Goods & Services Tax (GST)GST implementation in India and its impact on Bhutanese Economy

Presentation to NTTFC8/8/2017

Ministry of Finance

OutlineI. Goods and Services Tax (GST) Concept

II. GST introduction in IndiaIII. Impact on Bhutanese EconomyIV. Consultation with Private SectorV. Meeting with GOI

VI. RecommendationsVII. Challenges

Ministry of Finance

8/8/2017

I. GST Concept …

What is GST?GST is an indirect and a broad-based consumption tax…

1. Indirect - • it is levied on the supply of goods, services or activities rather than

directly on the income.

2. Broad-based tax - • applies generally to all transactions by all types of taxpayers with only a

few limited exceptions.

3. Consumption tax -• applies to the consumption of goods and/or services that the consumer

uses.

How does GST work?

• GST is charged at an ad-valorem rate • Collected at various levels of production/supply chain• The supplier of goods or services claims credit for tax paid on their

inputs • Only GST registered taxpayer collects GST and can claim GST credit• The ultimate impact is that the final consumer bears only the GST

charged by the last dealer in the supply chain

.

1st Stage = 102nd Stage = 103rd Stage = 10Total GST=30

.

Cost = 100GST @10%= 10

Total =110

.

Price = 200GST @10%= 20

Total = 220

.

Price = 300GST @10% =30

Total = 330

.

(20-

10)=

10

(30 - 20) = 10 (10 - 0) = 10

GST Cycle

Zero GST/ Refund/ITC

Global scenario

II. GST in India• GST implementation from 1st July 2017 – Marked an end to multiple (17)

taxes/duties

• Five GST Law

(i) CGST Act(ii) IGST Act (iii) UGST Act (iv) SGST (v) Compensation Act

• GST Rules

The Central Goods and Services (CGST) Rules, 2017 -released on 4/07/2017 • GST Rates (Approved by GST council)

Schedule I. Goods – 0%, 0.25%, 3%, 5%, 12%, 18% & 28%

Schedule II. Services – 0%, 5%, 12%, 18% & 28%

Schedule III. GST Compensation cess on selected goods from 1% to 290%

GST Council

• Chairperson – Union FM• Members – Minister of Sate

(Finance) and all Ministers of Finance / Taxation of each State

• Council to make recommendations on everything related to GST including laws, rules and rates etc.

State A State B

Union Territory (without legislature)

Foreign Territory

IGST IGST

Understanding GST system of India

No GST on Export

IGSTIGST

IGST on Import

INDI

A

What has changed after 30th June 2017?Before GST

(Before 30th June 2017)After GST

(After 1st July 2017)Import of goods and services from India to Bhutan

• Goods are subject to levy of Excise Duties and Value Added Tax (VAT)

• VAT refunded to importer on issuance of landing certificate by Bhutan Customs

• Excise Duties are refunded by GOI to RGOB on annually basis

• Transport services are subject to state entry taxes

• Services tax are exempted on export of services to Bhutan

• There is no taxes on import of goods except for five petroleum products.

• Levy and refund of excise duty to continue on only five petroleum products (crude oil , diesel, petrol, natural gas and ATF)

• GST is not levied on goods meant for consumption in Bhutan

• GST on export of services are exempted if paid in convertible currency

Export of goods from Bhutan to India

• VAT levied at point of sale not on point of entry in India

• GST to be levied both at point of entry and point of sale in India

Transit of goods (Third country goods coming through India territories)

• No taxes are levied on goods in transit in keeping with bilateral trade agreement

• No taxes are levied on goods in transit in keeping with bilateral trade agreement

III. Impact on Bhutanese Economy

1. Positive Impact a. Price of goods of Indian origin will fall

• Import to become cheaper – top ten commodities by 14%• Prices of consumable goods are expected to fall by around 5% on an average• Raw materials to become cheaper for the Manufacturers • Advantage for Consumers if tax benefit is transferred by the sellers• No impact on essential goods (vegetables, rice, oil, salt, sugar, milk, etc.)

b. Impact on tariff to benefit trading sector• Tax burden at POE to reduce by around 5%• Around 78% of taxes on import paid by trading sector

c. Promote formal trade with India• Electronic filing/declarations and payment of taxes • Price of goods from open market sources may increase

Fall in Cost of Import from IndiaSales Tax

RatesCommon items

No of

items

Average fall in

Import/FOB value

1 0% Rice, Cereals, medicines, Fertilizers, Yarn, etc. 2031 12.6%

2 5%Intermediate goods (semi-finished goods) &

fabrics1655 13.5%

3 10%Prepared goods, paints, TMT rods, toilet

preparations1501 12.8%

4 15% Sugar confectionery & Juice above 350 ml 125 10.0%

5 20% Plastic carry bags, Betel nuts, Pan Masala 54 16.2%

6 30% Aerated water, Juice below 350 ml 24 3.1%

7 45% Vehicle not exceeding 1500cc 3 13.6%

8 50% Vehicle above 1500cc 12 21.0%

9 100% Tobacco and Alcohol 36 3.0%

Negative Impact on Bhutanese Economy

1. Total revenue forgone for 12 FYP amounts to Nu.14 bn• EDR of 12 bn; Sales Tax and Green Tax of around 2 bn.

2. Highest impact on Taxes and Tariff• The average difference in tariff is 10%• Highest of 21% on current Sales Tax slabs of 50%.

