A Catalyst or a Inhibitor What is GST G Goods S Services T Tax Goods and Service Tax GST is a comprehensive tax levy on manufacture sale and consumption of goods and service at a national level ID: 917532
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Slide1
GST- GOODS & SERVICE TAX
A Catalyst or a Inhibitor....
Slide2What is GST?
‘G’ – Goods
‘S’ – Services
‘T’ – Tax
“Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level.It is a destination based tax on goods and services; i.e. the ultimate consumer will bear the incidence of tax.It will subsume most of the indirect taxes whether levied by State or Centre including VAT, Central Excise duty, Service tax, etc.”
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Slide3Existing Indirect Tax structure in India
3
Centre is empowered to levy tax at the level of manufacture of goods and on provision of services. Excise Duty and service tax are being levied.
State is empowered to levy the tax on sale of goods within state. VAT is being levied by States as from year 2006.
Inter-state sale of goods is subject to Central Sales tax (CST) levied by Central Government.
Few other taxes are levied by local authorities like
Octroi
, Entry tax, entertainment tax, etc.
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Slide4Drawbacks of existing tax structure
4
Cascading effect or double taxation
Filing of same data or information at various authorities results into increase in compliance cost.
High cost of production due to multiplicity of taxes and cascading effect.Classification related disputes – whether a particular transaction will attract excise duty or service tax.
Due to higher production cost, low product competitiveness in international market.
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Slide5Why GST?
5
To replace the existing multiple tax structures of Centre and State taxes broadly by two categories named as State GST (SGST) & Central GST (CGST)
It will drastically reduce the cascading effect or double taxation and will create possibility of giving full credit of input taxes collected.
To eliminate classification related disputes.To help in development of a common national market.
To increase product competitiveness in international market.To reduce duplicity of information and compliance cost.
To create a tax structure with transparent character and easy to administer.
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Slide6Taxes which will get subsumed in GST
Sl. No.
Subsumed under CGST
Subsumed under SGST
1
Central Excise Duty
VAT / Sales tax
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Additional Excise Duties
Entertainment tax (unless it is levied by the local bodies).
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Excise Duty-Medicinal and Toiletries Preparation Act
Luxury tax
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Service Tax
Taxes on lottery, betting and gambling.
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Additional CVD
State Cesses and Surcharges (supply of goods and services)
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Special Additional Duty of Customs - 4% (SAD)Entry tax not in lieu of Octroi7Surcharges and Cess
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Slide7Taxes that may or may not be subsumed
7
There are few other indirect taxes that may or may not be subsumed under the GST regime as there is no consensus among States and Centre & States –
Purchase tax
Stamp DutyVehicle TaxElectricity Duty
Other Entry taxes and Octroi
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Slide8GST IN WORLD
France was the first country to introduce GST in 1954.
As of now, almost 150 countries have introduced GST. Malaysia being the recent country to introduce GST in 2015 with the rate of 6%.
Most of the countries have a unified GST system, i.e. only Centre is empowered to levy and collect GST. Brazil and Canada follow a dual system, i.e. both Centre and State are empowered to levy and collect GST at two stages. India is to follow dual GST system.
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.
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Slide9GST RATES IN WORLD
COUNTRY
RATE
Australia
10%France19.6%
Canada5%Germany
19%
Japan
8%
Singapore
7%
Sweden
25%
New Zealand
15%
Pakistan
18%
Malaysia
6%
Denmark
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Slide10HISTORY IN INDIA
In 2000, the Vajpayee Government started discussion on GST by setting up an empowered committee (EC) headed by
Asim
Dasgupta (Finance Minister, Government of West Bengal). It was given the task of designing the GST model and overseeing the IT back-end preparedness for its rolloutKeeping this overall objective in view, an announcement was made by Palaniappan
Chidambaram, the Union Finance Minister, during the central budget of 2007–2008 that it would be introduced from April 1, 2010.Simultaneous working was being done by Empowered Committee and Joint working group set up by it to make a road map for implementation of GST. A report was also prepared after discussion with Chamber of Commerce and industry. However, it could not be implemented due to one reason or other.
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Slide11HISTORY IN INDIA
Meanwhile there was change in Government and the new BJP government took a serious consensus to implement GST in India.
