Framework of Goods and Service Tax Act in India
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Transcript of Framework of Goods and Service Tax Act in India
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Advice on the applicability and levy of Service Tax, CST and State VAT on Contracts entered into or proposed to be entered into by the company.
Assistance in the structuring of transactions and agreements in relation to inter-state and intra-state sales to optimise the tax incidence
Conduct tax based health checks to determine the service tax & Multi State - VAT implications on the operations,
Giving Multi State VAT opinions
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• VAT and Service Tax updates for the construction / Project sector
companies.
• Legislative changes and major case laws under the State VAT Laws and under Service Tax law affecting the construction /Project Sector.
• In addition our brief analysis and comments on the various developments.
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GST - The JourneyPast Current
National GST Dual GST ??????
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Current Tax Cost in India
Intra-State
Ex. Duty – 12%
Edu. Cess – 3%
VAT– 5%/12.5%
Imports
Customs DutyBasic – 10%
CVD – 12%
Ed. Cess – 3%
Service Provider
Serv. Tax –
12.36%
Factory
RetailerDealer
Toll Manufacturer
Goods
Transporter
Serv. Tax-12.36%
Interstate
purchase
(CST)
Stock transfer
(No tax)
Octroi – 0.5 to 5%
Inter-State
Ex. Duty – 12%
Edu. Cess – 3%
CST – 2%
Local purchase
VAT – 5%/12.5%
Other
Service
Provider
Serv. Tax –
12.36%
Local purchase
VAT – 5%/12.5%
Other
Service Provider
Serv. Tax –
12.36%
Central Levy State Levy
VAT rate may range from 12.5-15% depending on the State
-Credit not fungible between State and Centre; resulting in a cascading impact of taxes- Cumulative burden of Indirect Taxes in India – 28% to 44% (approx.)
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Multiple rates
Different rates in different states
Different definitions
Border controls
TODAY in VAT…
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No credit on CST purchases leading to cascading
effect
Complex law on stock transfer and transit sales
TODAY in CST…
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Negative List Regime started
Concept of Declared List
Cenvat credit disputes
Valuation related issues
Reverse charge
TODAY in ST…
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• Taxes levied by Central / State / Municipality
• Authority to levy a tax is derived from the Constitution of India– Article 265 - "No tax shall be levied or collected except by the authority of
law”
• Article 246 – Distribution of legislative powers including taxation, between the Parliament of India and the State Legislature
9
Constitutional Framework...
Schedule VII – Three Lists
10
Union List State List Concurrent List
• Income Tax
• Custom Duty
• Excise Duty
• Corporation Tax
• Service tax
• Central Sales Tax
• Stamp duty in respect of bills of exchange, cheques, promissory notes, etc
• Taxes on lands and buildings
• Excise duty on alcoholic liquor etc
• Entry tax
• Sales Tax
• Tolls
• Luxury Tax
• Stamp duty in respect of documents other than those specified in the provisions of List I
• Stamp duties other than duties or fees collected by means of judicial stamps, but not including rates of stamp duty
Encroachment of each other’s jurisdiction by state & centre
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Constitutional Amendment Bill
Introduction of Article 246A in the Constitution:
“Parliament and the Legislature of every State, have power to make laws with respect to goods
and services tax imposed by the Union or by that State respectively.
Provided that Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”
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Entry 84 of Union List to amend to empower Centre to levy tax
on SALE of goods.
Entry 54 of State List to amend to empower State to levy tax on
SERVICES.
Entry 92A of Union List to amend to empower Centre to levy
tax on inter – state SERVICES.
3/4th majority in Parliament & 50% collegium of State Assembly
ratification.
Constitutional Amendments…
Duality of charge – pre negative list
Goods Vs. Services◦ Lines between the taxation of Goods & Services is constantly blurring◦ Duality of Charge
13
Sr.
No.
Activity Customs
duty
Central / State
Excise duty
Service
tax
VAT / CST
1. Intellectual Property Services
2. Import of Designs, Technical
Know etc..
3. Works Contract
4. Construction Services
5. Manufacture of Products
liable to State Excise
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Discrimination – Mfg / SP / Traders
Non-uniform application of exemptions, credit provisions, etc.
Cascading impact of taxes
◦ Non-transferability – lack of fungibility
◦ Inverted duty structures
Rate structure - no uniformity
◦ no clear basis on which effective rates determined
◦ Non availability of cross credits leading to accumulation
Basis of levy of Service Tax was uncertain and variable
◦ Rendition / performance
◦ Consumption / use
◦ Receipt
Other pain points in the current system
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Components of gst..