3. Impact on Rupee reserves• Increase on import from India (Y2016 Nu.55.1 bn.; likely increase by Nu.8

bn.)• Trade deficits • Fall in EDR revenue• Drawdown on rupee reserve

Manufacturing Industries

• IGST is applicable on point of import in India• GST on transport services in India• Ferro Silicon Manufacturer:

• No excise duty or GST on import of raw materials• No VAT or GST on export of semi-finished products to India

• Cement Manufacturer –• Increase of more than 6% in export price with the levy of GST• GST @ 28% & VAT @ 14.5%; Diff. in Tax = 13.5%

• Steel Industries• Increase of more than 3% in export price with the levy of GST• GST @ 18% & VAT @ 5%; Diff. in Tax = 12.5%• Relief from Excise duty of 12.5% on import of RM

IV. Private sector submissionSubmissions of private sector (ABI) Update

1. Exemption of IGST on export of Bhutanese goods to India

• GST is a consumption tax charged on both Indian and imported goods.

2. Deferring of IGST from point of import to point of sale in India.

• Request made GOI counterpart during two separate visits (27/06/2017 and 11/07/2017).

3. Exemption of IGST on export of services to Bhutan with payment made in Indian Rupee.

• Exemption request recorded in the minutes of meeting of 27/06/2017 and in the working paper of 12/07/2017 prepared by the Commissioner, CBEC.

4. GST exemption on transport services used for import of goods to Bhutan.

• Request made during visit of 11/07/2017 and same has been included in the working paper prepared by the Commissioner, CBEC.

5. Refund of ST/CD paid on import of secondary raw materials.

• Exemption of raw materials adequately covered under Fiscal Incentive Act, 2017.

6. Proposed for introduction of service tax on consultancy and transport services, Sales Tax on consumables & FMCG products.

• MOF is reviewing the proposal.

III. Meeting with GOI

• A team from MoF led by Director/DRC visited New Delhi, India• Meeting held with the Commissioner and GST experts, CBEC on 27 June

2017• Outcome:i. EDR from India to stand as per the existing bilateral trade agreement.

ii. Export of goods to Bhutan from India – Indian exporter at their option pay IGST and claim refund during filing of return or export without paying IGST following bond procedures.

iii. Transit of Goods – No GST will be charged on transit of goods from/to Bhutan

Cont…

iv. Export of goods from Bhutan to India – Requested for re-validation of notification 38/96 dated: 23/07/1996 to provides relief from payment of taxes on goods exported from Bhutan to India.

v. GST on export of services –Requested for exemption of GST on export of services from India to Bhutan based on exemption memorandum of 26th August 2013 ref. 354/169/2013-TRU and the Article VII of the bilateral trade agreement.

vi. It was also clarified that request iv. and v would require approval of the GST council.

vii. Minutes signed and forwarded to GST Council

V. Meeting with GOI

• 2nd Consultative meeting with GOI: • 11th July 2017- MOF delegation with MOEA and Private Sector rep. attended GST

information session for Bhutan held at New Delhi, India

• 12th July 2017 – initiated second round of meeting with the Commissioner, CBEC • Outcome of the meeting

1) Zero GST on Export of goods to Bhutan- An Advisory note to be circulated amongst LCS in India

2) Deferring IGST to point of sale- RGOB & private sector to assess the actual benefits accordingly request GOI

3) Exemption of IGST on export of services to Bhutan- The Commissioner, CBEC has included the request in his working paper prepared for his government.

4) GST exemption on transport services used for import of goods to Bhutan- 5) Refund of IGST on export to Bhutan- RGoB may formally request for any levy and

refund of IGST on export of selected goods to Bhutan.

VI. Recommendations submission to LZ

• Ministry of Finance has submitted various several recommendation to Lhengye Zhungthog1. Two times presentation to Cabinet2. Two separate submission on Cabinet meet

• Recommendations include – • (1) Administrative measures (Short term) and • (2) Tax Measures (Medium to Long Term)

VII Challenges

• Strengthen enforcement to formalize trade with India• Business support – information sharing and reporting on issues

related to trade• Consumer protection and anti profiteering regulations• Containing deflection and revenue leakages• Informal flow of monetary transfer• Monitoring BOP and the INR situation• Coordination amongst relevant stakeholders

http://www.cbec.gov.in/htdocs-cbec/gst/

Thank You