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SALIENT FEATURES OF SALIENT FEATURES OF GOODS & SERVICE TAX (GST)GOODS & SERVICE TAX (GST)

AtAt By By Residential Refresher CourseResidential Refresher Course Dr. Sanjiv Dr. Sanjiv AgarwalAgarwalOrganized by ICAI – CMI Organized by ICAI – CMI FCA, FCS, FCA, FCS, Hosted by Goa Branch of WIRC Hosted by Goa Branch of WIRC Jaipur Jaipur June, 2012 June, 2012

© Dr. Sanjiv Agarwal© Dr. Sanjiv Agarwal

SALIENT FEATURES OF GOODS & SALIENT FEATURES OF GOODS & SERVICE TAX (GST)SERVICE TAX (GST)

This Presentation Covers :This Presentation Covers :• Indian Economy- An overviewIndian Economy- An overview• Taxonomy of Indian taxationTaxonomy of Indian taxation• Present – tax system suffer fromPresent – tax system suffer from• Need for GST Need for GST • GST- Journey so farGST- Journey so far• What is GST and its key featuresWhat is GST and its key features• GST- Global perspectiveGST- Global perspective• GST- How it works ?GST- How it works ?• GST - Issues yet to be decidedGST - Issues yet to be decided

Indian Economy – An Indian Economy – An overviewoverview• India’s economy is the 11India’s economy is the 11thth largest economy in the largest economy in the

world and the third largest by purchasing power world and the third largest by purchasing power parity (PPP)parity (PPP)

• G-20 major economies and a member of BRICSG-20 major economies and a member of BRICS• World is presently facing recession-II but Indian World is presently facing recession-II but Indian

economy is still better than comparable economies. economy is still better than comparable economies. • Agriculture, services and industry are the major Agriculture, services and industry are the major

sector of India an economy. Contribution of different sector of India an economy. Contribution of different sectors in March, 2012 was :sectors in March, 2012 was :

•Agriculture 19%Agriculture 19%•Services 59%Services 59%• Industry 22%Industry 22%

to be contdto be contd…….…….

GDP CO MPO SITIO N IN MARCH, 2012

Agriculture19%

Industry22%

Service Sector59%

Indian Economy – An Indian Economy – An overviewoverview

Growth in Tax GDP Ratio – Growth in Tax GDP Ratio – Slow but SteadySlow but Steady

Years Tax GDP ratioYears Tax GDP ratio

2003-04 9.2%2003-04 9.2%

2007-08 11.9% 2007-08 11.9%

2009-102009-10 9.7% 9.7%

2010-11 10.3%2010-11 10.3%

2011-12 10.1%2011-12 10.1%

Power to Tax in IndiaPower to Tax in India• Central Government and the State Governments under Part XI of Indian Central Government and the State Governments under Part XI of Indian

Constitution have power to levy taxes.Constitution have power to levy taxes.• Legislative power v Administrative power Legislative power v Administrative power • Legislative power has three lists:-Legislative power has three lists:-

Union list,Union list, States list and States list and Concurrent listConcurrent list

• Administrative power – CBDT, CBECAdministrative power – CBDT, CBEC• Union list consists of 100 items -Parliament has exclusive power to levy Union list consists of 100 items -Parliament has exclusive power to levy

Tax.Tax.• State list consists of 66 items -Individual states have exclusive authority to State list consists of 66 items -Individual states have exclusive authority to

levy Tax. levy Tax. • Concurrent list consists of 47 items - both governments can levy tax.Concurrent list consists of 47 items - both governments can levy tax.

to be contd……..to be contd……..

Power to Tax in IndiaPower to Tax in India• India has a two tier federal power to collect tax –India has a two tier federal power to collect tax –

the Union Government, the Union Government, the State Governments the State Governments includingincluding urban/rural urban/rural

local bodieslocal bodies• Presently goods are liable to Vat / Excise / Customs Presently goods are liable to Vat / Excise / Customs

duty while taxable services attract service tax. duty while taxable services attract service tax. • Certain transactions subject to both - Vat and Certain transactions subject to both - Vat and

Service taxService tax• Efforts to revamp the direct tax structure - New Efforts to revamp the direct tax structure - New

direct tax code (Income Tax Act, 1961 & Wealth Tax direct tax code (Income Tax Act, 1961 & Wealth Tax Act, 1957 would be scrapped) proposedAct, 1957 would be scrapped) proposed

• Efforts to bring on a single indirect tax – GST Efforts to bring on a single indirect tax – GST

proposedproposed

Taxonomy of Indian TaxationTaxonomy of Indian TaxationTAXATION POWERS OF UNIONTAXATION POWERS OF UNION

Income Tax – on income, except agricultural

incomeExcise Duty – on goods manufacturedCustom Duty – on importsService Tax – on specified servicesCentral Sales Tax – on inter-state sale of goodsStamp Duty – on 10 specified instruments To be contd…..

