CONCEPT ON GOODS AND SERVICE TAX (GST)
GST Bill Officially known as the Constitution Bill 2014. GST is a significant step in reform of indirect taxation in India. GST is a comprehensive indirect tax leviable on manufacturing, sale and consumption of goods and services in India.
GST is levied only at the Destination point and not at all point from manufacturing to retail outlets. It is taxed only at the value addition at each stage and supplier at each stage is permitted to set off through tax credit mechanism which would eliminate all cascading effect. Under this structure all stages of production and distribution are interpreted merely as tax pass through and the tax essentially sticks on final consumption. Currently a manufacturer needs to pay tax when goods move out from the factory and it is again taxed at retail outlet when the goods are sold. This way tax is levied at various stages such as central sales tax, state sales tax, octroi etc. is replaced by GST introduced at central or state level.
All goods and services Subject to some exemptions and conditions will be bought in to GST base, There will be a no distinction between goods and services.
The existing CST will be discontinued and instead a new statue knows as IGST will come in to place
STRUCTURE OF GST IN INDIA:
INTRA STATE TAXABLE SUPPLY: Excise and service tax will be known as CGST.
Local VAT and other taxes will be known as SGST.
INTER STATE TAXABLE SUPPLY: CST will be replaced by integrated GST (IGST).
IMPORT FROM OUTSIDE INDIA: In this case custom duty like CVD, SAD etc. IGST will be charged
ROAD TO GST- MILESTONES:
In 2006 first time the announcement of the intent to introduce GST by 01.04.2010 was made. In November 2009 –First discussion paper (FDP) released by EC on which comments were provided by government of India .In June 2010 three sub-working groups were created by government of India on :
Business process related issues Drafting of central GST and model state GST legislations Basic design of IT system required for GST in general and IGST in particular
Then In 2011 Constitution (115th amendment) Bill introduced in parliament. In November 2012 a committee on GST design constituted by EC. And later on in February 2013 Three committee constituted by EC :
1) Dual control, thresholds and exemptions in GST regime 2) RNRs for SGST AND CGST and place of supply rules 3) IGST and GST on imports
In March 2013 – GSTN incorporated as sec 25 company. June 2013 – committee constituted by EC to draft model GST law August 2013 – standing committee on finance submitted report April 2014 – Committee Constituted by EC to examine a business process under GST December 2014- 122nd constitutional amendment bill introduced in parliament
1) GST is a transparent tax and also reduce number of indirect taxes. Customer will know exactly how much tax they are paying on the product they bought and services they consumed.
2) GST can also help in diversification of income sources for government other than income tax and petroleum tax
3) Under GST tax burden will be divided equally between manufacturing and services. This can be done through lower tax rate by increase tax base and reducing exemptions
4) Multiple taxes like octroi, central sales tax, state sales tax , entry tax, turnover tax , entertainment tax etc. will no longer be present and all that will be bought under GST
5) IT is a simple tax system which makes business easier and more comfortable as various hidden taxation will not be present like entry tax, entertainment tax, turnover tax etc.
6) GST has improved the compliance and has boost revenue collection by broadening of tax base.
7) It mitigates cascading effect and makes efficient use of resources
8) Under GST system central and sate GST will be charged on manufacturing cost and will be collected at the point of sale. This will help in reducing the prices which in turn will help the companies as consumption will increase.
1) GST shall have two component one levied by the central and the other levied by the states .Rates for GST would be prescribed appropriately reflecting revenue consideration and acceptability.
2) IGST is applicable on the import of goods & services and inter-state stock transfer of goods & services and is levied and collected by the central.
3) GST model would be implemented by multiple statue one for CGST and SGST for every state. However basic feature of law such as chargeability, definition of taxable event and taxable person etc. would be uniform across these statues.
4) The central GST and the state GST would be applicable to all transaction of goods and services made for a consideration except the exempted goods and services.
5) The central and state GST are to be paid to the account of the central and state government separately.
6) Since the central GST and state GST are to be treated separately, taxes paid against the central GST shall be allowed to be taken as input tax credit for the central GST and could be utilized only against the payment of central GST. The same principle would be applicable for the state GST.
7) Cross utilization of ITC between the central GST and state GST would not be allowed except in the case of inter- state supply of goods and services under the IGST model
8) The taxpayer would need to submit periodical return, in common format as far as possible , to both central GST authority and to the concerned state GST authorities
9) Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN – linked system in line with the prevailing PAN base system for income tax facilitating data exchange and taxpayer compliance.
