GOODS & SERVICES TAX (GST)

GOODS &SERVICES TAX(GST)Roll no 101-110PGDIE - 44Sec BSALIENT FEATURES OF GOODS & SERVICE TAX (GST)This Presentation Covers :Indian Economy- An overviewTaxonomy of Indian taxationPresent tax system suffer fromNeed for GST GST- Journey so farWhat is GST and its key featuresGST- Global perspectiveGST- How it works ?GST - Issues yet to be decided

Roll no 101 starts2Indian Economy An overviewIndias economy is the 11th largest economy in the world and the third largest by purchasing power parity (PPP)G-20 major economies and a member of BRICSWorld is presently facing recession-II but Indian economy is still better than comparable economies. Agriculture, services and industry are the major sector of India an economy. Contribution of different sectors in March, 2012 was :Agriculture 19%Services 59%Industry 22% to be contd.Indian Economy An overview

Growth in Tax GDP Ratio Slow but Steady Years Tax GDP ratio 2003-04 9.2% 2007-08 11.9% 2009-10 9.7% 2010-11 10.3% 2011-12 10.1% Power to Tax in IndiaCentral Government and the State Governments under Part XI of Indian Constitution have power to levy taxes.Legislative power v Administrative power Legislative power has three lists:- Union list, States list and Concurrent listAdministrative power CBDT, CBECUnion list consists of 100 items -Parliament has exclusive power to levy Tax.State list consists of 66 items -Individual states have exclusive authority to levy Tax. Concurrent list consists of 47 items - both governments can levy tax.

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101 ends7Power to Tax in IndiaIndia has a two tier federal power to collect tax the Union Government, the State Governments including urban/rural local bodiesPresently goods are liable to Vat / Excise / Customs duty while taxable services attract service tax. Certain transactions subject to both - Vat and Service taxEfforts to revamp the direct tax structure - New direct tax code (Income Tax Act, 1961 & Wealth Tax Act, 1957 would be scrapped) proposedEfforts to bring on a single indirect tax GST proposed

102 starts8Taxonomy of Indian TaxationTAXATION POWERS OF UNIONIncome Tax on income, except agricultural incomeExcise Duty on goods manufacturedCustom Duty on importsService Tax on specified servicesCentral Sales Tax on inter-state sale of goodsStamp Duty on 10 specified instruments To be contd..Taxonomy of Indian TaxationTAXATION POWERS OF STATE

VAT / Sales Tax - on sale of goods, other than newspapers Stamp Duty - on other than 10 specified instruments Tax - on agricultural incomeToll tax - on utilitiesOther taxes - on Land and buildings Entry of goods in local Area (Entry Tax or Octroi) Consumption or sale of electricity Vehicles Luxuries including taxes on entertainment, Betting and gamblingAlcoholic Liquor, Narcotic Drugs and OpiumPresent tax system suffer fromConfusion and MistrustComplex and lacking in stabilityHidden tax on exports, no state tax on importsHigh transaction costsNarrow baseHigh compliance costTo much litigationsLack of harmony and inter state practicesHighly corruption

Goods & Service Tax (GST) A Common Tax on

GoodsServicesPre-requisites for migrating to a GST regime Setting up of empowered committee for GST (like VAT) which can steer the road map into action - doneBroaden the tax base for excise duty (presently 40% comes from petroleum products) being doneFinishing area based and product based exemptions being doneRationalization of concessions and exemptions including that on exports being doneExpanding service tax to almost all services now proposedCommon/unified tax rate for goods and services which may be ideally, revenue neutral (a suitable GST rate) dual tax proposedAvoiding or minimizing differential tax rates under discussionsAbolition of other small taxes - under discussionsAbolition of CST in a phased manner - being donePower to levy service tax on select/agreed services to States - under discussionsIssue of inter-State services and goods movement vis--vis levy of duty or tax to be sorted out - under discussionsRevenue sharing mechanism to be rationalized - under discussions

