Goods & Service Tax (GST)

Goods and Service Tax (GST)

DEVALYA ADVISORY LLP.

CA Raman Singla(Partner – Indirect Tax Professionals)

What is GST

Goods and Service Tax (GST) is a tax on goods and services, which is levied at each point of sale or provision of services. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services.

The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax.

The GST is beneficial for the consumers as it reduces the final burden of taxation. For Government it leads to reduction of tax compliance efforts and administrative costs and it leads to transparency, complete set-off and removal of cascading effect of taxation from trade & industry point of view.


Models of GST

Central GST State GST Dual GST

• Two levels of governments would combine their levies in the form of a single National GST.

• States alone levy GST, and the centre withdraws completely from GST and VAT.

GST levied by both tiers of Government concurrently. Central GST administered by Central Government & State GST administered by State Government.

• Central Government will collect most of country’s total tax revenue, leaving very little for sub – national Governments.

• Significantly enhance the revenue capacity of States and reduce their dependence on the Centre.

• Central GST to subsume central taxes, such as, excise duty, CVD, SAD and service tax

• State GST to subsume VAT, Octroi, entry tax, luxury tax, etc.

Considering the federal structure of the Indian Constitution, where the powers to levy is distributedamongst the states and centre, the Indian model of GST would be based on Dual Structure, wherein bothCentral as well as States would levy this tax.


The GST will be on dual structure, where, the Central GST shall be levied and collected by the Centre and the State GST shall be levied and collected by the States.

Centre will also levy and collect the Integrated GST on Inter State transactions. It will be distributed amongst States.

Rate of GST would be on the basis of Revenue Neutral Rates (RNR). RNR is defined as the rate at which tax revenue will remain same for both Centre and the States, despite allowing input tax credit and other factors. It shall mean the rate that allows the Centre and the States to sustain the current revenues from tax collections; and

therefore, taking into various aspects, such as, any tax losses because of taxes subsumed and/or phased out, grant of input tax credits as well as sharing of the tax base.

In this regime, the revenue of the Government would not be same in comparison with the present tax structure due to tax credit mechanism, removal of cascading effect or otherwise. Therefore, an adjustment in tax rate is required to avoid reduction in revenue of Government. Hence, the tax rate has to suitably adjusted to make sure the tax revenue does not reduce.

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Rates of GST

Likely RNR in INDIA

The GST rates have not yet been finalized; but most likely, it might be in between 16% to 24%. Task of finalizing the tax rates will be given to GST Council.

“Entry tax will be subsumed in the GST. However, since some states fear losing revenues, the government has proposed 1% extra levy for states for a period of two years. Additional tax at 1 percent is to be applied on the inter-state supply of goods and services for a period of two years or such other period as the Goods and Services Tax Council may recommend which would directly accrue to the originating State and therefore would not be shared.

Petroleum to be included in GST but taxed at zero rate till the time GST council decides. Thus, petroleum will be taxed in the present form for some years.

Alcohol products are outside GST.”


Rates of GST

1. “New article 279A will create a GST council, a joint forum of state and centre. The GST Council, and not the Centre, would be decision making authority for GST.” The President shall, within 60 days from the date of commencement of the Constitution (122 Amendment) Act, 2014, by order, constitute a Council to be called the Goods and Services Tax Council.

2. The GST council shall consist of the following members, namely:-

a) The Union Finance Minister ……………… Chairperson;

b) The Union Minister of State in charge of Revenue or Finance…. Member;

c) The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government …………….. Members


What is GST Council

3. The GST Council shall make recommendations to the Union and the States on

a) The taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;

b) The goods and services that may be subjected to, or exempted from the goods and services tax;

c) The threshold limit of turnover below which goods and services may be exempted from goods and services tax;

d) The rates including floor rates with bands of goods and services tax;

e) Any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;

f) Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and

g) Any other matter relating to the GST, as the Council may decide.


What is GST Council

4. One half of the total number of Members of the GST Council shall constitute the quorum at its meetings.

5. Every decision of the GST Council shall be taken at a meeting by a majority of not less than 3/4th of the weighted votes of the members present and voting, in accordance with the following principles, namely:-

a) The vote of the CG shall have a weightage of 1/3rd of the total votes cast,

b) The votes of all SG taken together shall have a weightage of 2/3rd of the total votes cast, in that meeting.


What is GST Council

Schedule VII of the Constitution of India will be amended vide 122nd Constitutional Amendment Bill with a view to bring various Union and State taxes and duties in the GST Scope.

