2 Gst Presentation

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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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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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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


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




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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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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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Compliance

- PAN based identification number, with two extra digits to distinguishbetween Central & State GST

- One periodic return to Central & State


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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




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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




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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




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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




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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




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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.




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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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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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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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2 Gst Presentation