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103 starts14GST - Journey so farFeb, 2006 : First time introduced concept of GST and announced the date of its implementation in 2010Jan. 2007: First GST study by ASSOCHAM released by Dr. Shome Feb. 2007: F.M. Announced introduction of GST from 1 April 2010 in BudgetApril 2007 : CST phase out started - CST reduced to 3%, currently 1%May 2007: Joint Working Group formed by ECNov. 2007: Joint Working Group submits report April 2008 : Empowered Committee (EC) finalizes views on GST Structure July 2009: FM announces commitment to bring GST from April 2010Consultation on interstate services in progress

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GST - Journey so farBudget 2010to achieve the roll out of GST by April 2011 Revamping of indirect tax administration at centre/ states internal work processes based on use of information technology - massive information technology (IT) platform project ACES- Automation of Central Excise and Service Tax rolled out rate of service tax retained at ten per cent states to revamp their internal work processes

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GST - Journey so farBudget 2011 non-committal on timing and roll out but the Government keen to bring in Constitutional Amendment Bill overall amendments targeted towards moving close to harmonize with GST regime in future major highlights of budget discussions/proposals on GST DTC and GST to mark a water shedDecisions on GST to be taken in concert with the statesAreas of divergence between centre and states narrowedConstitutional Amendment Bill likely to be introduced in current sessionDrafting of model legislation for central and state GST underway Establishment of IT infrastructure in process (GST network) NSDL selected as technology partner for GSTTax rates maintained at same level of 10% to stay on course towards STCertain central excise rates changed to prepare the ground for transition to GST by reducing number of exemptionsNominal central excise duty of 1% imposed on 130 items, no Cenvat credit allowed on such items.In service tax, proposals aim to achieve a close fit between the present service tax regime and GST.

GST - Journey so farBudget 2012No announcement on GST rollout date GST to be implemented in consultation with the States at the earliest GST network (GSTN) likely to be in place from August, 2012GSTN will implement common PAN based registration, return filing and processing of payments for centre and all states on a shared platform.Bringing closer of Service Tax and Central Excise for transition to GST Drafting of modal legislation for CGST and SGST under progress. Common forms for Service Tax and Central Excise registration and return proposed.Place of Supply Rules, 2012 to trigger debate to assess issues that may arise in taxation of inter state services for eventual launch of GST.

The Journey beginning of end

Past Now Future

National GST Dual GST ??????? Past Now Future

103 ends19GST today Need & AdvantagesAs a developing country, India needs a transparent & unambiguous tax structure A complex tax structure with multiple rates of taxesMultiple taxes across the supply chainHigh transaction cost in the hands of the tax payersIncreased tax collections due to wider tax base and better complianceImprovement in international cost competitiveness of indigenous goods and services.Enhancement in efficiency in manufacture and distribution due to economies of scaleGST encourages an unbiased tax structure that is neutral to business processes, business models, organization structure, product substitutes and geographical locationsHelping as a weapon against corruptionGST operates on a negative list i.e. all goods and services are subject to GST unless specifically exempted

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104 starts20GST today Need & AdvantagesNature of complexities i.e. classification to valuation regarding taxability, exist in the present structure. Some of such burning issues are: Excise on MRP Excise, VAT and Service Tax on Software,VAT & Service tax on:Works ContractsRight to UseComposite Contracts such as AMC transactions

to be contd..GST today Need & AdvantagesTax cascading effect

Central Sales Tax (CST) on inter-state sales, collected by the origin state and for which no credit is allowed by any level of government being phased out now

Real estate transactions are outside the scope of both VAT and CENVAT

Exempt sectors are not allowed to claim any credit for the CENVAT or the service tax paid on their inputs