10) Export of goods and services are zero rated.
FEATURES OF PROPOSED PLACE OF SUPPLY RULES:
1) Rules to B2B supplies and B2C supplies are different.
2) Place of supply for B2B supplies should normally be the location of recipient of good or services and not where the services are actually performed.
3) Rules for B2B supplies should be so such that input tax credit should be available to recipient.
4) Place of supply rule should be guided by principles that tax revenue at intermediate stage does not accrue to any tax administration as they are merely wash transaction
5) Place of supply rules should be guided by principles that tax revenue accrue only when the goods and services are consumed by final consumer.
6) Place of service rule should take care of situation where intangibles are ordered from location other than the location where they are consumed.
INTEGRATED GOODS AND SERVICE TAX (IGST):
IGST is introduced to monitor the inter-state trade of goods and services.
IGST model envisage levy of IGST by the central on all the transaction during inter-sate taxable supplies.
IGST model permits cross-utilization of credit of IGST, CGST &SGST for paying IGST unlike intra state supply where the CGST/SGST can be utilized only for paying CGST/SGST respectively.
IGST credit can be utilized for the payment of IGST, CGST and SGST in sequence by importing dealer for supplies made by him.
IGST model envisages that the centre will levy tax at a rate approximately equal to CGST &SGST rate on inter-sate supply of goods and services.
IGST model obviates the need for refunds to exporting dealer as well as the need for every states to settle account with every other states.
The exporting state will transfer to the centre the credit of SGST used for payment of IGST and the centre will transfer to the importing state the credit of IGST used for payment of SGST thus the central government will act as a clearing house and transfer the funds across the states.
MR A (based in Maharashtra) supplied goods to MR. B (Based in Gujarat) and paid 17% IGST. MR A has input credit of CGST 8% and SGST 8% from local purchases so he paid only 1% to CG account. Maharashtra will transfer to centre 8% SGST used for payment of IGST.
MR B (Based in Gujarat) who had purchased those goods supplied the same locally to MR. C (Based in Gujarat) and liable to SGST 10% AND CGST 8%. He will utilize credit of IGST of 17% first for CGST (8%) and balance for SGST (9%) and will pay 1% in cash. Gujarat government where goods are consumed is entitled to get destination based tax i.e. SGST. Centre will transfer 9% IGST credit used for payment of SGST to Gujarat.
Maharashtra government in this transaction will Not get any tax since it is a inter- state supply from Maharashtra to Gujarat.
Gujarat government will get 10% SGST for import of good (9% from central government and 1% paid as cash by MR. B)
Central government will get 9% IGST on inter-state supply of goods to Gujarat (8% from Maharashtra government and 1% paid as cash by MR A )
TAX PROPOSED TO BE SUBSUMED IN GST:
Excise duty Additional excise duty Excise duty under medical and toilet preparation act Service tax Additional custom duty commonly known as countervailing duty(CVD), Special additional duty Surcharge Cess
Value added tax (VAT) Entertainment tax Luxury tax Tax on lottery, betting and gambling Entry tax other than for local bodies
Following tax shall not be subsumed in GST:
Purchase tax Octroi duty Tax on alcoholic beverages Tax on petroleum product Tax on tobacco item
EXPECTATION OF THE INDUSTRY FROM GST:
1) GST is expected to favour more foreign investment in India and will drive global companies to set up manufacturing facilities in India .
2) Proper mechanism need to be introduced so that dealer get input credit for any GST levied on interstate transaction. This would avoid cascading effect.
3 ) Industrial expectation would be of a rates of taxes, definitions and provisions, granting of registration , filling of return, scrutiny of return , audit, appeal etc. across the states.
4)It has been expected from GST to increase the tax revenue through growing business &to support the businesses with the clarity on taxation matter and ease of doing business.
A fully computerized tax administration & Compliance system under the proposed GST shall ensure the voluntarily compliance & healthy business environment. This will boost up the the Digital India initiative of the government
5) GST being a single tax levied now in place of VAT, Service tax, Central excise duty etc. it is expected that the refund or the credit as the case may be , will be obtained soon which will decrease the blocking of working capital.