GST will subsume following Central Taxes/ Duties on supply of goods and services :-

Central Excise Duty (other than on tobacco and its products and specified petroleum goods)

Additional Excise duty

Excise duty under Medicinal & toilet Preparation,

Special Additional Duty of Customs (SAD)

Service Tax

Taxes on Sale or purchase of newspapers and on advertisements published therein,

Central Sales tax (levied and collected by states). (it may be partially phased out since few commodities are outside the GST)

Surcharges & cesses relatable to supply of goods & services.


Central Taxes/ Duties to be Subsumed in GST

GST will subsume following State Taxes/ Duties:-

State Value Added Tax/ Sales tax (other than alcoholic liquor for human consumption and specified petroleum goods)

Purchase tax

Entertainment tax

Luxury tax

Entry tax and octroi

Taxes on lottery, betting and gambling

Taxes on advertisements other than those published in newspapers and broadcasted on televisions and radios

Surcharges & cesses relatable to supply of goods & services.


State Taxes/ Duties to be Subsumed in GST

GST will not subsume following Central Taxes/ Duties:-Basic custom duty

Excise duty on tobacco and its products and specified petroleum goods

Specific cesses (other than relatable to supply of goods & services).

GST will not subsume following State Taxes/ Duties:-State excise duty on alcoholic liquor for human consumption

Taxes on entertainment and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council

Specific cesses (other than relatable to supply of goods & services)

Stamp duty on transfer of immovable property

Tax on consumption or sale of electricity.


Taxes/ Duties not to be Subsumed in GST

With the introduction of 122nd Constitutional Amendment Bill, 2014, the broad framework of GST is now clear. The GST will be a dual tax with both the Central GST and State GST levied on the same base. Thus, all goods and services barring a few exceptions will be brought into the GST net. There will be no distinction between goods and services for the purpose of the tax with a common legislation applicable to both.

Change in law, concept and procedure Sale vs. Service Stock transfers from one state to another Stock transfers to branches/ consignment

agents within the state Change in tax rates Changed system of tax credit

Upgradation of software Training Competent professionals All existing contractors may undergo change GST will be based on HSN


Impact of GST

Understanding the concept

Evaluate the impact on own industry, its input suppliers of goods and services and output procedures

Input VAT credit on stock on the date of transition

Unutilized Cenvat Credit on the date of transition

Contracts already entered and partly executed on the date of transition

Existing tax holidays and tax incentive schemes

Registration – consolidation or new registration in the respective state

Pending assessments and refunds

Adequate training to staff

Updating the accounting software.


Transitional issues for the industries


Developments in GST

2004

Dr. Kelkar Task Force recommended the need of a National

GST.

2007

Consultation with stakeholders on GST

Model

Jan, 2007

First GST study released by Dr.

Shrome

Nov, 2007

13th Finance Commission constituted

May, 2007

Joint Working Groups appointed by E.C.

April,2008

Empowered committee (EC) finalised its views on

GST Structure

July,2009

The Union Finance Minister announced Dual GST to be

introduced from 1st April 2010 in his Budget Speech.

Oct, 2009

13th Finance Comission to submit

its Report

Nov, 2009

Release of First Discussion Paper

Dec, 2014

122nd ConstitutuonAmendment Bill introduced in

the Lok Sabha

.

April 1, 2016

Target date for implementation

March,2011

115th Constitution Amendment Bill introduced in Lok Sabha,

which got lapsed.

Consultation on Model of Inter - State transactions, RNR and other issues - In progress

Design Issues

Constitutional amendments

Enactments of legislations

GST rates - to be decided by GST Council

Determining exempted and zero rated activities, Non vatable goods & services

Seamless input tax credit removing all cascading effect.

To determine the basic exemption limit

Framework for exemption and composition

Registration, payment of tax, and filing of returns

future of various existing exemptions under Cenvat and State VAT


Challenges before the Government in implementation of GST

Operational Issues

Monitoring of inter- state trade

Sharing of information using comprehensive IT network

Improving relations between centre and state

Common approach of the states, i.e., common law, common assessment procedure and even a common return.



Infrastructure Issues

Human Resource of the department

IT Infrastructure

Impact on Small Enterprises

Cross - verification of documents must be strengthened

Decision on elimination of Check Posts

Common dispute resolution mechanism

Common procedure for levy, assessment, collection and appropriation

Training

Persuasion to the State Government



As next step, this Bill needs to be debated and voted on by the Lower House of Parliament. Thereafter, it would need to be voted on by the Upper House of Parliament, before being ratified by at least half of the States.


Next Step

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Goods & Service Tax (GST)

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