AN OVERVIEW

GST (Goods & Service Tax)

Table of Contents

Following Questions to be addressedWhatWhyHowImplicationsWhenHow much

What is GST

GST stands for “Goods and Service Tax” and is a comprehensive Indirect Tax levy on manufacture , sale and consumption of Goods and Services at the national level.

The above statement implies that unlike the current tax structure wherein on production excise is levied, on sale VAT is levied and on service element Service Tax is levied under GST only GST as an indirect tax will be levied and all other taxes will rule out

Need for GST

Currently various taxes have been levied on activities like sale, manufacture

However inter-tax credit of these taxes is allowed only to a certain extent

Hence the party adds these taxes to the cost of production

This leads to cascading effect i.e. taxes on taxes and thereby adds to the cost of production

This burden is then shifted to the consumer leading to inflation

Analysis of Current System

  VAT  VAT GST GSTManufacturer to Wholeseller        

Cost of Production 90000   90000  Add Profit Margin 10000   10000  

Sales 100000   100000  Add Excise Duty @ 12% 12000      

  112000   100000  VAT   14000    GST       20000         

Cost to Wholeseller 112000   100000  Add Profit Margin 10000   10000  

Sales 122000   110000  VAT   15250    GST       22000

Liability   1250   2000         

Cost to retailer 122000   110000  Add Profit 10000   10000  

Sales 132000   120000  VAT   16500    GST       24000

Liability   1250   2000         

Cost to Consumer   148500   144000

Applicability of GST

A national convention for CA students was held on 2nd and 3rd January, 2015 whereby the President of ICAI urged upon the applicability of GST at its earliest

As per the President of ICAI, GST might be applicable from 1st of April, 2015, however, this depends on the Budget

Taxes that may be subsumed

State and Central Excise DutyService TaxCentral Sales TaxValue Added TaxLuxury TaxOctroiEntry TaxSpecial Additional Duty,CVD

Taxes that may not be subsumed

Basic Customs DutyExcise Duty on Tobacco ProductsCentral Cess like Education Cess, Oil CessToll TaxRoad TaxProperty TaxEnvironment TaxTax on Liquor

Functioning

BIN (Business Identification Number) is an extension of PAN

GST Council to be setup to redress issuesPayment of Tax only through Net BankingOne common tax return for Centre and StateThreshold limit for levy of GST will be approx

10 to 20 lacsGST paid on inputs to be allowed as set off.

Models of GST

Explanations

1. Central GST/State GST Tax administered and controlled by respective

Government i.e. if Central GST is adopted then central government will have the right to collect and levy GST

Revenue sharing arrangements to be made i.e. if Central GST is adopted then some portion of revenue will be allocated to the states

2. Dual GST Under Concurrent GST Centre and State will levy GST

concurrently. It is proposed that Concurrent model will be followed in India

Under Non-Concurrent GST on goods will be levied by state and on Services will be levied by centre i.e. existing system of VAT to state government and Service Tax to Central Government may be followed

Revenue Neutral Rate (RNR)

RNR is the rate which will be adopted so that the tax revenue despite the change in taxes remains the same.

Since there will be loss to the state government the revenue department has been advised to pay the state governments a compensation of Rs.500 crores

Rates in India are expected to be 12 to 20% for the 1st year, 12 to 18% for the 2nd year and 16% from the 3rd year onwards.

Rates of GST around the Globe

0%

5%

10%

15%

20%

25%

30%

China Australia Austria Denmark Finland Singapore

Rate

Rate

Goods/Services

LevyRate in 1st

YearRate in 2nd

YearRate in 3rd

Year

Goods – Lower Rate

CGST 6% 6% 8%

SGST 6% 6% 8%

Goods – Standard

Rate

CGST 10% 9% 8%

SGST 10% 9% 8%

ServicesCSGT 8% 8% 8%

SGST 8% 8% 8%

Expected GST Rates

Features of GST

Emphasis on voluntary complianceMinimum number of floor rates (Approx 2 rates)Common law throughout the countryGST Council to manage functioningDestination based taxInput Tax Credit or Subtraction method of VAT to

be followed for GSTBusiness friendly approachMIS amongst different Government departments

Advantages of GST

Computerization of process Removal of Cascading EffectLower cost of productionReduced sale priceIncrease in Domestic and Export market -

Increase In profitReduction in administration costs since only

one department Interpretational issues sorted outSingle Authority to deal with

GST Collection and Inputs Criteria

Type of Sale GST collection on Output

GST Input eligibility

Taxable Yes Yes

GST Free (Commonly known as Zero rated Sales in VAT)

No Yes

Exempt No No

Thank you

This presentation is for private Circulation only

Source: Background Material on GST (popularly known as VAT globally)

Prepared by Aditya Shah , Articled Assistant, R Devarajan & Co.