GST, the taxation burden will be divided
equitably between manufacturing and services,
through a lower tax rate by increasing the tax
base and minimizing exemptions.
• It is expected to help build a transparent and
corruption-free tax administration. GST will be is
levied only at the destination point, and not at
various points (from manufacturing to retail
outlets).
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It is estimated that India will gain $15 billion a
year by implementing the Goods and Services
Tax as it would promote exports, raise
employment and boost growth. It will divide the
tax burden equitably between manufacturing and
services.
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In the GST system, both Central and State taxes will be
collected at the point of sale. Both components (the Central
and State GST) will be charged on the manufacturing cost.
This will benefit individuals as prices are likely to come
down. Lower prices will lead to more consumption, thereby
helping companies
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The taxation of goods and services in India has, hitherto, been
characterized as a cascading and distortionary tax on production
resulting in mis-allocation of resources and lower productivity and
economic growth. It also inhibits voluntary compliance. It is well
recognized that this problem can be effectively addressed by shifting
the tax burden from production and trade to final consumption. A well
designed destination-based value added tax on all goods and services
is the most elegant method of eliminating distortions and taxing
consumption. Under this structure, all different stages of production
and distribution can be interpreted as a mere tax pass-through, and
the tax essentially ‘sticks’ on final consumption within the taxing
jurisdiction.
A ‘flawless’ GST in the context of the federal structure which would
optimize efficiency, equity and effectiveness. The ‘flawless’ GST is
designed as a consumption type destination VAT based on invoicecredit method.