Transcript GST 2010

Presented By
CA Swatantra Singh, B.Com , FCA, MBA
Email ID: [email protected]
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
1
GST – Where are we and
what next ?
To recapitulate – GST Principles
Imports - Taxed
Business
Business
Exports – Relieved
of tax
Internal trade – Tax
sticks to goods
GST Model
Central Level GST……
State Level GST……
Centre and State to legislate, levy and administer
How is it different from current
system ?
Central VAT/Service Tax to GST
Current and Proposed Design Features
 Tax on manufacture of goods & provision of services –
Tax on supply of goods & services
 Multi point tax with input tax credit - same
 Standard rate across country – national level - same
 Exports – zero rated – almost full input tax credit –
same
 Imports –subject to CenVAT/Service tax - same
Central VAT/Service Tax to GST
Current and Proposed Design Features
 Invoice based credit system - same
 Registered dealer concept for maintaining chain – not
required
 Value added by trade not captured – will be captured
Origin based Manufacturing Sector Goods VAT
& Service Sector VAT to Central GST
State VAT to State GST
Current and Proposed Design Features
 Tax on sale of goods – services not covered –
services will be covered
 Multi point tax with input tax credit - same
 Exports – zero rated – full input tax credit for state
VAT and partial for service tax - same
State VAT to GST
Current and Proposed Design Features
 Imports – tax free – will be taxable
 Invoice based credit system - same
 Value added by trade for goods captured – same
Destination based Trade Sector
Goods VAT to S-GST
To what advantage – why dual
model ?
Two level GST - merits
 Achievable from constitutional perspective
 No adverse impact on Central and State Government
revenues/ cash flows
 No need for major shift in staffing requirements
 GST on import of goods – issue of unequal treatment
of domestic and imported goods addressed
 Exports can be relieved of taxes – more competitive
Revenue Receipts- Indirect Taxes
(State level)
2004-05
2005-06
2006-07
(as a % of the
total revenue)
(as a % of the
total revenue)
(as a % of the
total revenue)
Sales Tax *
61.7
61.6
62.6
State Excise Duties
11.6
11.6
11.4
Stamp duty & Reg. fee
10.4
10.7
11.0
Other Taxes
16.3
16.1
15.0
Total
100
100
100
* Comprises of General Sales Tax, Central Sales Tax, Sales Tax on motor spirit and Purchase
Tax on sugarcane, etc.
Source: Economic Survey 2006-07 and State Finance report
from RBI website
Two level GST - Demerits
 Cost of compliance for businesses- will continue to be
high
 Apprehensions/risks continue:
– Variable rates/Exemptions/trade diversion
– Non uniformity of classification
– Double taxation – overlap between states and
Centre and states
– Multiplicity of litigation…….
“Feel Good” Factor ( ? )
International Comparatives?

Australia ?

United States of America ?

Canada ?

Brazil ?

