TOWARDS GST

CA. SANJEEV MALHOTRA, skm123@vsnl.com

Expectations from GST

• Abolition of multiple types of taxes.

• One or two floor rate of taxes.

• Removes cascading effect.

• Neutral to Business models and processes

• Zero rating of exports and inter state sales.

• Common law and procedure

• Single administration.

Decisions till date

• Dual GST structure– CGST and SGST.

• Rate of tax– 16-18% total– 4% on manufacturing inputs (Desired).

• Service tax levy by States.

International Experience

• Canada Model– Dual GST– Central Level GST extending to all goods and

Services.– In addition there is tax at Provincial level in

different forms.

International Experience – Contd.

• European Union (EU) Model– EU is akin to a country and nations akin to

States.– All have agreed to adopt common principles to

tax goods and services.– EU has only state level VAT.– Special Rules for inter member state

transactions.

Central Taxes

• Central GST will subsume following Central Taxes.– Central Excise Duty and AED– Additional Customs duty (in nature of countervailing duty)

– CVD or other taxes (imposed on imports for level playing.)

– Cess levied by Union– Surcharge levied by Union– Service Tax levied under Finance Act 1994

State Taxes

• State GST will subsume the following taxes.– State VAT – Purchase Tax– State Excise duty– Entertainment tax– Luxury tax– Octroi– Entry tax in lieu of Octroi– Taxes on Lottery etc.– Tax on consumption or sale of electricity

GST Administration

• CGST by Union department and SGST by State Revenue deptt.

• Cases with turnover upto 1.5 crores exclusively with State Revenue deptt.

• Union to deal only with Enterprises having Pan India presence.

• Routine matters with State and monitoring with Union.

Inter State Sale under GST

• Likely subject to tax at rates applicable to sale within State.

• Input tax credit likely to be eligible in destination state.

• Modalities of collection, remittance of tax and mechanism for availment of ITC yet to be worked out.

Stock transfer under GST

• Likely to be same as Inter State Sale with Input tax Credit in destination State.

Imports under GST

• CVD as at present to continue with Credit of CVD to importer.

• Tax equal to State GST to be levied.

• Modalities of tax collection and distribution are being worked out.

Exports under GST

• Continue to be zero rated as at present.

• Input Tax Credit will be eligible for adjustment or Refund.

Implementation Status

• State Governments concern of revenue loss not addressed yet.

• I.T infrastructure not ready yet.

• Reqd. Constitutional amendments.

• WILL THERE BE PARTIAL ROLL OUT WITH SOME STATES OPTING OUT?

Prerequisites for Success of GST

• Dematerialization of Forms C and F (if not dispensed)

• Single Return for Central GST and State GST.

• Uniform State GST legislations.• Uniform procedures and return formats.• Tax Administration to be faceless.• Disposal of all pending work under present

Acts.

Issues and Concerns

• Will states continue to refund unutilised ITC ? – not likely.

• Carry over of transition CENVAT / ITC.• Supply to Government / Charitable institutions.• Treatment of existing tax concessions.• Threshold limit for registration under Central and

State GST.• Continuance of Composition Schemes.• Classification of Goods.• Exemption to goods and services – will it be

uniform across states.

Challenges Ahead

• Is Central & State Administrations ready?

• Efficient computerisation essential to track & monitor inter state sale and availment of credit. – Verification Agency.

• Educating officials at grass root level.

• Efficient and fast system of Advance Ruling and Dispute resolution.

• Educating all stake holders.

GST Transition planning – Impact Analysis

• Transition will pose significant challenges to trade and industry.

• Impact can not be generalised. – Needs to be analysed on individual business model.

• Marginal impact on small organisations procuring and selling within State.

• Impact will be substantial on organisations with multi locational operations in India.