GST
Taxes levied by
State Govt.
Taxes levied by Central
Govt.
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Key taxes subsumed
Central
Central Excise Duty
Addnl. Excise Duties
Excise Duty on M&TP
Service Tax
CVD
SAD
Surcharges
Cesses State
Entry Tax (not Octroi)
Cesses and surcharges
on goods and
services
Taxes on lotteries, betting,
gambling
Luxury Tax
Entertainment Tax (except
levied by local
bodies)
VAT/Sales Tax
Dual GST
CST TO BE PHASED
OUT
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To be levied by the Centre through a separate statute on
all transactions of goods and services made for a
consideration
To cover end – 2 end transactions across value chain
Exempted goods and services, non - GST goods and
transactions within threshold limits are to be out of
CGST
Central GST (CGST)
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To be levied by the State through a separate
statute on all transactions of goods and services
made for a consideration
To cover end 2 end transactions across value chain
Exempted goods and services (uniform across all
States!), non - GST goods and transactions within
threshold limits are to be out of SGST
State GST (SGST)
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Each State to have a separate statute
Uniformity on basic features.
Would be paid to the accounts of respective States
SGST …
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For inter-state transactions
Centre to levy IGST which would be CGST + SGST
Appropriate provision for consignment sale/stock
transfer
Inter-state dealer will pay IGST after adjusting IGST,
CGST and SGST credit on purchase
Integrated GST (IGST)
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The seller in State X will pay the IGST to the Centre
While paying IGST, seller will adjust his lying
IGST/CGST/SGST credit
State X will have to transfer the credit of SGST used by
the seller for payment of IGST to the Centre
IGST …
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Buyer in State Y can avail credit of IGST
Buyer in State Y can use the IGST to discharge his
output tax liability
Centre has to transfer credit of IGST used for
payment of SGST to State Y
A clearing house has to be formed for facilitating
IGST
IGST …
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CGST against CGST
SGST against SGST
No Cross sectoral set-off between CGST & SGST
IGST for CGST/SGST & vice versa
Set - off …
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Both CGST and SGST would be levied on import
of goods and services
Tax would be based on destination principle
Tax revenue of SGST would accrue to the State
where the imported goods / services are consumed
Full set-off of GST on imports available
GST on Imports…
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Interest of small traders and SSI to be protected
Upper ceiling on gross annual turnover and a
floor tax rate to be prescribed
Compounding cut off at Rs. 50 lakhs with a floor
rate of 0.5% across the States
Compounding …
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10 lakhs limit for goods and services across all
States / UT for SGST
1.5 crore for SSI manufacturers on CGST
CGST exemption limit on services to be increased
(presently at 10 lakhs)
Threshold exemptions…
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• Dual GST should be levied on imports also with facility of credit for the tax paid
• Exports must be zero rated i.e. there should be no tax element in the price of goods exported
Imports should be taxed?
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• Area Based
To be discontinued after current eligibility period
• Product Based
To be converted in to refund route
• Limited FlexibilityTo Centre & States barring few exceptions
Tax Exemptions
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• Two-rate structure –– Lower rate for necessary items and items of basic importance
– Standard rate for goods in general.
– Special rate for precious metals and a list of exempted items.
• taxation of services - may be a single rate for both CGST and SGST.
• It will be total of the rate as applicable under CGST & SGST.
Rate of Tax
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• Between 18% to 22%.
• Government is yet to indicate whether the revenue neutral rate of tax on goods and services would be the same.
RNR
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Identity –
Single supply Vs. Multiple Supplies
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Concept of principal supply Vs. Ancillary supply
(Example – Oil Consumption in car repair)
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• Composite Supplies -
Different Elements with Different Tax Rates
International Practice in developed countries–
Remain Silent in Law
Answers from Judicial Pronouncement
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• 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 goods
c) is to be treated neither as supply of goods nor services
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GST- RATES WORLD WIDE
Country GST RatesChina - 17% Indonesia - 10% Philippines - 10% Taiwan (Chinese Taipei) - 5% Australia - 10% Germany - 16% Denmark - 25%Japan & Singapore - 5%UK - 17.5%France - 19.6%New Zealand - 12.5%
to be contd…..