Taxonomy of Indian TaxationTaxonomy of Indian Taxation

TAXATION POWERS OF STATETAXATION POWERS OF STATE

VAT / Sales Tax - on sale of goods, other than VAT / Sales Tax - on sale of goods, other than newspapers newspapers Stamp Duty - on other than 10 specified instruments Stamp Duty - on other than 10 specified instruments

Tax Tax - - on agricultural income on agricultural incomeToll tax Toll tax - on utilities - on utilitiesOther taxes Other taxes - - onon

Land and buildingsLand and buildings Entry of goods in local Area (Entry Entry of goods in local Area (Entry Tax or Tax or Octroi)Octroi) Consumption or sale of electricityConsumption or sale of electricity

VehiclesVehicles Luxuries including taxes on Luxuries including taxes on entertainment, entertainment, BBetting and gamblingetting and gambling

Alcoholic Liquor, Narcotic Drugs Alcoholic Liquor, Narcotic Drugs and and OpiumOpium

Present – tax sPresent – tax systemystem suffer suffer fromfrom

Confusion and MistrustConfusion and Mistrust Complex and lacking in stabilityComplex and lacking in stability Hidden tax on exports, no state tax on importsHidden tax on exports, no state tax on imports High transaction costsHigh transaction costs Narrow baseNarrow base High compliance costHigh compliance cost To much litigationsTo much litigations Lack of harmony and inter state practicesLack of harmony and inter state practices Highly corruptionHighly corruption

Goods & Service Tax (GST)Goods & Service Tax (GST)

A Common Tax onA Common Tax on

Goods Services

Pre-requisites for migrating to Pre-requisites for migrating to a GST regime a GST regime

• Setting up of empowered committee for GST (like VAT) which can Setting up of empowered committee for GST (like VAT) which can steer the road map into action - steer the road map into action - donedone

• Broaden the tax base for excise duty (presently 40% comes from Broaden the tax base for excise duty (presently 40% comes from petroleum products) – petroleum products) – being donebeing done

• Finishing area based and product based exemptions – Finishing area based and product based exemptions – being donebeing done• Rationalization of concessions and exemptions including that on Rationalization of concessions and exemptions including that on

exports – exports – being donebeing done• Expanding service tax to almost all services – Expanding service tax to almost all services – now proposednow proposed• Common/unified tax rate for goods and services which may be Common/unified tax rate for goods and services which may be

ideally, revenue neutral (a suitable GST rate) – ideally, revenue neutral (a suitable GST rate) – dual tax proposeddual tax proposed• Avoiding or minimizing differential tax rates – Avoiding or minimizing differential tax rates – under discussionsunder discussions• Abolition of other small taxes - Abolition of other small taxes - under discussionsunder discussions• Abolition of CST in a phased manner - Abolition of CST in a phased manner - being donebeing done• Power to levy service tax on select/agreed services to States - Power to levy service tax on select/agreed services to States -

under discussionsunder discussions• Issue of inter-State services and goods movement vis-à-vis levy of Issue of inter-State services and goods movement vis-à-vis levy of

duty or tax to be sorted out - duty or tax to be sorted out - under discussionsunder discussions• Revenue sharing mechanism to be rationalized - Revenue sharing mechanism to be rationalized - under discussionsunder discussions

GST - Journey so farGST - Journey so far

Feb, 2006 : First time introduced concept of GST and announced the date of Feb, 2006 : First time introduced concept of GST and announced the date of its implementation in 2010its implementation in 2010

Jan. 2007: First GST study by ASSOCHAM released by Dr. Shome Jan. 2007: First GST study by ASSOCHAM released by Dr. Shome Feb. 2007: F.M. Announced introduction of GST from 1 April 2010 in BudgetFeb. 2007: F.M. Announced introduction of GST from 1 April 2010 in Budget

April 2007 : CST phase out started - April 2007 : CST phase out started - CST reduced to 3%, currently CST reduced to 3%, currently 1%1%

May 2007: Joint Working Group formed by ECMay 2007: Joint Working Group formed by EC Nov. 2007: Joint Working Group submits report Nov. 2007: Joint Working Group submits report April 2008 : Empowered Committee (EC) finalizes views on GST Structure April 2008 : Empowered Committee (EC) finalizes views on GST Structure July 2009: FM announces commitment to bring GST from April 2010July 2009: FM announces commitment to bring GST from April 2010 Consultation on interstate services in progressConsultation on interstate services in progress

to be contd……to be contd……


Budget 2010Budget 2010– to achieve the roll out of GST by April 2011 to achieve the roll out of GST by April 2011 – Revamping of indirect tax administration at centre/ Revamping of indirect tax administration at centre/

states internal work processes based on use of states internal work processes based on use of information technology - massive information technology information technology - massive information technology (IT) platform (IT) platform

– project ‘ACES- Automation of Central Excise and Service project ‘ACES- Automation of Central Excise and Service Tax’ rolled out Tax’ rolled out

– rate of service tax retained at ten per cent rate of service tax retained at ten per cent – states to revamp their internal work processes states to revamp their internal work processes

to be contd…to be contd………


Budget 2011 Budget 2011 • non-committal on timing and roll out but the Government keen to bring in non-committal on timing and roll out but the Government keen to bring in

Constitutional Amendment Bill Constitutional Amendment Bill • overall amendments targeted towards moving close to harmonize with GST overall amendments targeted towards moving close to harmonize with GST

regime in future regime in future • major highlights of budget discussions/proposals on GST – major highlights of budget discussions/proposals on GST –