EU ?
Major Reform….what is reform ?
A tax loophole is something that
benefits the other guy. If it benefits you,
it is tax reform.
Full of challenges
Issues and Challenges
Constitutional
Amendment
Constitutional Amendments
 Central List
 State List
 New List ??
Taxes to be subsumed?
 Central Level
 State Level
Comprehensive
 Sin/Demerit goods?
 Services ?
Statute/Rules
 Two
 28 +
Rates
 Same at Centre and State/for goods & services?
 Same for intra state and interstate transactions ?
 Same for special types of transactions like works
contracts, leases ?
 How many ? Fixed / Variable – flexibility within
range ? Exemptions ?
 Who should determine ?
GST Rates - International comparison
GST Rates - International
comparison
35.0
24.1
30.0
15.0
12.5
13.0
14.0
15.0
17.0 17.5/15
19.6
France
20.0
19.0
Germany
25.0
20.0
10.0
10.0
5.0
* CENVAT: 10.3 % + VAT;12.5 %
Source: KPMG
India
Italy
UK
China
Mexico
South
Africa
Canada
New
Zealand
Australia
0.0
Classification
 Common across the
country?
 Interpretations – how to
ensure uniformity?
Valuation
 Tax base for both levels same ?
 Common across the country ?
 Interpretations – how to ensure uniformity?
 MRP based and like – should continue ?
Interstate Transactions
 Intra-state and Inter-state Trade – avoid double and
no taxation
 Goods
 Services
 Central Sales Tax Act – abolition or modification?
Central Sales Tax
25000
19345
20000
17371
14284
15000
10000
5000
0
2004-05
2005-06 (RE)
2006-07 (BE)
CST collection
Budgetary support of Rs 5495 crore
Source: State finance report from RBI
website; Budget speech 2007-08
Proposed IGST Model
Manufacturer
(Maharashtra)
CGST + SGST
Buyer (Maharashtra)
IGST
Buyer
(Delhi)
Sale price
Add: CGST (10 percent)
100
10
Add: SGST (10 percent)
Total
10
120
Sale price
Add: IGST (20 percent)
Total
120
24
144
IGST payable (24-10-10)
4
IGST payable by utilising IGST,
CGST, SGST
27
Impact of taxing Inter-state stock transfers:
Illustration
Raw
Material
Pre – GST
Price
Excis
VAT
e
(12.5%) /
(10%)
CST
(2%)
Raw
Material
Post - GST
Pri
ce
CGS
T
(10
%)
SG
ST
(10
%)
IGS
T
(20
%)
Product
X (local)
400
40
55
Product X
(local)
400
40
40
-
Product Y
(interstate)
400
40
8.8
Product Y
(interstate)
400
-
-
80
Total
800
80
63.8
Total
800
40
40
80
Company A manufactures Product P which is stock
transferred at INR 1000
28
Input Tax Credit
 Comprehensive for each level
 Central to Central and State to State
 Restrictions and limitations – capital goods,
consumables, promotional materials, fuel?
 Deemed sale transactions
 Interpretations – how to ensure uniformity ?
Proposed Credit utilisation under GST
Credit available for
utilisation
Output Liability
IGST, CGST, SGST
IGST
CGST, IGST
CGST
SGST
SGST, IGST
Basic Exemption
 Common or different?
 For goods and services
 For Central GST and State GST
 Between States
 Should apply on cumulative basis?
Others
 Incentive Schemes
 Records
 Advance Rulings
 Assessments / Audits
 Transition provisions ……
& More……
Other Issues
Taxable event – sale / supply (for inter-state) / raising
of invoice
MRP scheme to be abolished
Impact on high seas sales, exemption to in-transit sales?
Job work – whether supply of ‘goods’ or ‘service’?
Job work arrangements - valuation, treatment of
credit etc
Transition related matters – closing stock,
accumulated credit
33
Central Indirect Tax Regulatory
Authority/GST Council…
…formalization of EC...
… a possible solution ?
Road ahead – what businesses ought to do?
What this transition will entail
Changes in effective tax rates for supplies as
well as purchases
Supply chain: Tax cost on
sourcing/ distribution/
logistics
Transactions/ Supplies which are currently
exempt from tax may become liable to GST,
and vice-versa
Input taxes which are currently a cost may
be eligible as ‘credit’ in future
Finance: Impact on cash
flows, project costs
Marketing: Impact on
product price, promotional
schemes
Special tax computation schemes, valuation
provisions may be amended/ withdrawn
IT: Invoicing, returns, MIS
reports
36
Compute GST Liability
Import goods
100
Manufacturer-Maha
Pur goods in Maharashtra
60
Sale in
Maharashtra
150
Interstate
Purchase
40
Stock transfer to
Gujarat
80
Import - Tech
services
50
Sale to Rajasthan
consumer
100
Sale to Madhya
Pradesh dealer
70
Assumptions
Interstate Services
40
C-GST: 12 %
S-GST: 8 %
I-GST: 20 %
Domestic Services
10
Basic Elements of GST

GST is an indirect tax on consumption.

GST (multi-stage) is contemplated to be
charged and collected at each stage of the
production / processing / trading, on the value
addition of goods and services

A dual GST is being proposed wherein a Central
Goods and Services Tax (CGST) and a State
Goods and Services Tax (SGST) will be levied
on the taxable value of a transaction.
Basic Elements of GST

Exports would be zero-rated.

GST must contemplate set-off of tax
paid on inputs / capital goods and
services.

GST will require maintenance of
accounts of tax paid on purchases and
sales of goods and services.

