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Goods and Services Tax in India
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Contents Journey of GST at a Glance
Taxes subsumed in dual GST
GST Rates Global Scenario
GST Overview Proposed GST Model in India
Proposed GST Model in India salient features
Key Issues and Challenges Current Developments
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Journey of GST at a Glance
1986:Introduction of MODVAT
1994: Levy of Service Tax 2002: Input Service Tax Credit
2004: Cross credits
2005: Implementation of VAT
2006: Deadline for GST laid
2007: Formation of JWC
2008: CST phased out to 2%
2008: Draft paper under way
2009: November First discussion paper by EC
2010: January Finance Ministry pushes for single-rate GST
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GST Rates Global Scenario
Country Rate (%) Country Rate (%) Country Rate (%)Austria 20 Greece 18 Poland 22Argentina 21 Ireland 21 Romania 19Australia 10 Italy 20 Spain 16Belgium 21 Indonesia 10 Sweden 25Barbados 15 Japan 5 Switzerland 7.6
Canada 7 Luxembourg 15 South Africa 14China 16 Latvia 18 UK 17.5Columbia 16 Mexico 15 Zambia 17.5Denmark 25 Maldova 20France 19.6 Norway 25
Finland 22 Netherlands 19Germany 16 Portugal 19
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GST Overview
Justification of GST & How does it works!!! Burden of Tax fall under GST
Benefit of GST :
- To industry, trade, exporters & agriculture
- Small entrepreneurs and small trader
- Common consumers
Salient features of proposed GST model
Why is Dual GST required? How would a particular transaction of goods and services be taxed under CGST and
SGST
Taxes proposed to be subsumed under GST
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GST Overview
Rate structure proposed under GST Concept of providing threshold exemption for GST
Scope of composition and compounding scheme under GST
How will imports be taxed under GST?
Cross utilization of credits between goods and services under GST???
Taxation of Inter-state transactions of goods & services under GST
Introduction of GST require a constitutional amendment why??
Legislative steps being taken for CGST and SGST how?
How will the rules for administration of CGST and SGST be framed?
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Proposed GST Model in India Dual GST
Basic principle:
Liberal in assessment and ruthless in collection
Dual GST will comprise:
- The Central GST and the State GST
- Central GST and State GST, in themselves, would comprise both the goods tax
and the services tax.
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Proposed dual GST Model
Goods Services
8% - CGST 8% - CGST
8% - SGST 8% - SGST
Dual GST
Existing Rate: 19-20% Existing Rate: 10%
GST: 16% GST: 16%
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Proposed GST Model in India
Formation of Empowered Committee (EC)
Set up of Joint Working Group
Suggestion of EC for dual GST comprising a Central GST and a State GST to FinanceMinister (FM)
FM has indicated that an agreement on the basic structure of the dual GST has beenreached keeping in view the principles of fiscal federalism laid down in the constitution
The Centre and State will each legislate, levy and administer the Central GST and theState GST respectively
EC submitted First Discussion Paper on November 10, 2009
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Proposed GST Model in India
States have agreed to have two basic rates of GST. Central GST will also be in
conformity with the State GST
- Standard rate in the range of 8% to 9%
- Lower rate for essential commodities in the range of 4% to 5%
- Special rate for precious metals is expected to be at 1%
Small set of specified products will be exempt from the GST
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Proposed GST Model in India
Flexibility to States on the choice of goods of local importance for exemption.
Joint Working Group will work out
- A framework of the GST law; and
- The required Constitutional amendments
The Centre has agreed in principle to compensate States for revenue loss, if any
P d GST M d l i I di
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Proposed GST Model in IndiaIllustrative Computation of dual GST
Particulars No GST GSTManufacturer to Wholesaler
Base Price
Excise Duty @ 8.24%
State VAT @ 12.5% (on 108)
Central GST @ 8% (on 100)
State GST @ 8% (on 100)
100
8
14
100
8
8
Total
Wholesaler to Retailer
Wholesaler Price (assuming value add of 20)
State VAT @ 12.5% (on value add of 20)
Central GST 2 8% (on value add of 20)
State GST @ 8% (on value add of 20)
122
142
2.5
116
136
1.6
1.6
Retail Sales Price (inclusive of taxes)
Retailer to Customer
Retail Sales Price (assuming value add of 20)
State VAT @ 12.5% (on value add of 20)
Central GST @ 8% (on value add of 20)
State GST @ 8% (on value add of 20)
Cumulative tax price
144.5
164.5
2.5
167
139
159
1.6
1.6
162
Total Taxes 27 22
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Classification
- HSN to form the basis of classification of goods under Central andState GST
- Classification of services based on global best practices and Indianrealities
Rates
- Uniform rates for services
- Multiple rates for goods
Proposed GST Model in India
Salient features of proposed dual GST Model
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Taxable Events in GST
- The Federal and State GST will both be leviable on supply of goodsand services
- Present taxable events of manufacture, for central excise, and saleof goods for State VAT, will have no relevance
- Elaborate rules for determining the place and time of supply of
goods and services will be formulated
- Budget 2009 authorizes the Central Government to formulate suchrules under present service tax dispensation
Proposed GST Model in India
Salient features of proposed dual GST Model
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Proposed GST Model in India
Salient features of proposed dual GST Model
Input tax Credits (ITC)
- Full credits under the Central and the State GST that will operate inparallel
- Cross-utilization of credits between Central GST and State GST notpermitted
- Refund of unutilized accumulated ITC Export
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Proposed GST Model in India
Salient features of proposed dual GST ModelTax Credit Mechanism
against
against
against
CGST
CGST
IGST
SGST
SGST
IGST
IGST
IGST
CGST
SGST
This is tran-
sferred by the
State of seller
to Centre
This is trans-
ferred by the
Centre to
State of Seller
