goods & service tax discussion on challenges & synergies november, 2009

Goods & Service Tax

Discussion on Challenges & Synergies

November, 2009

By CA. Vinay Bhushan

Contents Present taxation system of India

What is Goods and Service Tax (“GST”) – An Introduction

Silent features on “First Discussion Paper on GST”

Broad propositions – Not covered and clear

Broad propositions - Reasonable clear

Challenges before Industry/Service Sector

Proactive actions – Requirement

Areas - Tax Synergy


Present Taxation System in India

Multistage taxation on manufacture and distribution channels

Sectors specific taxes like Entertainment Tax, Luxury Tax, Textile Cess etc.

Difference types of Cesses like Education Cess, Secondary & Higher Education Cess etc.

Tax on value additions i.e. Value Added Tax Tax on Inter State transaction i.e. Central Sales Tax


Manufacture Sector - Multiple Taxes

Manufacturing Sector

Value Added Tax { 0%, 4%, 12.5%}

Central Sales Tax {2%}

Central Excise Duty {8%}

Educations Cesses {3%}

R & D Cess {5%}

Other local taxes like Entry Tax, Octroi, State Cesses etc. are also applicable


Service Sector - Multiple Taxes

ServiceSector

Education Cess {2%}

Secondary & Higher Education Cess {1%}

Service Tax {10%}


Silent features of the Discussion Paper on GST

GST shall have two components(1) levied by Central Government (Central GST)(2) levied by State Government (State GST)

GST Will be governed by multiple statutes

Cross utilization of Input Tax Credit (ITC) between Central GST & State GST would not be allowed

Periodical returns need to be filed with Central and State authorities separately, tax will be deposited through separate account heads

PAN- linked taxpayer identification number will be issued


Silent features of the Discussion Paper on GST

Threshold Limit:-

State GST for Goods & Services INR 1.00 Million Central GST for Goods INR 15.00 Million Central GST for Services Not provided (however

it is conveyed that it will be appropriately high)

Compounding / Composition Limit:-

Composition/compounding limit INR 5.00 Million with tax at the rate of 0.5 %


CENVAT CREDIT MECHANISM UNDER PRESENT TAXATION AND PROPOSED GST

Present Taxation Scheme

- Cross credit of good and service tax is allowed since September 10, 2004; But limited to Central Excise & Services Tax

- Cross credit among VAT and Service Tax, Central Excise is not allowed

- Credit on inter- State transactions is not allowed;

- Cross Credit of VAT with CST liability is allowed

Proposed GST

- Cross credit of good and Services would be allowed

- Cross credit with respect to Central GST and State GST transaction would not be allowed


TAXES WHICH WOULD BE SUBSUMED UNDER THE PROPOSED GST

Central Taxes

- Central Excise Duty- Additional Excise Duty- Service Tax- Additional Customs Duty

(CVD)- Special Additional Duty of

Customs (SAD)- Surcharges and Cesses

State Taxes

- VAT /Sales Tax- Entertainment Tax- Luxury Tax- Tax on Lottery,

betting & Gambling- State Cesses and

Surcharges- Entry Tax

GST

CGST IGST SGST


Broad Propositions- Not Covered and not Clear

GST rates are not disclosed Valuation mechanism of Goods and Services Place of provision of Services or place of receipt in case of

services are not clear Taxable event- whether on receipt basis or on receivable

basis No discussion on Stamp duty on Immovable property


Broad propositions - Reasonable clear

Cross Credit among the CGST & SGST- Not allowed Three type of taxes- CGST, SGT & IGST No change for Liquor, Petroleum Industry


Challenges & Proactive Actions before Industry/Service Sector Business Restructuring:

Phasing out of CST Change in tax rates of goods and services Logistics, Transaction model etc.

Location Based Exemptions

Export Obligations

Change in ERP Systems

Training of Middle Management Team


Areas - Tax Synergy

Analysis of Tax rates Vs. Pricing Policy, Business Cycle Warehouse/logistic Vs. Direct Supply Stock Planning Backward & Forward integration of business if there is

change in tax rates of Inputs or output


How Tax Managers/Consultants can add value Mapping of current transactions

Mapping of flow of good and services Ascertain current tax cost

Impact Analysis and what if analysis Assessment of impact of GST on draft legislation Key structuring/changes in business operations Identify possible alternative business model Potential actions to mitigate adverse GST effect (if any)

Final Impact Analysis

Implementation Assistance


How Tax Managers/Consultants can add value Implementation Assistance

Transition Stock Planning Registration under new legislation/s Maintenance of records as per new formats Manner of computation of Credit and tax liability Invoice Formats Changes in ERP/accounting system


THANK YOU

goods & service tax discussion on challenges & synergies november, 2009

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