In a GST regime the tax component in
any
transaction
is
identifiable
/computable
VAT vs GST - Preamble
VAT / CST
GST


GST will be governed
under List I of the
Seventh Schedule

GST will be governed
under List II of the
Seventh Schedule
Governed under entry
no. 54 of List II and
entry no. 92A of the List
I to the Seventh
Schedule
Or

Possible that both
CGST and SGST will be
governed under List III
of the Seventh
VAT vs GST – Preamble
VAT / CST
 Article 286 lays down
the principles for
formulating the
transactions relating to
export / import / sale
effected outside the
State
GST
 It appears that Article
286 may continue even
under GST regime with
certain modifications to
include interstate
movement of goods
and principles relating
to services
GST Preamble

Taxes most likely to be subsumed by GST
 Central Excise
 Service tax
 Additional duty of customs
 VAT
 Entry tax not in lieu of Octroi
 Luxury tax, Entertainment tax, Electricity taxes. Most of the Local laws,
except stamp duty.
 State surcharges related to supply of goods and services
Customs duty will remain outside GST
VAT vs GST – Preamble

VAT / CST
GST
Currently there are 29 State  It appears that even
VAT laws
under GST regime there
will be 29 SGST laws
and one CGST law.


CST law – applicable in
case of inter-State
transaction and subject to
tax at the rate of 2%
(against C Form) or local
rate (without C Form) as the
case may be
IGST law will be
favoured in respect of
inter-State movement of
Goods. The taxes
charged under IGST
could be available for
set-off.
VAT vs GST - Preamble
GST
 Same will be the case even
VAT is not adopted
under GST regime
in its pure form
 No set-off will be allowed
No set-off is
under other State levies
allowed on central
sales tax paid and  It appears there will be certain
restrictions in respect of
other State levies
allowing set-off of Central
such as luxury tax,
GST against State GST or vice
entry tax etc
versa. Further Customs duty
paid may not be allowed as
set-off under State GST.
VAT / CST


VAT vs GST - Preamble
VAT / Service Tax / Excise
 Under VAT law – Goods
are listed for the
purpose of levy of taxes


Under Service Tax –
Taxable services are
defined
Under Excise Law –
Excisable Goods are
listed for the purpose of
levy of taxes
GST
 Under CGST / SGST –
- Goods will be listed for the
purpose of levy of taxes.
This will be based on the
HSN classification
- Services will be defined as
– those which are not
goods. The law will only
list down the exempted
services.
VAT vs GST - Registration
VAT/CST
 Registration
mandatory if the
total turnover is in
excess of Rs. 2
lakhs (Rs. 1 lakh in
certain cases).

One registration
number (TIN)
applicable for VAT /
CST / KTEG / PT.

GST
Registration is mandatory
under
- SGST –threshold limits will be
in the range of Rs. 10 lakhs.
- CGST – threshold limits will be
in the range of Rs. 10 lakhs

Two registration numbers
may be applicable – one
for CGST based on PAN
number and other for
SGST State wise which
may include KTEG / PT
VAT vs GST - Transitional Provision
VAT / CST


Transitional
provisions –
allowed to avail
set-off only in
respect of those
purchases which
are:
- effected within the
State;
- effected within
one year; and
- Lying in the
closing stock
GST
Transitional provisions – Set-off
may be allowed in the following
manner:
- Excise duty / service tax (CENVAT credit)
will be allowed only against Central GST;
- VAT will be allowed to be set-off only
against State GST;
- CST paid would not be entitled for set-off;
-
Credits relatable to immediately preceding
6 months or 1 year and are lying in the
stock / WIP in respect of goods. Services
is an issue.
VAT vs GST – Output tax / Output service
GST
VAT
 Applicable on both goods and services
 Applicable on sale of
 In respect of goods, the SGST levy will
goods

be origin based whereas in respect of
service tax the levy will be
consumption based.
It is an origin based
levy
The rate of tax
followed by different
States are:
- 1%, 4%, 7.5%,8%,
12.5%, 20%, 2%, 5%,
15% etc

The rate of tax that may be followed by
different States are:
- Central GST - 8% to 10%, 0%, 1%,
4%, 20% and exempt
- State GST - 8% to 10%, 0%, 1%, 4%,
20% and exempt.
VAT vs GST – Output tax / Output service
VAT / CST
 Few commodities are
subject to tax under the
KST law even after VAT
is introduced.
GST
 It appears that KST /
VAT / CST law will
continue parallelly even
under the GST regime
and may not be
repealed till such time
litigation concludes and
time for revision exists.