As a result of these efforts,
The Constitution (One Hundred and Twenty-second Amendment) Bill, 2014
was introduced in the Lok Sabha by Finance Minister Arun Jaitley on 19 December 2014. The Bill was passed by the House on 6 May 2015
The Government attempted to move the Bill for consideration in the Rajya
Sabha
on 11 May 2015
In order to appease the Opposition's demand for further scrutiny of the Bill, Mr.
Arun Jaitely
moved a motion to refer the Bill to a Select Committee
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Slide12GST Model in India
The dual GST model proposed by the Empowered Committee has been accepted by the Centre. In this model, GST shall have two components -
(
i) Central GST (CGST) – levied and collected by Centre (ii) State GST (SGST) – levied and collected by State Interstate GST (IGST) – It is not the third levy, rather, it will be a complex mechanism to govern the interstate supply of goods and services.
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Slide13IGST – Governing mode for Inter-State Transactions of Goods & Services
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The existing CST will be discontinued. Instead, a new statute known as IGST will come into place.
It will ensure that one part of tax is received by Centre and other part of tax is received by consumer state, thereby making GST a perfect destination based tax.
The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.
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Slide14IGST – Governing mode for Inter-State Transactions of Goods & Services
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1. Supplier in the selling state will collect IGST from the purchaser on Interstate Transaction. Rate will be SGST + CGST (assuming both rates are 12%, total 24% will be collected on IGST)
2. While depositing the IGST the seller will take credit of SGST and CGST paid by him on purchase of such Goods or services within the state.
3. The selling state will transfer the amount of input credit of SGST taken by the supplier against the IGST to the centre. This will ensure that selling state will not get any revenue out of this transaction.
4. The interstate buyer shall take credit of IGST against his liability of SGST / CGST or IGST. For this purpose the total amount of IGST will be bifurcated in two parts SGST and CGST.
5. SGST will be transferred to the consumer state by Centre. It will be the amount of input credit of IGST used by selling dealer of consumer state while paying his liability of SGST.
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Slide15Advantages of IGST Mode
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Maintenance of uninterrupted Input Tax Credit (ITC) chain on inter-State transactions.
No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.
No refund claim in exporting State, as ITC is used up while paying the tax.Self monitoring modeLevel of computerization is limited to inter-State dealers and Central and State Governments
should be able to computerize their processes expeditiously. As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.
Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.
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Slide16Highlights of GST Amendment Bill
16
Proposal to do away with the concept of ‘declared goods of special importance’.
New article 246A proposed – To give concurrent powers to Union and States to implement GST:–
New article proposed in Constitution to give the central and state governments the concurrent power to make laws on the taxation of goods and services.Integrated GST (IGST):– Power to levy and collect taxes in the course of inter-state trade or commerce vested solely with Centre. Collection to be distributed between Centre and State as may be provided.
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Slide17Highlights of GST Amendment Bill
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New article 279A – Formation of GST Council:-
To be constituted by the President within 60 days of this Act coming into force. To be established with an aim to develop a harmonized national market of goods and services.
Composition of the GST Council:- (i) The Union Finance Minister (Chairman),
(ii) The Union Minister of State in charge of Revenue or Finance, and (iii) The Minister in charge of Finance or Taxation or any other, nominated by each state government.
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Slide18Highlights of GST Amendment Bill
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Functions of the GST Council:-
To make recommendations on: Taxes,
cesses, and surcharges levied by the centre, states and local bodies which may be subsumed in the GST;
Goods and services which may be subjected to or exempted from GST;
Model GST laws, principles of levy, apportionment of IGST and principles that govern the place of supply;
The threshold limit of turnover below which goods and services may be exempted from GST;
Rates including floor rates with bands of GST;
Special rates to raise additional resources during any natural calamity;
Special provision with respect to Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and
Uttarakhand
; and
Any other matters.
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Slide19Highlights of GST Amendment Bill
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Resolution of disputes:-
The GST Council itself to decide upon the dispute settlement mechanism on issues arising out of its recommendations.Restrictions on imposition of tax:- The Constitution imposes certain restrictions on states on the imposition of tax on the sale or purchase of goods. The Bill amends this provision to restrict the imposition of tax on the supply of goods and services and not on its sale.
Additional Tax on supply of goods:- An additional tax (not to exceed 1%) on the supply of goods in the course of inter-state trade or commerce would be levied and collected by the centre. Such additional tax shall be assigned to the states for two years, or as recommended by the GST Council.