DTC and GST to mark a water shedDTC and GST to mark a water shed Decisions on GST to be taken in concert with the statesDecisions on GST to be taken in concert with the states Areas of divergence between centre and states narrowedAreas of divergence between centre and states narrowed Constitutional Amendment Bill likely to be introduced in current sessionConstitutional Amendment Bill likely to be introduced in current session Drafting of model legislation for central and state GST underway Drafting of model legislation for central and state GST underway Establishment of IT infrastructure in process (GST network) Establishment of IT infrastructure in process (GST network) NSDL selected as technology partner for GSTNSDL selected as technology partner for GST Tax rates maintained at same level of 10% to stay on course towards STTax rates maintained at same level of 10% to stay on course towards ST Certain central excise rates changed to prepare the ground for transition to Certain central excise rates changed to prepare the ground for transition to

GST by reducing number of exemptionsGST by reducing number of exemptions Nominal central excise duty of 1% imposed on 130 items, no Cenvat credit Nominal central excise duty of 1% imposed on 130 items, no Cenvat credit

allowed on such items.allowed on such items.• In service tax, proposals aim to achieve a close fit between the present service In service tax, proposals aim to achieve a close fit between the present service

tax regime and GST.tax regime and GST.


Budget 2012Budget 2012• No announcement on GST rollout date No announcement on GST rollout date

• GST to be implemented in consultation with the States at the earliest GST to be implemented in consultation with the States at the earliest

• GST network (GSTN) likely to be in place from August, 2012GST network (GSTN) likely to be in place from August, 2012

• GSTN will implement common PAN based registration, return filing GSTN will implement common PAN based registration, return filing and processing of payments for centre and all states on a shared and processing of payments for centre and all states on a shared platform.platform.

• Bringing closer of Service Tax and Central Excise for transition to GST Bringing closer of Service Tax and Central Excise for transition to GST

• Drafting of modal legislation for CGST and SGST under progress.Drafting of modal legislation for CGST and SGST under progress.

• Common forms for Service Tax and Central Excise registration and Common forms for Service Tax and Central Excise registration and return proposed.return proposed.

• Place of Supply Rules, 2012 to trigger debate to assess issues that Place of Supply Rules, 2012 to trigger debate to assess issues that may arise in taxation of inter state services for eventual launch of may arise in taxation of inter state services for eventual launch of GST. GST.

The Journey – beginning of The Journey – beginning of endend Past Now Future

National GST Dual GST ???????

Past Now Future

GST today – Need & AdvantagesGST today – Need & Advantages

• As a developing country, India needs a transparent & unambiguous tax structure As a developing country, India needs a transparent & unambiguous tax structure • A complex tax structure with multiple rates of taxesA complex tax structure with multiple rates of taxes• Multiple taxes across the supply chainMultiple taxes across the supply chain• High transaction cost in the hands of the tax payersHigh transaction cost in the hands of the tax payers• Increased tax collections due to wider tax base and better complianceIncreased tax collections due to wider tax base and better compliance• Improvement in international cost competitiveness of indigenous goods and services.Improvement in international cost competitiveness of indigenous goods and services.• Enhancement in efficiency in manufacture and distribution due to economies of scaleEnhancement in efficiency in manufacture and distribution due to economies of scale• GST encourages an unbiased tax structure that is neutral to business processes, business GST encourages an unbiased tax structure that is neutral to business processes, business

models, organization structure, product substitutes and geographical locationsmodels, organization structure, product substitutes and geographical locations• Helping as a weapon against corruptionHelping as a weapon against corruption• GST operates on a negative list i.e. all goods and services are subject to GST unless GST operates on a negative list i.e. all goods and services are subject to GST unless

specifically exemptedspecifically exempted

to be contd…..to be contd…..

•


• Nature of complexities i.e. classification to valuation Nature of complexities i.e. classification to valuation regarding taxability, exist in the present structure. regarding taxability, exist in the present structure.

Some of such burning issues are:Some of such burning issues are: Excise on MRPExcise on MRP Excise, VAT and Service Tax on Software,Excise, VAT and Service Tax on Software,VAT & Service tax on:VAT & Service tax on:

• Works ContractsWorks Contracts• Right to UseRight to Use• Composite Contracts such as AMC transactions Composite Contracts such as AMC transactions

to be to be contd…..contd…..


• Tax cascading effect –Tax cascading effect –

Central Sales Tax (CST) on inter-state sales, collected Central Sales Tax (CST) on inter-state sales, collected by the origin state and for which no credit is allowed by the origin state and for which no credit is allowed by any level of government – being phased out nowby any level of government – being phased out now

Real estate transactions are outside the scope of Real estate transactions are outside the scope of both VAT and CENVATboth VAT and CENVAT

Exempt sectors are not allowed to claim any credit Exempt sectors are not allowed to claim any credit for the CENVAT or the service tax paid on their inputsfor the CENVAT or the service tax paid on their inputs

What is GSTWhat is GST

• GST is a comprehensive value added tax on goods and servicesGST is a comprehensive value added tax on goods and services• It is collected on value added at each stage of sale or purchase in the supply chain It is collected on value added at each stage of sale or purchase in the supply chain • No differentiation between Goods and Services as GST is levied at each stage in the No differentiation between Goods and Services as GST is levied at each stage in the

supply chainsupply chain• Seamless input tax credit throughout the supply chainSeamless input tax credit throughout the supply chain• At all stages of production and distribution, taxes are a pass through and tax is borne by At all stages of production and distribution, taxes are a pass through and tax is borne by

the final consumerthe final consumer• All sectors are taxed with very few exceptions / exemptionsAll sectors are taxed with very few exceptions / exemptions• Full tax credits on inputs – 100 % set off Full tax credits on inputs – 100 % set off • In most countries, a single VAT exists which covers both goods and services.In most countries, a single VAT exists which covers both goods and services.• Typically it is a single rate VAT but two - three rate VAT systems are also prevalent – Typically it is a single rate VAT but two - three rate VAT systems are also prevalent –

India will be following multi rate / multi tier taxIndia will be following multi rate / multi tier tax• Canada and Brazil alone have a dual VATCanada and Brazil alone have a dual VAT• Standard GST rate in most countries range between 15-20 percent Standard GST rate in most countries range between 15-20 percent • GST exists in over 140 countries .GST exists in over 140 countries .