What is GSTGST is a comprehensive value added tax on goods and servicesIt is collected on value added at each stage of sale or purchase in the supply chain No differentiation between Goods and Services as GST is levied at each stage in the supply chainSeamless input tax credit throughout the supply chainAt all stages of production and distribution, taxes are a pass through and tax is borne by the final consumerAll sectors are taxed with very few exceptions / exemptionsFull tax credits on inputs 100 % set off In most countries, a single VAT exists which covers both goods and services.Typically it is a single rate VAT but two - three rate VAT systems are also prevalent India will be following multi rate / multi tier taxCanada and Brazil alone have a dual VATStandard GST rate in most countries range between 15-20 percent GST exists in over 140 countries . GST : Proposed Key FeaturesDual GST : Central GST & State GSTDestination based State GSTCommon BaseUniform ClassificationUniform Forms Returns, Challans ( in electronic mode)No cascading of Central and State taxesCross credit between Centre and State not allowedTax levied from production to consumption

to be contd..GST : Proposed Key FeaturesHSN to be applied for goods One Common return for both Central and State GST Uniform collection procedure for central and state GST13 digit PAN based Common TIN registrationTINXSYS ( Tax Information Exchange System) to track transactions States to collect CGST for SSI < 150 L and transfer to Central GovernmentBalance of Fiscal Autonomy to Center and States and need for Harmonization104 ends25Goods & Service Tax - GSTGST is expected to be more efficient system of taxationBoost to the revenues of the Centre and states YearsExciseService Tax2000-0168,2822,6122010-111,37,42770,3912011-121,50,60095,0002012-131,94,3501,24,000105 starts26Taxes proposed to be subsumed in GST Central TaxesExcise DutyAdditional Excise dutyExcise duty under medicinal and toilet preparation ActService TaxAdditional Custom duty commonly known as countervailing duty (CVD), special additional duty( SAD)SurchargeCessState TaxesValue added tax (VAT)Entertainment tax levied by statesLuxury TaxTax on Lottery, betting and gamblingEntry tax other than for local bodiesState surcharge Cess /

Taxes proposed to be subsumed in GSTState governments still not have consensus on following taxes to be subsumed in GST Purchase taxOctroi dutyTax on alcoholic beverages (country liquor / IMFL)Tax on petroleum productsTax on tobacco items

GST- WHAT ALL IT WILL INCLUDEA sale or supply includes a sale of goodsLease of premisesHire of equipmentGiving adviceExport of goods and supply of other things. A purchase includes an acquisition of goods or services such as trading stock a lease, consumables and other things.

GST : Global PerspectiveMore than 140 countries have introduced GST. It has been a part of the tax landscape in Europe for the past 50 years.It is fast becoming the preferred form of indirect tax in the Asia-Pacific region.It is interesting to note that there are over 40 models of GST currently in force, each with its own peculiarities. While countries such as Singapore and New Zealand tax virtually everything at a single rate, Indonesia has five positive rates, a zero rate and over 30 categories of exemptions.In China, GST applies only to goods and the provision of repairs, replacement and processing services. It is only recoverable on goods used in the production process, and GST on fixed assets is not recoverable. There is a separate business tax in the form of VAT.

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GST- RATES WORLD WIDECountry 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%

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105 ends31GST : Global PerspectiveGoods and Services Tax in CanadaGST is a multi-level value added tax introduced on January 1, 1991. The GST replaced a hidden 13.5% Manufacturers Sales Tax (MST). As of May 18th, 2010, the GST rate is 5% and some goods & services are exempt from GST zero-rated goods & servicesModel has helped the Canadas economy to be more efficient and competitive Goods and Services Tax in JapanIn Japan, VAT or GST is known as Consumption Tax (CT) introduced in January 1989. It requires re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.The Japanese Consumption Tax rate is currently 5% and out of which 4% is national levy and 1% regional levy.There is an annual threshold of YEN 10 million, based on the base year of two years prior to the tax year.