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Slide20Highlights of GST Amendment Bill
20
Compensation to states:-
The Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years (The compensation will be on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year).Scope of GST:-
All Goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST.
However, petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council.
The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.
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Slide21Probable threats in GST model
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Rate of GST: It’s on higher side
Earlier it was proposed @ 27%.
Later on it was clarified that it will be around 16-18%. Normally, GST rate varies from 16% to 20% in international market. But Malaysia has recently adopted GST in year 2015 only with the rate of 6%. Also, rate prevailing in Australia is 10% only.
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Slide22Probable threats in GST model
22
Decision making process in GST Council
In the proposed GST Bill, one vote has been assigned to each State in the GST Council. As per Government, this has been done to ensure that small states should not lag behind in the GST Council.
However, if we look into the decision making process at GSTC, we find that there is possibility that the role of small states will be negligible in the vital decisions. It has been proposed that “Decision in GSTC shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:-
(a) The vote of the Central Government shall have a weightage
of one fourth
of the total votes cast, and
(b) The votes of all the State Governments taken together shall have a
weightage
of three-fourth of the total votes cast, in that meeting.
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Slide23Probable threats in GST model
23
Decision making process in GST Council
And the vote of each state shall have a
weightage proportionate to the population of that State. [emphasis supplied]
Thus, while assigning the weightage to vote, the population has been made the prime criteria. It is worthwhile to mention here that there are certain states which have very less population but their share in taxes is on much higher side. Such states, though contributing more, will lag behind in the decision making process taking place at GST Council.
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Slide24Probable threats in GST model
24
1% additional tax on supply of goods
1% additional tax on supply of goods in course of inter-state trade or commerce has been proposed to be levied and collected by the Central Government.
It will be assigned to the State in which the supply originates.
It will be levied for two years or as recommended by the GST Council. It will be a non-
vatable
tax.
Non
vatable itself seems to be against the very basic vision of GST which says that there will be no-cascading effect in GST.
This 1% tax will ultimately become cost of goods as no Credit of this tax would be allowed.
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Slide25Probable threats in GST model
25
Compensation to loss making States for five years
Proposal - The Central Government will compensate the loss arising out to States on implementation of GST for a period of five years. This has been done to make the States affirmative towards the implementation of GST.
However, there is a possibility that States may not take effective steps for smooth run of GST as they are being compensated for the losses. It is also possible that the actual loss is much lower than that shown on records in order to get higher compensation.
The Central Government will have to take steps to ensure that this proposal in the GST bill is not misused by the States.
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Slide26Probable threats in GST model
26
GST Proposal: Not friendly to important service sector like banks
At present service tax is being levied @ 14%.
GST rate will be much higher than this rate.
This will ultimately increase the cost of transaction, particularly, in case of imports and exports where huge amount is transacted. It is also interesting to note that in most of the countries, banking sector is excluded from the purview of GST. The cost of transaction there is obviously on the lower side.
On the other hand, in India the cost of banking transaction, which ultimately becomes the cost of product, will increase after implementation of GST. Similar is the case with other important services like advertisement and sales promotion which play a crucial role in exports of a country.
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Slide27Probable threats in GST model
27
Dispute resolution mechanism
Proposal - GST Council will lay down criteria as to how the disputes arising out of its recommendations will be resolved.
In other words, the disputes arising out of recommendations of GSTC will be resolved by GSTC itself. This is like a party to dispute has been given authority to make the judgment.
Without constituting a separate body, the task of laying down the dispute resolution mechanism will become very tough.
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Slide28Status of GST bill
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The
Lok
Sabha has passed the Constitution (122nd Amendment) Bill, 2014 (GST bill) by 2/3 majority on 6 May, 2015.The Rajya Sabha
referred the Amendment Bill to a Select Committee on May 14, 2015. The said Committee, comprising of 22 members of the
Rajya
Sabha
, presented its report to the Rajya Sabha.
The monsoon session has already ended and the Amendment bill has not yet passed from
Rajya
Sabha
.
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Slide29Will GST be implemented from 1.4.2016?
29
GST bill has not yet even passed from
Rajya
Sabha. Following milestones are to be achieved before it becomes an Act:-The Bill will have to be passed by at least two-third majority of the
Rajya Sabha;
Subsequent ratification by at least half of the States’ Legislatures; and
Assent of the President of India.