GST : GST : PProposed Key Featuresroposed Key Features

Dual GST : Central GST & State GSTDual GST : Central GST & State GST Destination based State GSTDestination based State GST Common BaseCommon Base Uniform ClassificationUniform Classification Uniform Forms – Returns, ChallansUniform Forms – Returns, Challans ( in electronic mode) ( in electronic mode) No cascading of Central and State taxesNo cascading of Central and State taxes Cross credit between Centre and State not allowedCross credit between Centre and State not allowed Tax levied from production to consumptionTax levied from production to consumption

to be contd……..to be contd……..

GST : GST : PProposed Key Featuresroposed Key Features

HSN to be applied for goods HSN to be applied for goods

One Common return for both Central and State GST One Common return for both Central and State GST

Uniform collection procedure for central and state GSTUniform collection procedure for central and state GST

13 digit PAN based Common TIN registration13 digit PAN based Common TIN registration

TINXSYS ( Tax Information Exchange System) to track transactions TINXSYS ( Tax Information Exchange System) to track transactions

States to collect CGST for SSI < 150 L and transfer to Central GovernmentStates to collect CGST for SSI < 150 L and transfer to Central Government

Balance of Fiscal Autonomy to Center and States and need for Balance of Fiscal Autonomy to Center and States and need for

HarmonizationHarmonization

Goods & Service Tax - GSTGoods & Service Tax - GST

• GST is expected to be more efficient system of GST is expected to be more efficient system of taxationtaxation

• Boost to the revenues of the Centre and statesBoost to the revenues of the Centre and states

Years Excise Service TaxYears Excise Service Tax

2000-012000-01 68,282 2,612 68,282 2,612

2010-112010-11 1,37,427 70,391 1,37,427 70,391

2011-12 1,50,600 95,0002011-12 1,50,600 95,000

2012-13 (target) 1,94,350 1,24,0002012-13 (target) 1,94,350 1,24,000

Taxes proposed to be subsumed in Taxes proposed to be subsumed in

GSTGST Central TaxesCentral Taxes

– Excise DutyExcise Duty– Additional Excise dutyAdditional Excise duty– Excise duty under medicinal and toilet preparation ActExcise duty under medicinal and toilet preparation Act– Service TaxService Tax– Additional Custom duty commonly kAdditional Custom duty commonly known as countervailing duty (nown as countervailing duty (CVD), special CVD), special

additional duty( SAD)additional duty( SAD)– SurchargeSurcharge– CessCess

State TaxesState Taxes– Value added tax (VAT)Value added tax (VAT)– Entertainment tax levied by statesEntertainment tax levied by states– Luxury TaxLuxury Tax– Tax on Lottery, betting and gambliTax on Lottery, betting and gamblingng– Entry tax other than for local bodiesEntry tax other than for local bodies– State surcharge Cess / State surcharge Cess /


Taxes proposed to be subsumed in Taxes proposed to be subsumed in GSTGST

State governments still not have consensus on following State governments still not have consensus on following taxes to be subsumed in GST –taxes to be subsumed in GST –

• Purchase taxPurchase tax

• Octroi dutyOctroi duty

• Tax on alcoholic beverages (country liquor / IMFL)Tax on alcoholic beverages (country liquor / IMFL)

• Tax on petroleum productsTax on petroleum products

• Tax on tobacco itemsTax on tobacco items

GST- WHAT ALL IT WILL INCLUDEGST- WHAT ALL IT WILL INCLUDE

• A sale or supply includes a sale of goodsA sale or supply includes a sale of goods

• Lease of premisesLease of premises

• Hire of equipmentHire of equipment

• Giving adviceGiving advice

• Export of goods and supply of other things. Export of goods and supply of other things.

• A purchase includes an acquisition of goods or services such as A purchase includes an acquisition of goods or services such as trading stock a lease, consumables and other things.trading stock a lease, consumables and other things.

GST : Global PerspectiveGST : Global Perspective• More than 140 countries have introduced GST. More than 140 countries have introduced GST. • It has been a part of the tax landscape in Europe for the past 50 It has been a part of the tax landscape in Europe for the past 50

years.years.• It is fast becoming the preferred form of indirect tax in the Asia-It is fast becoming the preferred form of indirect tax in the Asia-

Pacific region.Pacific region.• It is interesting to note that there are over 40 models of GST It is interesting to note that there are over 40 models of GST

currently in force, each with its own peculiarities. currently in force, each with its own peculiarities. • While countries such as Singapore and New Zealand tax virtually While countries such as Singapore and New Zealand tax virtually

everything at a single rate, Indonesia has five positive rates, a zero everything at a single rate, Indonesia has five positive rates, a zero rate and over 30 categories of exemptions.rate and over 30 categories of exemptions.