6) For the smooth or successful operation, it is recommended that any changes in any rate and other provision should be made only with mutual agreement between the central or state government
REGISTRATION AND RETURNS UNDER GST:
Each taxpayer would be allotted a PAN linked identification number with a total of 13-15 digits. This would bring the GST PAN-linked system in line with in existing PAN based system for income tax facilitating data exchange and taxpayer compliance.
The taxpayer would need to submit periodic return to both the central GST authority and to the concerned state GST authority. ITC credit can also be verified on the basis of return filed and revenues reconciled against challan data from bank.
CHALLENGES IN GST:
1) Constitutional amendment bill is required to be passed in both the house of parliament. The CG has full majority in lok sabha however a lot depend on how the CG will ensure safe passage of the bill in rajya sabha , where it does not have the sufficient majority.
2) To get the GST bill passed by the respective state government in state assemblies the CG with Empowered committee of state finance ministers would have to have the same zeal in passing of the bill in majority states of country.
3) The CG and EC would require to put the GST bill in public domain and give sufficient time to all stakeholder to comprehend and give their views on the bill.
4) The Constitutional Bill has also passed to insert a new article 279A on formation of GST council consisting representation of centre and states The GST council consist of union finance minister as a chairperson, union minister of states in charge of finance as a member, the state finance minister or state revenue minister as a member of the council and the state FM shall select one of them as a vice-chairperson of the council.
5) The large part of success of GST in the country would depend on two prominent factor- one RNR and another threshold limit for GST.
In the GST regime , the government revenue would not remain the same as compared to the current tax system. Hence through RNR the government will try to adjust tax in such a way that its revenue remain the same despite of giving tax credit on input and input services. Hence RNR is the rate at which there will be no revenue loss to the government after implementation of GST.
As we know the current average CENVAT rate is 12% , service tax rate is 12% and the average VAT rate is between 12.5% to 13% across the states. Hence even in the current tax structure, indirect tax component is anywhere between 25% to 28% which is high as compare to another countries.
6 ) Current threshold limit under central excise duties is RS 1.50 lacs and that under service tax is RS 10 lacs. Whereas the threshold limit under state VAT is between 10 lacs to 20 lacs.
Threshold limit of turnover for dealer under GST is the major bone of contention between CG and EG. On one hand EC is in the favour of lowering the threshold limit, while the centre at the other end is of the view that the threshold for levying central GST and the state GST be kept at RS. 25 lacs.
7) The success of GST would greatly depend upon the robust IT backbone connecting all state government , trade and industry, bank and other stakeholders on real time basis. Towards this end the government has already incorporated an SPN viz.- goods and service tax network and is functional since last two years. On the effective network front , GSTN has to develop GST portal- front end system for trade and industry and back end system for all government agencies .GSTN has to develop GST support for registration , return filling and other dashboards on GST portal to all the stakeholder. GSTN has yet to come out with business model compatiable to trade and industry practices.
8) One of the key challenges for GST is on taxation of inter-state supplies of goods and services as we know taxable event of manufacture and sale of good and services. As we know taxable event of manufacture and sale of good under the present indirect taxation would be done away with, and therefore it would be essential to prepare comprehensive rules for identifying the time and the place of supplies of good and services in order to tax them appropriately.
9) GST is absolutely different from existing age-old indirect taxation system being followed in the country. For effective implementation of GST, tax administration staff – both at central and state level would require to be trained properly in terms of concept, legislation and procedure. The tax administration staff would also require to change their mindset, approach and attitude towards the tax payer.
FEATURE OF CONSTITUTIONAL AMENDMENT BILL:
1) The bill proposes that both the central and state would be entitled to concurrently impose GST on the supply of goods and services within a state effectively, every supply of goods and services would be subject to central and state GST on such inter-state supply by the jurisdictional state.
2) When the supply of goods and services is between states as an ‘inter-state’ transaction , a levy called integrated goods and service tax would be levied by the centre.
3) Import is intended to be treated at par with inter-state transaction and therefore should attract integrated goods and service tax. it is unclear if such IGST would apply the complete exclusion to the current custom duty regime. Similarly exports have not given similar treatment.
4) The bill empowers the formulation of principles to determine when the supply of goods and service would constitute an inter-state transaction for IGST to apply
5) Though IGST on inter-state supply of goods and services would be imposed by central government, IGST revenue should be shared between the central and the state as per the recommendation of the GST council.