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106 starts32GST : Global PerspectiveGoods and Services Tax in Australia Consumption tax is called Value Added Tax. GST provisions are set out in a piece of Legislation called theA New Tax System (Goods and Service Tax) Act 1999 and the GST was implemented on 11th July, 2000.GST@10% will be charged on most goods and services consumed in Australia.All imported goods are assigned a tariff classification obtained from the Australian Customs Tariff which determines the rate of duty will pay for the product.GST is not intended to apply to goods and services which are exported from Australia and there are specific provisions in the GST law designed to make exports GST-free. to be contd..

GST : Global PerspectiveGoods and Services Tax in BrazilBrazil was the first country to adopt GST system.Brazil has adopted a dual GST where the tax is levied by both the central and the provincial governments.GST rate is 20 %.

GST- CAN WE ADOPT ITAn information network allowing states to cross-check payment information (TINXSYS) has been put to trial and is expected to improve compliance and reduce evasion.

What is needed is an IT system like the Tax Information Network (TIN), where the TDS or the VAT credit is recorded in a central database.

Paper bills and fraud to be largely eliminated.

Obligations to be fulfilled by IT System Registration Return Current status of the system Refund Tax DepositionGSTN to be operational by August, 2012

Features of Dual GST ModelDual levy by Centre & States Various taxes that get subsumed in GST Manner of Implementation Dual Chain vis a vis Single Chain Inter-chain VAT ability Inter State VAT abilityItems included in each chainDual rates of taxation

Key Features of Credit MechanismCGST can be set off against CGSTSGST can be set off against SGSTCGST cannot be used for set off against SGST and vice versa.

106 ends37Seamless Credit MechanismInput tax credit to be available for Central GST as well as State GST paid irrespective of the collecting agency

Create a nationwide clearinghouse mechanism to facilitate transfer of Central and State GST and allow credit for tax paid

107 starts38Seamless Credit MechanismIt will also end the distortion in differential tax treatment of various goods and services.GST is going to be pinnacle of achieving an integration of excise duties, service tax, State value added tax and other local taxes. With GST, uniformity of levy of indirect taxes will be ensured across the country.

Central GST (CGST)levied by the Centre through a separate statute on all transactions of goods and services made for a consideration.Exceptions would be exempted goods and services, goods kept out of GST and transactions below prescribed threshold limits.CGST would be levied across the value chain.Rates for CGST would be prescribed appropriately reflecting revenue considerations and acceptability.

State GST (SGST)Levied by the States through statute on all transactions of goods and services made for a consideration.Exceptions would be exempted goods and services, goods kept out of GST and transactions below prescribed threshold limits.Basic features of law such as chargeability, taxable event, measure, valuation, classification would be uniform across these Statutes as far as practicable.State GST would be paid to the accounts of the respective State.

Inter-state TransactionsCentre would levy IGST which would be CGST + SGST.IGST would be levied on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.Inter-State dealer will pay IGST after adjusting available, IGST, CGST and SGST on purchases.

IGSTThe seller in State - A will pay the IGST to the Centre.While paying IGST the seller will adjust against available credit of IGST, CGST and SGST.State Government - A will have to transfer the credit of SGST used by the seller for payment of IGST to the Centre.

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107 ends43IGSTBuyer in State - B can avail credit of the IGST charged.Buyer in State - B can use the IGST to discharge output tax liability in his own State.Centre has to transfer credit of IGST used for payment of SGST to State Government - B.

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108 starts44IGST ILLUSTRATION Maharashtra seller selling to Karnataka buyer for Rs.1,00,000/-.IGST payable assuming an 8% rate is Rs.8,000/-.Rs.8,000/- can be paid by adjustingInter-State purchases (IGST) Rs.3,000/-Local purchases (CGST) Rs.1,500/-Local purchases (SGST) Rs.1,500/-Since dealer has used SGST of Maharashtra to the extent of Rs.1,500/-, Centre has to transfer Rs.1,500/- to Maharashtra Government.

IGST ILLUSTRATION IGST of Rs.8,000/- is availed as credit by Karnataka buyer.Karnataka dealer sells the goods at Rs.2,00,000/- attracting CGST of say Rs.16,000/- and SGST of Rs.16,000/-. If IGST of Rs.8,000/- is used to pay the SGST then Karnataka Government has to transfer Rs.8,000/- to the Centre.