• In China, GST applies only to goods and the provision of repairs, In China, GST applies only to goods and the provision of repairs, replacement and processing services. replacement and processing services.

• It is only recoverable on goods used in the production process, and It is only recoverable on goods used in the production process, and GST on fixed assets is not recoverable. GST on fixed assets is not recoverable.

• There is a separate business tax in the form of VAT. There is a separate business tax in the form of VAT.


GST- RATES WORLD WIDEGST- RATES WORLD WIDE

Country GST RatesChina - 17% Indonesia - 10% Philippines - 10% Taiwan (Chinese Taipei) - 5% Australia - 10% Germany - 16% Denmark - 25%Japan & Singapore - 5%UK - 17.5%France - 19.6%New Zealand - 12.5%

to be contd…..

GST : Global PerspectiveGST : Global Perspective• Goods and Services Tax in CanadaGoods and Services Tax in Canada

• GST is a multi-level value added tax introduced on January 1, 1991. GST is a multi-level value added tax introduced on January 1, 1991. • The GST replaced a hidden 13.5% Manufacturers’ Sales Tax (MST). The GST replaced a hidden 13.5% Manufacturers’ Sales Tax (MST). • As of May 18th, 2010, the GST rate is 5% and some goods & services As of May 18th, 2010, the GST rate is 5% and some goods & services

are exempt from GST zero-rated goods & servicesare exempt from GST zero-rated goods & services• Model has helped the Canada’s economyModel has helped the Canada’s economy to beto be more efficient and more efficient and

competitive competitive • Goods and Services Tax in JapanGoods and Services Tax in Japan

• In Japan, VAT or GST is known as Consumption Tax (CT) introduced In Japan, VAT or GST is known as Consumption Tax (CT) introduced in January 1989. in January 1989.

• It requires re-calculation and payments to the tax authorities at each It requires re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.transaction point in the onward sales chain.

• The Japanese Consumption Tax rate is currently 5% and out of which The Japanese Consumption Tax rate is currently 5% and out of which 4% is national levy and 1% regional levy.4% is national levy and 1% regional levy.

• There is an annual threshold ofThere is an annual threshold of YEN 10 millionYEN 10 million,, based on the base based on the base year of two years prior to the tax year. year of two years prior to the tax year.


GST : Global PerspectiveGST : Global Perspective

Goods and Services Tax in Australia Goods and Services Tax in Australia • Consumption tax is called Value Added Tax.Consumption tax is called Value Added Tax.• GST provisions are set out in a piece of Legislation called GST provisions are set out in a piece of Legislation called

the ‘A New Tax System (Goods and Service Tax) Act 1999’ the ‘A New Tax System (Goods and Service Tax) Act 1999’ and the GST was implemented on 11th July, 2000.and the GST was implemented on 11th July, 2000.

• GST@10% will be charged on most goods and services GST@10% will be charged on most goods and services consumed in Australia.consumed in Australia.

• All imported goods are assigned a tariff classification All imported goods are assigned a tariff classification obtained from the Australian Customs Tariff which obtained from the Australian Customs Tariff which determines the rate of duty will pay for the product.determines the rate of duty will pay for the product.

• GST is not intended to apply to goods and services which GST is not intended to apply to goods and services which are exported from Australia and there are specific are exported from Australia and there are specific provisions in the GST law designed to make exports GST-provisions in the GST law designed to make exports GST-free.free.


GST : Global PerspectiveGST : Global Perspective

• Goods and Services Tax in BrazilGoods and Services Tax in Brazil• Brazil was the first country to adopt GST system.Brazil was the first country to adopt GST system.

• Brazil has adopted a dual GST where the tax is levied Brazil has adopted a dual GST where the tax is levied by both the central and the provincial governments.by both the central and the provincial governments.

• GST rate is 20 %.GST rate is 20 %.

GST- CAN WE ADOPT GST- CAN WE ADOPT ITIT

• An information network allowing states to cross-check payment information An information network allowing states to cross-check payment information (TINXSYS) has been put to trial and is expected to improve compliance and (TINXSYS) has been put to trial and is expected to improve compliance and reduce evasion.reduce evasion.

• What is needed is an IT system like the Tax Information Network (TIN), What is needed is an IT system like the Tax Information Network (TIN), where the TDS or the VAT credit is recorded in a central database. where the TDS or the VAT credit is recorded in a central database.

• Paper bills and fraud to be largely eliminated.Paper bills and fraud to be largely eliminated.

• Obligations to be fulfilled by IT System –Obligations to be fulfilled by IT System – RegistrationRegistration Return Return Current status of the systemCurrent status of the system RefundRefund Tax DepositionTax Deposition

• GSTN to be operational by August, 2012GSTN to be operational by August, 2012

Features of Dual GST ModelFeatures of Dual GST Model

– Dual levy – by Centre & StatesDual levy – by Centre & States – Various Various taxestaxes that get subsumed in GST that get subsumed in GST– Manner of ImplementationManner of Implementation

Dual Chain vis a vis Single ChainDual Chain vis a vis Single Chain Inter-chain VAT abilityInter-chain VAT ability Inter State VAT abilityInter State VAT ability

– Items included in each chainItems included in each chain– DDualual r rates of taxationates of taxation

Key Features of Credit Key Features of Credit MechanismMechanism

• CGST can be set off against CGSTCGST can be set off against CGST

• SGST can be set off against SGSTSGST can be set off against SGST

• CGST cannot be used for set off CGST cannot be used for set off against SGST and vice versa.against SGST and vice versa.