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Proposed GST Model in India
Salient features of proposed dual GST Model
Compliance
- PAN based identification number, with two extra digits to distinguishbetween Central & State GST
- One periodic return to Central & State
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Proposed GST Model in India
Salient features of proposed dual GST Model
Thresholds
- Uniform thresholds under Central & State GST by FM
- Rs. 10 Lakhs for State GST & Rs. 150 Lakhs for Central GSTsuggested by EC
- Compounding Scheme
Rs. 50 lacs with a tax @ 0.5% Exemptions
- Common lists for Centre and States with little flexibility for States todeviate
- Exemption schemes proposed to be converted to post-tax cash refundschemes
Crude and petroleum products, tobacco and alcohol will likely remainoutside GST
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GST on imports
- Central & State GST on imports to replace Countervailing duty(CVD) and Additional Duty of Customs (ADC) currently levied on
import of goods as part of customs duties
- GST paid on imports available as input tax credits
- Place of supply rules to determine the State in which the SGST onimports is payable
Proposed GST Model in India
Salient features of proposed dual GST Model
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Inter-State transactions
Goods- Goods to be taxed in the destination / importing State
- Zero rating in the originating State
- Tax of the importing State to be charged on inter-State supplies
- Tax to be collected and deposited with designated Banks in the
exporting State but to the credit of the importing State
- Full offset against State GST at the time of supply in that State
Proposed GST Model in India
Salient features of proposed dual GST Model
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Inter-State transactions (Contd.)
Goods
- Tax of the importing State to be charged on inter-State supplies
- Tax to be collected and deposited with designated Banks in the
exporting State but to the credit of the importing State
Proposed GST Model in India
Salient features of proposed dual GST Model
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Inter-State transactions (Contd.)
Goods
- Administratively convenient
No fund transfers between State Governments
No requirement for prepare declaration forms
No possibility of revenue leakages
- Strong IT infrastructure is necessary to facilitate informationexchange
Proposed GST Model in India
Salient features of proposed dual GST Model
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Treatment of Services
- Any economic activity which is not a supply of goods is a supply ofservices
- All services to be taxed with few exceptions
- Central GST on services relatively easy to collect
- Services to be taxed in the State of consumption- State GST on services will be far more complex particularly on
cross-border services
Proposed GST Model in India
Salient features of proposed dual GST Model
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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 trade and industry tobe factors in determining the place of collection of service tax.
Proposed GST Model in India
Salient features of proposed dual GST Model
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Key Issues & Challenges
Federal GST law to be drafted
Uniform State GST law model State GST code to be adopted
Constitutional amendments required
- To enable Central Government to tax beyond manufacturing stage
- To enable States to charge service tax
Rates
- Integration of a large number of Central & State Taxes and
obtaining of consensus amongst States to abolish multiple localtaxes
- Multiplicity of taxes and tax rates
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Key Issues & Challenges
Thresholds- Rationalization of thresholds across excise, service tax and VAT
Continuation of area specific exemptions Central GST and State
GST
Taxation of Inter-State supplies of Goods and Services
- Significant challenge due to its complexity
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Key Issues & Challenges
Operating a seamless input credit system- Pure VAT/no cascading
Shift from origin based tax to the destination based GST
Proper transition from existing tax systems
Compliance related challenges
ERP modifications / amendments
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Issues & Challenges - Administration
Stakeholder communications
Mindset changes moving to a fundamentally new tax
Training
Reorientation of administrative machinery for GST implementation
Present administrative setup continues
- No expected reductions in cadre / staff strength
Standardization of systems & procedures
Building of IT backbone
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Issues & Challenges - Fiscal
Compensation to States for CST Phase out / GST introduction
Protecting and balancing the present and future revenues of theCentre and the States
- 13 th Finance Commission
- Commission on Centre-State relations (CCSR)
- Views of trade & industry, economists
Impact on backward States- Safeguarding the interests of less developed States with lower
revenue potential
C t D l t
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Current Developments FM Pushes for Single-rate GST for Goods & Services
Doubts for April 2010 deadline to roll-out GST
Proposals of EC Comments of Union Government
A threshold of Rs. 10 Lakh for states and Rs. 1.5Crore for the Centre to protect small traders
A uniform threshold of Rs. 10 lakh or more forboth the Centre and the states to avoiddistortions
VAT, entertainment tax, luxury tax, tax on
lottery, state cess, surcharge and entry tax to besubsumed in GST
Electricity duty, Octroi, purchase tax and taxes
levied by local bodies should also be subsumedunder GST
Some states said they earn good revenue frompurchase tax and it should not be subsumedunder GST
Keeping purchase tax outside GST will givestates a loophole to impose the tax on anycommodity.
Alcoholic beverages may be kept out of the
purview of GST and sales tax/VAT continued tobe levied on it.
These should be brought under GST to remove
the cascading effect on GST paid on inputs
Petroleum products should be kept outside GSTas is the prevailing practice and sales taxcontinued to be levied
These may be levied to GST and in select casescredit of GST paid on these items may bedisallowed
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never enough................
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