GST - Changes and its impact

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Present Indirect Tax Structure of India

Present Tax Structure

[ 4 Important Constituents]

Excise Duty

Entry No. 84, List I, Schedule

Taxable Event isManufacture

Ser vice Tax

Residuary Entry No. 97, List I, Schedule VII

Taxable Event is Provision of

Service

Sales Tax/ VAT/ CST

Entry No. 54 of List II ( VAT) and

92A of List I( CST)

Taxable Event isSale

Customs Duty

Entry No. 83, List I, Schedule

Taxable Event isImport & Export

Entry Tax/ Entertainment

Entry No. 52&62 List II ,Schedule

Taxable Event is Entertainment

& Entry of Goods

Custom Duty

In Place of CVD and SAD, IGST

will be charged

Proposed Indirect Tax Structure

Intra State

Taxable Supply

Excise and Service Tax will be known as CGST

Inter State

Taxable Supply

CST will be known as Integrated GST (IGST)

Approx. Sum Total of CGST and

Local VAT & Other taxes will be

known as SGST

Import From

Outside India

Features of Proposed GST Destination based Taxation

Apply to all stages of the value chain Apply to all taxable supplies of goods or services made

for a consideration except –o Exempted goods or services – common list for CGST

& SGSTo Goods or services outside the purview of GSTo Transactions below threshold limits

Dual GST having two concurrent components –o Central GST levied and collected by the Centreo State GST levied and collected by the States

Features of Proposed GST CGST and SGST on intra-State supplies of goods or

services in India. IGST ( Integrated GST) on inter-State supplies of goods or

services in India – levied and collected by the Centre.

IGST applicable too Import of goods and

serviceso Inter-state stock

transfers of goods and services

Export of goods and services – Zero rated.

Central Taxes to be subsumed under GST are –

Central Excise duty (CENVAT)Additional duties of exciseExcise levied under Medical and

Toiletries Preparation ActAdditional duties of custom (CVD and SAD)Service taxSurcharge and cess

State Taxes to be subsumed

State Sales taxState VATPurchase taxCentral sales taxEntertainment tax (not levied by local bodies)Tax on lottery, batting and gamblingSurcharges and cess

oAlcohol for human consumptiono Electricity Dutyo Real Estate – Stamp Duty plus Property Taxeso Petroleum Products ( to be brought under GST

from date to be notified on from recommendation of GST Council)

o Tobacco Products under GST with Central Exciseduty

Out of GST

Rates under GST Regime

GST Rates to be based on RNR. Four rates are proposed -oMerit rate for essential goods and servicesoStandard rate for goods and services in generaloSpecial rate for precious metalsoNIL rate

Floor rate with a small band of rates for standard rated goods or services for SGST

(This is similar to mandatory guidelines which will be issued by GST Council in line with European Directive 12/ 2006)

Optional Threshold exemption in both components of GST.

Optional Compounding scheme for taxpayers having taxableturnover threshold above the exemption.

HSN Code likely to be used for classification of goods.

Present Accounting codes likely to be used for Services.

Compounding and Classifications

Place of Supply Rules

• Composite Supplies

• Discussion paper proposes government to clarify if a transaction –

a) Is to be treated as supply and not service of goods b)Is to be treated as supply of service and not goodsc) Is to be treated neither as supply of goods nor services

–Different Elements with Different Tax

– International Practice in developed countries– Remain Silent in Law Answers from Judicial Pronouncement

Identity - Composite Supplies

Rationalization of Warehouses

Transitional complexities viz a viz contractual agreement variations

Issue - Liability in case of ongoing works/turnkey contracts and leases

Concern -

Whether govt. will provide a remedy to industry by restricting GST liability to the extent of tax payable under the existing system till the completion of such on-going contracts/ agreements at least for a specified duration of say 18-24 months ??

Will the client reimburse

Concern -

How govt. will deal with the exemption

provided on on-going contracts?

Issue – Blockage of Working capital

Concern -

How industry would meet the interest costof additional working capital ?

Issue - Transitional Tax cost

Concern –

How govt. is going to adjust to IT and Staff Trainingcost on transition ?

How govt. is going to compensate loss of profitfigures to high revenue generating states ?

On what basis compensatory allowances will be given to state ??

Issue - ERP Concern -

How industry is going to change inaccordance with the change in statue ??

Impact on some of the sectors

• D2H & Entertainment: May benefit indirectly once GST is implemented. Tax evasion in the cable industry will come down forcing operators to raise tariffs. Elimination of multiple taxes.

• Consumer Products: GST rate should be tax neutral for most FMCG players. However, FMCG firms will benefit from lower warehouse costs, more efficient supply-chain planning and inventory reduction.

• Auto sector would benefit from reduction in duties on large SUVs and cars as GST rate is likely to be lower than the present excise plus VAT rate. Tractors may be taxed at lower rate in GST.

Impact on some of the sectors• Plastic Industry: Unorganized players, which account for a major share of

the plastic industry, will come under tax net and may not be able to pay the high dealer margins they currently pay. This will help organised players.

• Transport: Demand for large warehouses will increase, which will benefit Transport sector. Truck utilization will also go up. Overall efficiency of the industry shall improve.

• Construction – Composite transactions may be treated as service

• IT Telecom: Increase in taxes under GST will be passed on to the consumers. End of dispute on sim cards and software

Global Experience• Only Brazil and Canada have opted for Dual GST• Canada has planned a single administration authority to simplify

the management• They had initially expected to combine into Single GST after some

time,but have not been able to do that 20 yrs down the line

• Australia implemented in 2000 – Single tax administered by centre –Less number of states – Population equivalent to Mumbai

• They had 21 months after release of the draft GST Law• Significant increase In number of tax disputes post implementation

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