Seamless Credit MechanismSeamless Credit Mechanism

• Input tax credit to be available for Central GST as well as Input tax credit to be available for Central GST as well as State GST paid irrespective of the collecting agencyState GST paid irrespective of the collecting agency

• Create a nationwide clearinghouse mechanism to Create a nationwide clearinghouse mechanism to facilitate transfer of Central and State GST and allow facilitate transfer of Central and State GST and allow credit for tax paidcredit for tax paid

Seamless Credit MechanismSeamless Credit Mechanism

• It will also end the distortion in differential tax It will also end the distortion in differential tax treatment of various goods and services.treatment of various goods and services.

• GST is going to be pinnacle of achieving an GST is going to be pinnacle of achieving an integration of excise duties, service tax, State integration of excise duties, service tax, State value added tax and other local taxes. value added tax and other local taxes.

• With GST, uniformity of levy of indirect taxes will With GST, uniformity of levy of indirect taxes will be ensured across the country.be ensured across the country.

Central GST (CGST)Central GST (CGST)

• levied by the Centre through a separate levied by the Centre through a separate statute on all transactions of goods and statute on all transactions of goods and services made for a consideration.services made for a consideration.

• Exceptions would be exempted goods Exceptions would be exempted goods and services, goods kept out of GST and and services, goods kept out of GST and transactions below prescribed threshold transactions below prescribed threshold limits.limits.

• CGST would be levied across the value chain.CGST would be levied across the value chain.• Rates for CGST would be prescribed Rates for CGST would be prescribed

appropriately reflecting revenue appropriately reflecting revenue considerations and acceptability.considerations and acceptability.

State GST (SGST)State GST (SGST)

• Levied by the States through statute on all Levied by the States through statute on all transactions of goods and services made for a transactions of goods and services made for a consideration.consideration.

• Exceptions would be exempted goods and Exceptions would be exempted goods and services, goods kept out of GST and transactions services, goods kept out of GST and transactions below prescribed threshold limits.below prescribed threshold limits.

• Basic features of law such as chargeability, Basic features of law such as chargeability, taxable event, measure, valuation, classification taxable event, measure, valuation, classification would be uniform across these Statutes as far as would be uniform across these Statutes as far as practicable.practicable.

• State GST would be paid to the accounts of the State GST would be paid to the accounts of the respective State.respective State.

Inter-state TransactionsInter-state Transactions

• Centre would levy IGST which would be Centre would levy IGST which would be CGST + SGST.CGST + SGST.

• IGST would be levied on all inter-State IGST would be levied on all inter-State transactions of taxable goods and services transactions of taxable goods and services with appropriate provision for consignment with appropriate provision for consignment or stock transfer of goods and services.or stock transfer of goods and services.

• Inter-State dealer will pay IGSTInter-State dealer will pay IGST after after adjusting available, IGST, CGST and SGST adjusting available, IGST, CGST and SGST on purchases.on purchases.

IGSTIGST

• The seller in State - A will pay the IGST to The seller in State - A will pay the IGST to the Centre.the Centre.

• While paying IGST the seller will adjust While paying IGST the seller will adjust against available credit of IGST, CGST and against available credit of IGST, CGST and SGST.SGST.

• State Government - A will have to transfer State Government - A will have to transfer the credit of SGST used by the seller for the credit of SGST used by the seller for payment of IGST to the Centre.payment of IGST to the Centre.

To be cont.To be cont.

IGSTIGST

• Buyer in State - B can avail credit of the IGST Buyer in State - B can avail credit of the IGST charged.charged.

• Buyer in State - B can use the IGST to Buyer in State - B can use the IGST to discharge output tax liability in his own State.discharge output tax liability in his own State.

• Centre has to transfer credit of IGST used for Centre has to transfer credit of IGST used for payment of SGST to State Government - B.payment of SGST to State Government - B.

..

IGST – ILLUSTRATION IGST – ILLUSTRATION

• Maharashtra seller selling to Karnataka buyer for Maharashtra seller selling to Karnataka buyer for Rs.1,00,000/-.Rs.1,00,000/-.

• IGST payable assuming an 8% rate is Rs.8,000/-.IGST payable assuming an 8% rate is Rs.8,000/-.

• Rs.8,000/- can be paid by adjustingRs.8,000/- can be paid by adjusting– Inter-State purchases (IGST) Rs.3,000/-Inter-State purchases (IGST) Rs.3,000/-– Local purchases (CGST) Rs.1,500/-Local purchases (CGST) Rs.1,500/-– Local purchases (SGST) Rs.1,500/-Local purchases (SGST) Rs.1,500/-

• Since dealer has used SGST of Maharashtra to the Since dealer has used SGST of Maharashtra to the extent of Rs.1,500/-, Centre has to transfer extent of Rs.1,500/-, Centre has to transfer Rs.1,500/- to Maharashtra Government.Rs.1,500/- to Maharashtra Government.

IGST – ILLUSTRATION IGST – ILLUSTRATION

• IGST of Rs.8,000/- is availed as credit by IGST of Rs.8,000/- is availed as credit by Karnataka buyer.Karnataka buyer.