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Additional tax in lieu of cst
• Additional tax on inter-State sale of goods (akin to CST) at a rate not exceeding 1% imposed for a period of two years or more, as approved by GST council
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Exclusions of gst
Petroleum (but may be included within GST subsequently basis recommendation by GST Council)
Alcohol for human consumption lottery and betting Basic customs duty and safeguard duties on import
of goods into India Entry taxes levied by municipalities or panchayats Electricity duties/ taxes Stamp duties on immovable properties Taxes on vehicles
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Declared goods will not exist
• No concept of ‘declared goods’ of special importance under the amended provisions of the Constitution
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Widening the scope of service…
‘Service’ meaning anything other than goods.
Due to wide definition of service, GST may also apply on real estate, actionable claims, shares, securities etc.
Hence suitable amendments should be made for excluding activities/ sectors on which GST is not intended to be applied.
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Legislative powers….
Parliament
State
Legislative powers for
GST
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Legislative powers rest with parliament…
• Parliament enjoy exclusive power to make law for GST on supply of goods or services in the course of inter-State trade or commerce
• Parliament to formulate the principles for determining the place of supply of goods or services
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Legislative powers of state -
• States not empowered to levy GST on transaction for supply of goods or services on a transaction that is import, export or inter-state
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Gst council…
• To be formed within 60 days under the Chairmanship of Finance Minister and 33members –
• Finance Minister
• Minister of State for Finance
• State Finance Ministers or any other Minister nominated by State Governments (i.e. 29 States and 2 Union Territories with legislature, totaling to 31 members)
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Council to recommend union and state on ……
• Model GST law
• Taxes to be subsumed
• Rates and slabs
• Exemption
• Threshold
• Special provisions for North-Eastern States, J&K, Himachal and Uttarakhand
• Date on which the GST shall be levied on petroleum products
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Voting rights at the meeting…
• One half of the total number of Members of Council form quorum at its meetings
• Central Government to have a weightage of 1/3rd of the total votes and all the State Govt.s together to have a weightage of 2/3rd of the total votes
• Every decision of the GST Council to be taken by majority of not less than 3/4th of the weighted votes of the members present and voting
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No proposal can be passed by GST Council if……
• half of the members (i.e. minimum 17) are not present, no proposal can be passed
• without the approval of Centre,
• Assuming all the 31 State members are present and voting along with Centre, then 20 States/ Union Territories should accept a proposal for approval
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Rules to determine place of supply of goods or service
• Central Sales Tax Act, 1956 needs to be amended (basis recommendation by GST Council) for laying down rules to determine place of supply of goods or services:
in the course of inter-State trade or commerce;
in the course of import;
locally within a State
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Effect of Article 366(29A)……
• Article 366(29A) defining deemed sales not proposed to be removed, but the same will be irrelevant for GST
• In the previous Constitutional Amendment Bill it was proposed to be omitted
• This provision may be retained during the transition period (one year from GST Amendment Act, 2014 or repeal of the State Acts, whichever is earlier)
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Compensation
• Compensation to States for loss of Revenue for a period of five years (i.e.100% compensation for first three years, 75% in the fourth year and 50% in the fifth year)
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important issues need to be duly addressed in GST regime:
• Transitioning of area based excise and VAT exemptions
• Transitioning of VAT and CENVAT credits lying with taxpayers on the date of introduction of GST
• Applicability of GST and credit mechanism on stock transfers
• Rate(s) of GST on various products and services particularly the ones that presently attract lower taxes.
• Consistency in rate of GST across the states
• Applicability of GST and credit mechanism on imported goods
• Credit of additional tax of 1 percent sought to be imposed
• Consistency in compliance procedures across the States
• Dispute resolution mechanisms
• Continuity of surcharges and cesses like automobile cess, oil cess etc
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• GST system should distinctly cover areas of taxation in e-commerce, IT industry and also spell out tax treatment for cross-border transactions in the digital space.
• Bill gives the state leverage to vary taxes within a spectrum of acceptability.
• Corporate world is likely to face issues to determining the state of consumption
IMPORTANT ISSUES NEED TO BE DULY ADDRESSED IN GST REGIME:
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Suggestions for effective implementation..
• Industries will also have to look into compliance obligations for B2B and B2C transactions
• Due to lack of clarity on the Revenue Neutral Rate, the GST structure, the draft legislations, threshold limits, treatment of unutilized Credits, status of exemptions and incentives, it is difficult to comment on whether the Amendment Bill is actually a win-win for all the stake holders.
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• With the release of OECD’s discussion draft on “place of taxation of B2C supply of services and intangibles”, in connection with formulation of GST Guidelines, industries are required to make contributions by providing suggestions on the same.
SUGGESTIONS FOR EFFECTIVE IMPLEMENTATION..
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• Thank You