ILLUSTRATION OF GST

Taxing of Inter State TransactionsTax Payment by exporting dealer to the account of receiving state Credit allowed to the buying dealer by receiving state on verificationRetention by receiving state on sale to non-dealerDeclaration form to be discontinued

Knowing more about GSTWe all will pay GST on every product or service we buy/ consume

All indirect taxes levied by the States and the Centre will be merged into one GST, we would exactly know how much tax we pay which at present is difficult to understand.

No distinction would be made between imported or Indian goods and they would be taxed at the same rate.

The sellers or service providers collect the tax from their customer.

Before depositing the same to the exchequer, they deduct the tax they have already paid.

The success of GST would rest upon efficiency, equity and simplicity.

108 ends49GST- How It WorksDealers will charge GST on the price of goods and services.Claim credits (CENVAT) on purchases of goods and services.collect the tax from their customer, and deduct the tax already paid.

109 starts50Imports should be taxed?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

Tax ExemptionsArea Based To be discontinued after current eligibility periodProduct Based To be converted in to refund routeLimited Flexibility To Centre & States barring few exceptions

GST- Its SystemInvoice System

In this system, the credit of GST paid is claimed on the basis of invoice. It is claimed when the invoice is received.It is immaterial whether payment is made or not.The GST (Output) is accounted for when invoice is raised.The time of receipt of payment is immaterial. The advantage of invoice system is that the input credit can be claimed without making the payment.The disadvantage of the invoice system is that the GST has to be paid without receiving the payment.

GST - Challenges Rapid increase in assesseePlace of supply even after place of supply rulesLegislative challengeEffective credit mechanismIT InfrastructureIssues from Traders PerspectiveDialogue with Trade & Industry and all other stake holders

Industrial inputs, Capital goods to be at lower rate

List of exempted goods specific/common across states

Stock transfers should be exempted monitors through system based controls

109 ends55GST : Professional OpportunitiesKnowledge managementPreparatory advisoryCost benefit analysisGST implementationTraining / seminars / awarenessPlanning compliancesAdvance ruling representationEmployment with corporatesClient retainershipsGST Audit

Issues from Industrys PerspectiveAll declaration forms (Form F, C) should be abolishedMonitoring through system based controlsFull set-off of Input tax credit to the assessee / entity, based on principle of business cost and expenditureImmediate credit of stock transfers, without one-to-one co-relation.Set-off should be on entity / concern basis.Refunds, if any, should be automatic through system based controls.

Issues From Industrys PerspectiveMultiple state jurisdictions.Full set-off : a question markBuilding of IT backboneUniform legislation, forms, rules, rates, compliance requirements.Any change post implementation should be uniform by all states not piecemeal. Bar on increase in rates, imposition of new taxes by states

Issues Yet To Be DecidedConstitutional amendment authorizing state to collect and retain tax on services.Integration of certain Central & State taxes (Various Cess, Electricity duty, Entertainment tax etc) Stock transfersRoad permits and check posts to be contd.

Issues Yet To Be Decided Taxation of inter-state services and their method of taxation Difficulties in defining Place of supply, place of deliveryGroup Health InsuranceConsulting servicesHowever most of the B2B services not a problem because of availability of creditDisputes even with regard to classification of goods Jurisdictional Issues with regard to registration and SCN / Assessments

Favorable Impact on IndustrySeamless credit to trade and industry throughout supply chain will improve competitivenessCommon Tax Base will eliminate tax cascadingCST phase-out will reduce supply chain costEconomy in production scale & efficiency in distributionSimplified structure to reduce transaction cost

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GDP COMPOSITION IN MARCH, 2012Agriculture19%Industry22%Service Sector59%

Sheet1Service Sector54Industry24Agriculture22

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GDP COMPOSITION IN MARCH, 2006

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