• Karnataka dealer sells the goods at Rs.2,00,000/- Karnataka dealer sells the goods at Rs.2,00,000/- attracting CGST of say Rs.16,000/- and SGST of attracting CGST of say Rs.16,000/- and SGST of Rs.16,000/-. Rs.16,000/-.

• If IGST of Rs.8,000/- is used to pay the SGST then If IGST of Rs.8,000/- is used to pay the SGST then Karnataka Government has to transfer Rs.8,000/- Karnataka Government has to transfer Rs.8,000/- to the Centre.to the Centre.

ILLUSTRATION OF GST ILLUSTRATION OF GST

Taxing of Inter State Taxing of Inter State TransactionsTransactions

Tax Payment by exporting dealer to the account of receiving Tax Payment by exporting dealer to the account of receiving state state

Credit allowed to the buying dealer by receiving state on Credit allowed to the buying dealer by receiving state on verificationverification

Retention by receiving state on sale to non-dealerRetention by receiving state on sale to non-dealer

Declaration form to be discontinuedDeclaration form to be discontinued

Knowing more about GSTKnowing more about GST

• We all will pay GST on every product or service we buy/ consumeWe all will pay GST on every product or service we buy/ consume

• All indirect taxes levied by the States and the Centre will be All indirect taxes levied by the States and the Centre will be merged into one GST, we would exactly know how much tax we merged into one GST, we would exactly know how much tax we pay which at present is difficult to understand. pay which at present is difficult to understand.

• No distinction would be made between imported or Indian goods No distinction would be made between imported or Indian goods and they would be taxed at the same rate. and they would be taxed at the same rate.

• The sellers or service providers collect the tax from their The sellers or service providers collect the tax from their customer.customer.

• Before depositing the same to the exchequer, they deduct the tax Before depositing the same to the exchequer, they deduct the tax they have already paid.they have already paid.

• The success of GST would rest upon efficiency, equity andThe success of GST would rest upon efficiency, equity and simplicity.simplicity.

GST- How It WorksGST- How It Works

• Dealers will charge GST on the price of Dealers will charge GST on the price of goods and services.goods and services.

• Claim credits (CENVAT) on purchases of Claim credits (CENVAT) on purchases of goods and services.goods and services.

• collect the tax from their customer, and collect the tax from their customer, and deduct the tax already paid. deduct the tax already paid.

Imports Imports shshould be taxed?ould be taxed?

• Dual GST should be levied on imports also with Dual GST should be levied on imports also with facility of credit for the tax paidfacility of credit for the tax paid

• Exports must be zero rated i.e. there should be Exports must be zero rated i.e. there should be no tax element in the price of goods exportedno tax element in the price of goods exported

Tax ExemptionsTax Exemptions

• Area BasedArea Based

To be discontinued after current eligibility periodTo be discontinued after current eligibility period

• Product BasedProduct Based

To be converted in to refund routeTo be converted in to refund route

• Limited FlexibilityLimited Flexibility

To Centre & States barring few exceptionsTo Centre & States barring few exceptions

GST- It’s SystemGST- It’s System

Invoice SystemInvoice System

• In this system, the credit of GST paid is claimed on the basis In this system, the credit of GST paid is claimed on the basis of invoice. of invoice.

• It is claimed when the invoice is received.It is claimed when the invoice is received.• It is immaterial whether payment is made or not.It is immaterial whether payment is made or not.• The GST (Output) is accounted for when invoice is raised.The GST (Output) is accounted for when invoice is raised.• The time of receipt of payment is immaterial. The time of receipt of payment is immaterial. • The advantage of invoice system is that the input credit can The advantage of invoice system is that the input credit can

be claimed without making the payment.be claimed without making the payment.• The disadvantage of the invoice system is that the GST has The disadvantage of the invoice system is that the GST has

to be paid without receiving the payment. to be paid without receiving the payment.

GST - Challenges GST - Challenges

• Rapid increase in assesseeRapid increase in assessee

• Place of supply even after place of Place of supply even after place of supply rulessupply rules

• Legislative challengeLegislative challenge

• Effective credit mechanismEffective credit mechanism

• IT InfrastructureIT Infrastructure

Issues from Trader’s PerspectiveIssues from Trader’s Perspective

• Dialogue with Trade & Industry and all other stake holdersDialogue with Trade & Industry and all other stake holders

• Industrial inputs, Capital goods to be at loweIndustrial inputs, Capital goods to be at lowerr rate rate

• List of exempted goods – specific/common across statesList of exempted goods – specific/common across states

• Stock transfers should be exempted monitors thrStock transfers should be exempted monitors throughough system system based controlsbased controls

GST : Professional GST : Professional OpportunitiesOpportunities• Knowledge managementKnowledge management• Preparatory advisoryPreparatory advisory• Cost benefit analysisCost benefit analysis• GST implementationGST implementation• Training / seminars / awarenessTraining / seminars / awareness• Planning compliancesPlanning compliances• Advance ruling representationAdvance ruling representation• Employment with corporatesEmployment with corporates• Client retainershipsClient retainerships• GST AuditGST Audit

Issues from Industry’s Issues from Industry’s PerspectivePerspective

• All declaration forms (Form F, C) should be abolishedAll declaration forms (Form F, C) should be abolished

• Monitoring through system based controlsMonitoring through system based controls

• Full set-off of Input tax credit to the assessee / entity, based on Full set-off of Input tax credit to the assessee / entity, based on

principle of business cost and expenditureprinciple of business cost and expenditure

• Immediate credit of stock transfers, without one-to-one co-relation.Immediate credit of stock transfers, without one-to-one co-relation.