In respect of inter-State
movement of goods
IGST will be introduced.
Integrated GST (IGST)
 In
case of inter-State movement of
goods
- The dealer is required to pay IGST.
- IGST will be administered by the Central
Government.
- The buyer will be entitled to avail IGST
as credit and can claim set-off against
only CGST or IGST
VAT vs GST – Output tax / Output service
GST
VAT / CST



The concept of
HSN
classification is
not followed in
totality.
Tax will be levied
on sale price
It is widely expected that HSN
system of classification will be
implemented only in respect of
Goods but not in respect of
services. Both Centre and State
will list down the services which
would be exempt.
The same concept will be
implemented wherein the taxes will
be levied on sale price. However, in
respect of services, valuation rules
might be considered.
VAT vs GST – Output tax / Output service
VAT / CST
 Declared goods under
the CST law is subject
to tax at the rate of 4%


Each State has the
power to exempt few
commodities
C Form / Form F / Form
H / Form I
GST
 The concept of declared
goods may be continued
even under the GST regime
specifically under State GST

Same may be continued
even under the GST regime

Similar statutory forms will
be continued in order to
have control over the
movement of goods from
one State to another State
VAT vs GST – Output tax / Output service
VAT / CST

 Works contract is a
complex issue and
subject to tax only in
respect of goods
sold.


GST
Possible that there will be a
different chapter itself in respect
of works contract. However, each
State may have its own method of
levying taxes on works contract.
A set-off valuation rules might be
introduced in this regard.
Same may not be continued under
the GST regime. However, each
Composition
SGST law may have composition
scheme is applicable
scheme for small dealers, subject
for works contract
to threshold.
VAT vs GST – Input tax / CENVAT credit
GST
 Set-off may be permissible in
No set-off against
inter-State purchases respect of inter-State purchase
– since the IGST payable in the
buying State will be subject to
e-clearing home mechanism.
VAT / CST


No set-off against  Set-off may not be allowed in
duty paid under both respect of customs duty under
Central Excise and
SGST.
Service Tax

No set-off against
Customs duty paid
VAT vs GST – Input tax / CENVAT credit
VAT / CST

GST
Partial rebating is
 Partial rebating concept may
allowed in respect of
be introduced even under the
goods used for both
GST regime. There will be
taxable and
different formulae one needs to
exempted
adopt for CGST and SGST


Stock transfer to a
place outside the
State - not liable to
tax but subject to
input tax restriction
Major issue under the GST law
more specifically concerned
with stock transfer of services.
It appears that there will not be
any stock transfer concept
under GST regime in respect of
services.
VAT vs GST – Input tax / CENVAT credit


VAT / CST
Input tax credit in respect
of specified capital goods
is allowed immediately in
few States.
GST
 IGST – set off may be
allowed over a period of
time;
Movement of capital goods
from one State to another –
input tax credit is allowed
partially

SGST – May vary
between the States
SGST – May be allowed
partially and be subject
to restrictions
VAT vs GST – General Exemption
VAT / CST
 Sale to SEZ unit /
International
Organization

Based on white paper –
around 50 commodities
were identified for the
purpose of exemption
GST
 Same will continue
even under the GST
regime

Similarly, States may be
empowered to exempt
certain commodities. In
other words, goods
which are exempt from
State GST need not be
exempted from IGST.
VAT vs GST - Administration
VAT / CST
 VAT / CST law –
administered by one
authority

Clarification /
Notification issued by
the authorities /
Government is
applicable only in the
State
GST
 State GST will be
administered by the
State and Central GST
will be by the Union.

Clarification /
Notification issued by
the Union in respect of
Central GST may not
hold good in the
appropriate State and
vice versa
VAT vs GST - Administration


VAT / CST
Assessee / Dealer is
subject to various
assessments, appeals
etc.
Few States have
abolished Advancing
Ruling Authority


GST
Even under the GST
regime, the dealer /
assessee will have to
undergo various
assessments, appeals etc.
Advance Ruling provision
may be enacted subject to
certain conditions. It
appears that two
authorities will be
constituted.
VAT vs GST - Administration
VAT / CST
 In respect of inter-State
transaction – CST law
monitors the movement
of goods and also the
applicability of taxes

Checkpost is
established for
monitoring the
movement of goods
within the State
GST
 There will be clearing
housing mechanism
which will be adopted in
the GST regime for interState transactions.

The concept of
checkpost will be
continued even under
GST regime
Presented By
CA Swatantra Singh, B.Com , FCA, MBA
Email ID: [email protected]
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
61