GST-Global Scenario

Why is GST considered as the preferred tax structure ?

GST- Current State of Play

Present Structure

Features of Proposed GST Model

Rate of GST

Issues & Challenges

Contents

SOURCE• An overview on

Goods and service tax information and relative data resources are:

• Newspaper articles

• Subject with regard to books.

• Business magazines

• Internet

• More than 140 countries have already introduced

GST/National VAT

• Most countries have a single GST rate

• Typically it is a single rate system but two/three rate systems are

also prevalent depending upon the requirement of the

implementing nation

• Standard GST rate in most countries ranges between 15-20%

• All sectors are taxed with very few exceptions/ exemptions

• Full tax credits on inputs – 100% set off

• US does not have a national level VAT

• Uniform single tax across the supply chain

• Reduced transaction cost in the hands of the tax payers

• Increased tax collections due to wider tax base and better compliance

• Improvement in international cost competitiveness of indigenous goods and services

• Enhancement in efficiency in manufacture and distribution due to economies of scale

Why is GST considered as the preferred tax structure?

• Empowered Committee (EC) has submitted its report to the FM on the recommended model

• EC has suggested a dual GST

• FM has requested the Finance Commission, headed by Dr. Kelkar, to study the report and make recommendations. Finance Commission has sought the views of various associations and chambers

• The Commission envisages that its recommendations will be submitted to the FM by end 2008, in time for all subsequent work to commence and conclude by first quarter 2010

• GST is on course for 1/4/2010 !

GST – Current State of Play

Present Structure

Federal Tax

*(I) CENVAT (Excise) + Service Tax

• Excise and Service tax have been integrated

• Can be set off against each other

State Tax

*(II) VAT

Input VAT can be set off against

payment of output VAT/CST

(III) CST No set off: Always a cost

*I & II are parallel levies and cannot be set off against each other

Credit set off possible

Set off not possible

• Dual GST recommended by Joint Working Group of the

EC

• EC has accepted the recommendations and submitted

its report to the Government

• Present available details form the basis for subsequent

slides

• Basic Structure

- Dual GST comprising Central GST and State GST

- Central GST and State GST, in themselves, to

comprise both the goods tax and the services tax

• Central GST and State GST to operate throughout the

supply / value chain

Features of proposed GST Model

• Classification

- HSN to form the basis of classification of goods under

Central and State GST

- classification of services based on global best practices

and Indian realities

• Rates

- uniform rates for services

- multiple rates for goods

• Imports to be charged to both Central and State GST

• Excise Free Zones could continue for their life spans

Features of proposed GST Model

• Input tax Credits ( ITC)

- full credits under the Central and the State GST that will

operate in parallel

- cross utilization of credits between Central GST and State

GST not permitted

- refund of unutilized accumulated ITC

• Inter-State transactions

- goods to be taxed in the destination/importing State

- services to be taxed in the State of consumption

- zero rating in the originating State

Features of proposed GST Model

- Central excise

- Additional duties of customs

- Service tax

- VAT

- Central Sales tax

- Entertainment tax

- Luxury tax

- Octroi

- Lottery taxes

- Electricity duty

- State surcharges relating to supply of goods and services

- Purchase tax

• Taxes proposed to be subsumed by GST

Features of proposed GST Model

• Taxation of crude & petroleum products

- to be brought in GST with ITC

- excise duties ( without ITC) to be levied over and above

GST by both Centre & State

Or

- only crude, motor spirit & high speed diesel be out of the

purview of the GST → remaining products as per above

• Finance Commission will make recommendations in regard to

petroleum products

Features of proposed GST Model

• Treatment of services

• Any economic activity which is not supply of goods is supply

of services

• All services to be taxed with few exceptions

• Central GST on services relatively easy to collect

• State GST on services will be far more complex – particularly

on cross border services

Features of proposed GST model

• Cross border Services

• Taxed at the place of consumption of services

• Difficult to determine the actual place of effective

use/enjoyment of services

• Rules for place of supply of services to be framed

• Currently no uniform practice exists

• Administrative convenience + convenience of the trade &

industry to be factored to determine the place of collection of

service tax

Features of proposed GST Model

• Thresholds

- uniform thresholds under Central & State GST

• Exemptions

- common lists for Centre and States with little flexibility for

States to deviate

- exemption schemes proposed to be converted to post-

tax cash refund schemes

GST Rate in Select Countries

• EU

- UK – 17.5%

- Germany – 19%

- France – 19.6%

- Belgium – 21%

• Australia – 10%

• New Zealand – 12.5%

• China – 17%

GST Rate in India

• What would be the GST rate in India?

• Clearly a huge debate and the rates which are typically being

discussed are as follows:

- 20%

- 14%

- 12%

• Any of the above, would still be less than the present

cumulative rate of indirect taxes

• The rate to be adopted would depend on the extent of

coverage of GST and ability to prune exemptions

Issues & Challenges

Specific Issues & Challenges - Law

• Rates

- integration of a large number of Central & State Taxes and

obtaining of consensus amongst States to abolish multiple

local taxes

- multiplicity of taxes and tax rates

• Thresholds

- rationalization under Central & State GST

• Taxation of Petroleum /Alcohol/Tobacco products

- GST with ITC

- excise duties ( without GST)

Issues & Challenges

Specific Issues & Challenges - Law

• Taxation of Inter-State Services

- huge challenges due to its complexity

• Operating a seamless input credit system

- pure VAT/ no cascading

• Integrating the origin based tax with the destination based GST

• Uniformity across States

• Proper transition from existing tax structures

Issues & Challenges

Specific Issues & Challenges – Govt related

• Standardization of systems and procedures• Uniform dispute settlement machinery • Training

• Re-organization of administrative machinery for GST

implementation is the key• Building information technology backbone – the single most

important initiative for GST implementation

Issues & Challenges

Specific Issues & Challenges – Govt related

• Protecting and balancing the present and future revenues of the

Centre and the States

- commission on Centre-State Relations (CCSR)

- views from Trade & Industry

• Impact on backward States

- safeguarding the interests of less developed States with

lower revenue potential

Issues & Challenges

Nishant Jain