• Set-off should be on entity / concern basis.Set-off should be on entity / concern basis.

• Refunds, if any, should be automatic through system based Refunds, if any, should be automatic through system based

controls.controls.

Issues From Industry’s PerspectiveIssues From Industry’s Perspective

• Multiple state jurisdictions.Multiple state jurisdictions.

• Full set-off : a question markFull set-off : a question mark

• Building of IT backboneBuilding of IT backbone

• Uniform legislation, forms, rules, rates, compliance requirements.Uniform legislation, forms, rules, rates, compliance requirements.

• Any change post implementation should be uniform by all states not Any change post implementation should be uniform by all states not

piecemeal. piecemeal.

• Bar on increase in rates, imposition of new taxes by statesBar on increase in rates, imposition of new taxes by states

Issues Yet To Be DecidedIssues Yet To Be Decided

• Constitutional amendment authorizing state to Constitutional amendment authorizing state to collect and retain tax on services.collect and retain tax on services.

• Integration of certain Central & State taxes Integration of certain Central & State taxes (Various Cess, Electricity duty, Entertainment tax (Various Cess, Electricity duty, Entertainment tax etc) etc)

• Stock transfersStock transfers

• Road permits and check postsRoad permits and check posts to be contd….to be contd….

Issues Yet To Be DecidedIssues Yet To Be Decided

• Taxation of inter-state services and their method of taxation Taxation of inter-state services and their method of taxation Difficulties in defining Place of supply, place of deliveryDifficulties in defining Place of supply, place of delivery

Group Health InsuranceGroup Health InsuranceConsulting servicesConsulting servicesHowever most of the B2B services not a problem However most of the B2B services not a problem

because of availability of creditbecause of availability of credit Disputes even with regard to classification of goods Disputes even with regard to classification of goods Jurisdictional Issues with regard to registration and SCN / Jurisdictional Issues with regard to registration and SCN /

AssessmentsAssessments

Favorable Impact Favorable Impact oon Industryn Industry

Seamless credit to trade and industry throughout supply Seamless credit to trade and industry throughout supply

chain will improve competitivenesschain will improve competitiveness

Common Tax Base will eliminate tax cascadingCommon Tax Base will eliminate tax cascading

CST phase-out will reduce supply chain costCST phase-out will reduce supply chain cost

Economy in production scale & efficiency in distributionEconomy in production scale & efficiency in distribution

Simplified structure to reduce transaction costSimplified structure to reduce transaction cost

GST - HumorGST - HumorBusiness Man: Sir do you really think that ‘negative list of services’ is a Business Man: Sir do you really think that ‘negative list of services’ is a

milestone in the road towards GST ?milestone in the road towards GST ?CA: Well…..I think it is not a milestone, it seems to be a Pavement to the CA: Well…..I think it is not a milestone, it seems to be a Pavement to the

GST road.GST road.Business Man: Not understood Sir ……!!Business Man: Not understood Sir ……!!CA: I mean the negative list has a capacity to exist along with Centre-CA: I mean the negative list has a capacity to exist along with Centre-

state disconnects on the services to be covered there under which are state disconnects on the services to be covered there under which are partially forming part of the GST disconnects.partially forming part of the GST disconnects.

Business Man: Sir………I still could not understand anything.Business Man: Sir………I still could not understand anything.CA: OK….I will tell you in your language…….states asked for35 services CA: OK….I will tell you in your language…….states asked for35 services

to be included in the negative list….correct?to be included in the negative list….correct?Business Man: Yes Sir.Business Man: Yes Sir.Business CA: And Government kept only 17 services in the list and have Business CA: And Government kept only 17 services in the list and have

not included therein many services specified by the states. correct?not included therein many services specified by the states. correct?

to be contd…….to be contd…….

GST - HumorGST - Humor

Business Man: Yes Sir.Business Man: Yes Sir.CA: Now Empowered Committee of states is saying that their CA: Now Empowered Committee of states is saying that their

demand was not taken into consideration and negative list demand was not taken into consideration and negative list will lead to double taxation and litigation….correct?will lead to double taxation and litigation….correct?

Business Man: Yes Sir.Business Man: Yes Sir.CA: So the negative list of services when implemented will CA: So the negative list of services when implemented will

Complement the Centre -States contended road to GST, and Complement the Centre -States contended road to GST, and can fit in as pavement along with that road whenever it can fit in as pavement along with that road whenever it comes into comes into

existence….Understood??existence….Understood??Business Man: No Sir……..I mean. Yes Sir……I mean I will think Business Man: No Sir……..I mean. Yes Sir……I mean I will think

over it…and am sure that I will understand!!! over it…and am sure that I will understand!!!

THANK YOU THANK YOU FOR FOR

YOUR YOUR PRECIOUS TIMEPRECIOUS TIME

AND AND ATTENTIONATTENTION

Dr. Sanjiv AgarwalDr. Sanjiv AgarwalFCA, FCS, JaipurFCA, FCS, Jaipur

[email protected]@[email protected]@gmail.com

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