*Presented By

CA Swatantra Singh, B.Com , FCA, MBA Email ID: singh.swatantra@gmail.com New Delhi , 9811322785, www.caindelhiindia.com, www.carajput.com

GST Where are we and what next ?

To recapitulate GST PrinciplesImports - TaxedExports Relieved of tax BusinessInternal trade Tax sticks to goodsBusiness

GST ModelCentral Level GSTState Level GSTCentre and State to legislate, levy and administer

How is it different from current system ?

Tax on manufacture of goods & provision of services Tax on supply of goods & servicesMulti point tax with input tax credit - sameStandard rate across country national level - sameExports zero rated almost full input tax credit sameImports subject to CenVAT/Service tax - same

Central VAT/Service Tax to GSTCurrent and Proposed Design Features

Invoice based credit system - sameRegistered dealer concept for maintaining chain not requiredValue added by trade not captured will be captured

Origin based Manufacturing Sector Goods VAT & Service Sector VAT to Central GSTCentral VAT/Service Tax to GSTCurrent and Proposed Design Features

Tax on sale of goods services not covered services will be coveredMulti point tax with input tax credit - sameExports zero rated full input tax credit for state VAT and partial for service tax - same

State VAT to State GSTCurrent and Proposed Design Features

Imports tax free will be taxableInvoice based credit system - sameValue added by trade for goods captured same

Destination based Trade Sector Goods VAT to S-GST State VAT to GSTCurrent and Proposed Design Features

To what advantage why dual model ?

Achievable from constitutional perspectiveNo adverse impact on Central and State Government revenues/ cash flows No need for major shift in staffing requirementsGST on import of goods issue of unequal treatment of domestic and imported goods addressedExports can be relieved of taxes more competitiveTwo level GST - merits

* 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 websiteRevenue Receipts- Indirect Taxes (State level)

2004-05(as a % of the total revenue)2005-06(as a % of the total revenue)2006-07(as a % of the total revenue)Sales Tax *61.7 61.6 62.6 State Excise Duties11.6 11.6 11.4 Stamp duty & Reg. fee10.4 10.7 11.0 Other Taxes16.3 16.1 15.0 Total100 100 100

Cost of compliance for businesses- will continue to be highApprehensions/risks continue:Variable rates/Exemptions/trade diversionNon uniformity of classificationDouble taxation overlap between states and Centre and statesMultiplicity of litigation. Two level GST - DemeritsFeel Good Factor ( ? )

Australia ?United States of America ?Canada ?Brazil ?EU ?International Comparatives?

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 ChallengesConstitutional AmendmentTaxes to be SubsumedNumber of lawsClassificationValuationInput tax creditInterstate salesGoods & Services

Constitutional AmendmentsCentral ListState ListNew List ??

Taxes to be subsumed?Central LevelState Level

ComprehensiveSin/Demerit goods?Services ?

Statute/Rules

Two 28 +

RatesSame 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* CENVAT: 10.3 % + VAT;12.5 % Source: KPMG

ClassificationCommon across the country?Interpretations how to ensure uniformity?

ValuationTax base for both levels same ?Common across the country ?Interpretations how to ensure uniformity?MRP based and like should continue ?

Interstate TransactionsIntra-state and Inter-state Trade avoid double and no taxationGoodsServices Central Sales Tax Act abolition or modification?

Central Sales TaxSource: State finance report from RBI website; Budget speech 2007-08Budgetary support of Rs 5495 crore

*Manufacturer (Maharashtra)

Buyer (Maharashtra)

Buyer (Delhi)

CGST + SGSTIGST Proposed IGST Model

Sale price100Add: CGST (10 percent) 10Add: SGST (10 percent) 10Total120

Sale price120Add: IGST (20 percent) 24Total144IGST payable (24-10-10) 4IGST payable by utilising IGST, CGST, SGST

*Impact of taxing Inter-state stock transfers: IllustrationCompany A manufactures Product P which is stock transferred at INR 1000

Raw MaterialPre GSTPriceExcise (10%)VAT (12.5%) / CST (2%)Product X (local)4004055Product Y (inter-state)400408.8Total8008063.8

Raw MaterialPost - GSTPriceCGST (10%)SGST (10%)IGST (20%)Product X (local)4004040-Product Y (inter-state)400--80Total800404080

Input Tax CreditComprehensive for each levelCentral to Central and State to State Restrictions and limitations capital goods, consumables, promotional materials, fuel?Deemed sale transactionsInterpretations how to ensure uniformity ?

Proposed Credit utilisation under GST

Credit available for utilisationIGST

CGSTSGST

Output LiabilityIGST, CGST, SGST

CGST, IGST

SGST, IGST

Basic ExemptionCommon or different?For goods and servicesFor Central GST and State GSTBetween StatesShould apply on cumulative basis?

OthersIncentive Schemes RecordsAdvance RulingsAssessments / AuditsTransition provisions & More

*Taxable event sale / supply (for inter-state) / raising of invoice MRP scheme to be abolishedJob work arrangements - valuation, treatment of credit etcJob work whether supply of goods or service?Impact on high seas sales, exemption to in-transit sales?Transition related matters closing stock, accumulated credit Other Issues

Central Indirect Tax Regulatory Authority/GST Council formalization of EC... a possible solution ?

Road ahead what businesses ought to do?