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Slide30Will GST be implemented from 1.4.2016?
30
After becoming the Act, a no. of procedural formalities will be required to be complied with for smooth roll out of GST. The following issues are involved:-
Setting up of the GST Council
Drafting of the proposed statutes by centre and states.
Decision making on the rates, band, exemptions, etc. Setting up and integration of the administration mechanism / authorities.
Training and guidance to officials for smooth functioning of GST structure.
Implementing the IT infrastructure. Since the no. of
assessees
would increase significantly, smooth IT structure will ensure the smooth working of GST.
Strong query solving mechanism supporting the
assessees
during transitional period.
Looking to the series of pre-works to be done, it seems almost impossible that GST will be implemented on the scheduled date.
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Slide31GST - Salient Features
It would be applicable to all transactions of goods and service.
It to be paid to the accounts of the Centre and the States separately.
The rules for taking and utilization of credit for the Central GST and the State GST would be aligned.
Cross utilization of ITC between the Central GST and the State GST would not be allowed except in the case of inter-State supply of goods.The Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre.
The taxpayer would need to submit common format for periodical returns, to both the Central and to the concerned State GST authorities.
Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits.
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Slide32Chargeability of Tax under GST
There will be two parallel Statutes – one at the Centre and other under the respective State GST Act – governing the tax liability of the same transaction.
All the items of goods and services are proposed to be covered and exemptions will be granted to few selected items.
After introduction of GST, all the traders will be paying both the types of taxes i.e. CGST and SGST.
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Slide33Taxable Event
Following questions arises:
At what point of time, the tax will be levied?
Will Taxable Event covers both i.e. supply of goods and rendering of services?
What will be the nature of Taxable Event?Will it not involve new language and terminology?What impact the change in Taxable Event can have?GST is proposed to be levied by both the CG and SGs. How will it be defined under CGST and SGST?
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Slide34Taxable Person
It will cover all types of person carrying on business activities, i.e. manufacturer, job-worker, trader, importer, exporter, all types of service providers, etc.
If a company is having four branches in four different states, all the four branches will be considered as Taxable Person under each jurisdiction of SGs.
All the dealers/ business entities will have to pay both the types of taxes on all the transactions.
A dealer must get registered under CGST as it will make him entitle to claim ITC of CGST thereby attracting buyers under B2B transactions.Importers have to register under both CGST and SGST as well.
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Slide35Rate of Tax
There with be a two-rate structure –a lower rate for necessary items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items.
For CGST relating to goods, the States considered that the Government of India might also have a two-rate structure, with conformity in the levels of rate with the SGST. For taxation of services, there may be a single rate for both CGST and SGST.
It will be total of the rate as applicable under CGST & SGST.
It is understood that the Government is considering pegging the revenue neutral rate of GST at a rate between 18% to 22%. This represents the aggregate of CGST and SGST payable on the transaction. However, it may be noted that at this stage, the Government is yet to indicate whether the revenue neutral rate of tax on goods and services would be the same.
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Slide36Exemption of Goods and Services
Concept of providing threshold exemption of GST
Scope of composition and compounding scheme under GST
Items of GS to be exempt
Treatment for goods exempt under one state and taxable under the other36
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Slide37GST on Export & Import
GST on export would be zero rated
Both CGST and SGST will be levied on import of goods and services into the country.
The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed.
Full and complete set-off will be available on the GST paid on import on goods and services.
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Slide38GSTN
38
A separate company is created for implementation of IT software for working of GST
This company will not have any profit motive
This company will have 50% private holding.Recently Infosys has been granted the contract of Rs. 1380 Cr. to build the technology infrastructure for Goods and Services tax
.CBEC has objected on such private holding. This will handle important data.
Even NIC can handle such data as they are doing for last so many years.
Even private banks will be investing in this company which is objected by opposition parties and recommended that public sector bank should be allowed to invest.
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Slide39Disputes between state and Centre
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39
Compensation on loss to state- 5 year agreement.
CST compensation- already provided in constitutional amendment
Threshold exemption limitAdjudication and Appellate mechanism
Base rate
Exemption list
Slide40Disputes between Ruling party and opposition party
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Base rate- statutory limit of 18%.
GSTN- no private player
1% additional levy should not be there.
Inclusion of tobacco, alcohol and electricity in GST list (not real estate)
Slide41QUERY TIME !!!
41
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Slide4242
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