*Changes in effective tax rates for supplies as well as purchasesTransactions/ Supplies which are currently exempt from tax may become liable to GST, and vice-versaInput taxes which are currently a cost may be eligible as credit in futureSpecial tax computation schemes, valuation provisions may be amended/ withdrawn What this transition will entail

Supply chain: Tax cost on sourcing/ distribution/ logisticsFinance: Impact on cash flows, project costsMarketing: Impact on product price, promotional schemesIT: Invoicing, returns, MIS reports

AssumptionsC-GST: 12 %S-GST: 8 %I-GST: 20 %Manufacturer-MahaCompute GST Liability

Basic Elements of GSTGST 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 servicesA 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. Imports would be subject to GST.

Basic Elements of GSTExports 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 - PreambleVAT / CSTGoverned under entry no. 54 of List II and entry no. 92A of the List I to the Seventh Schedule GSTGST will be governed under List I of the Seventh Schedule GST will be governed under List II of the Seventh Schedule OrPossible that both CGST and SGST will be governed under List III of the Seventh Schedule

VAT vs GST PreambleVAT / CSTArticle 286 lays down the principles for formulating the transactions relating to export / import / sale effected outside the State

GSTIt 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 PreambleTaxes most likely to be subsumed by GSTCentral Excise Service taxAdditional duty of customs VATEntry tax not in lieu of OctroiLuxury 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 PreambleVAT / CSTCurrently there are 29 State VAT laws

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 beGSTIt appears that even under GST regime there will be 29 SGST laws and one CGST law.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 - PreambleVAT / CSTVAT is not adopted in its pure formNo set-off is allowed on central sales tax paid and other State levies such as luxury tax, entry tax etcGSTSame will be the case even under GST regimeNo set-off will be allowed under other State leviesIt appears there will be certain restrictions in respect of allowing set-off of Central GST against State GST or vice versa. Further Customs duty paid may not be allowed as set-off under State GST.

VAT vs GST - PreambleVAT / Service Tax / ExciseUnder VAT law Goods are listed for the purpose of levy of taxesUnder Service Tax Taxable services are definedUnder Excise Law Excisable Goods are listed for the purpose of levy of taxesGSTUnder CGST / SGST Goods will be listed for the purpose of levy of taxes. This will be based on the HSN classificationServices will be defined as those which are not goods. The law will only list down the exempted services.

VAT vs GST - RegistrationVAT/CSTRegistration 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.GSTRegistration is mandatory underSGST threshold limits will be in the range of Rs. 10 lakhs. CGST threshold limits will be in the range of Rs. 10 lakhsTwo 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 ProvisionVAT / CSTTransitional 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 GSTTransitional 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 serviceVATApplicable on sale of goodsIt is an origin based levyThe rate of tax followed by different States are:1%, 4%, 7.5%,8%, 12.5%, 20%, 2%, 5%, 15% etc

GSTApplicable on both goods and servicesIn respect of goods, the SGST levy will be origin based whereas in respect of service tax the levy will be consumption based.The rate of tax that may be followed by different States are:Central GST - 8% to 10%, 0%, 1%, 4%, 20% and exemptState GST - 8% to 10%, 0%, 1%, 4%, 20% and exempt.

VAT vs GST Output tax / Output serviceVAT / CSTFew commodities are subject to tax under the KST law even after VAT is introduced.GSTIt 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 goodsThe 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 serviceVAT / CSTThe concept of HSN classification is not followed in totality.

Tax will be levied on sale priceGSTIt 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 serviceVAT / CSTDeclared 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 IGSTThe concept of declared goods may be continued even under the GST regime specifically under State GSTSame may be continued even under the GST regimeSimilar 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 serviceVAT / CSTWorks contract is a complex issue and subject to tax only in respect of goods sold.

Composition scheme is applicable for works contract

GSTPossible 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 SGST law may have composition scheme for small dealers, subject to threshold.

VAT vs GST Input tax / CENVAT creditVAT / CST No set-off against inter-State purchases

No set-off against duty paid under both Central Excise and Service TaxNo set-off against Customs duty paid

GSTSet-off may be permissible in respect of inter-State purchase since the IGST payable in the buying State will be subject to e-clearing home mechanism. Set-off may not be allowed in respect of customs duty under SGST.

VAT vs GST Input tax / CENVAT creditVAT / CSTPartial rebating is allowed in respect of goods used for both taxable and exempted

Stock transfer to a place outside the State - not liable to tax but subject to input tax restriction

GSTPartial rebating concept may be introduced even under the GST regime. There will be different formulae one needs to adopt for CGST and SGSTMajor 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 creditVAT / CSTInput tax credit in respect of specified capital goods is allowed immediately in few States.

Movement of capital goods from one State to another input tax credit is allowed partiallyGSTIGST set off may be allowed over a period of time;SGST May vary between the States

SGST May be allowed partially and be subject to restrictions

VAT vs GST General ExemptionVAT / CSTSale to SEZ unit / International OrganizationBased on white paper around 50 commodities were identified for the purpose of exemption GSTSame will continue even under the GST regimeSimilarly, 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 - AdministrationVAT / CSTVAT / CST law administered by one authority

Clarification / Notification issued by the authorities / Government is applicable only in the State

GSTState 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 - AdministrationVAT / CSTAssessee / Dealer is subject to various assessments, appeals etc.

Few States have abolished Advancing Ruling Authority

GSTEven 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 - AdministrationVAT / CSTIn 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 StateGSTThere will be clearing housing mechanism which will be adopted in the GST regime for inter-State transactions.

The concept of checkpost will be continued even under GST regime

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Presented By

CA Swatantra Singh, B.Com , FCA, MBA Email ID: singh.swatantra@gmail.com New Delhi , 9811322785, www.caindelhiindia.com, www.carajput.com

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