BY BINOD KUMAR

COMMISSIONER, CT, WB

Goods and Service Tax (GST)

ContentsPresent Indirect Tax Structure in India

Constitutional Provisions for Indirect Taxation

What is GST & Why GST

Taxes to be subsumed in GST

Proposed Indirect Tax Structure in GST

IGST Model with illustrations

Constitutional Amendment Bill

Road to GST- Milestones

Issues relating to Services

Benefits of GST

Features of the proposed GST Model

Current Status

Present Indirect Tax Structure of India 7 Important constituents

Tax administered by Union Government

vCustoms DutyTaxable event is Import/Export

vExcise DutyTaxable event is Manufacture

vService TaxTaxable event is provision of service

Tax administered by State Government

vSales Tax /VAT-Taxable event is sale of goods including deemed sales.

vCST - Taxable event is inter-state sale of goods including deemed sales.

vEntry Tax – Taxable event is entry of goods into local area for sale, consumption or use therein

vEntertainment Tax –Taxable event is entertainment

4

Constitutional Provisions of Indirect Taxation in India

Customs Duty - Entry No. 83 of List I.

Important Constituents

Excise Duty - Entry No. 84 of List I.

Service Tax - Residuary Entry No. 97 of List I.

CST - Entry No. 92A of List I.

Sales Tax /VAT- Entry No. 54 of List II.

Entry Tax - Entry No. 52 of List II.

Entertainment Tax - Entry No. 62 of List II.

Seventh Schedule of the Indian Constitution

Union list consists of 100 items (though last item is

numbered 97) -Parliament has exclusive power to levy tax.

State list consists of 66 items -Individual States have exclusive authority to levy tax.

Concurrent list consists of 47 items – both the Governments can levy tax.India has a two tier federal power to collect tax – the Union Government, the State Governments including urban/rural local bodies.

Presently goods are liable to Excise duty / Vat or Sales tax / Entry tax / Customs duty, while taxable services attract service tax.

WHAT IS GST?

GST 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.

No differentiation between Goods and Services as GST is levied at each stage in the supply chain.

Seamless input tax credit throughout the supply chain.

At all stages of production and distribution, taxes are a pass through and tax is borne by the final consumer.

WHAT IS GST? (..continuation)

Typically it is a single rate VAT in most countries but two - three rate VAT systems are also prevalent

Canada and Brazil alone have a dual VAT.

Standard GST rate in most countries range between 15-20 percent.

GST exists in over 140 countries .

IN SHORT GST IS NOTHING BUT VAT THAT REQUIRES TAX-PAYERS TO PAY TAX ONLY ON THE VALUE THEY ADD TO THE GOODS OR SERVICE,

IN PLACE OF THE CURRENT SYSTEM IN WHICH THE CENTRE AND STATE IMPOSTS CASCADE

ON THE PRICEOF THE PRODUCT.

8

Non Harmonization of Tax rates.

Different rate of tax on same item in different States.

Complicated tax structure.

High expenditure for different revenue administration.

Lack of Cross Verifications with other tax administrations.

High overhead expenses increases goods price.

Why GST?

Multiple Registration

Cascading effect, Double taxation, confusion between sales & service.

With the challenge to minimize the following

Benefits

Benefits to Assessees

• Reduction in multiplicity of taxes.

• Mitigation of cascading/ double taxation.

• More efficient neutralization of taxes especially for exports.

• Development of common national market.

• Simpler tax regime - Fewer rates and exemptions. Conceptual clarity (Goods vs. Services).

Benefits to Exchequer/Govt.

• Simpler Tax system.

• Broadening of Tax base.

• Improved compliance & revenue collections (tax booster) with lower expenditure.

• Less chances of evasion.

• Creating more attractive Indian market.

TAXES TO BE SUBSUMED IN GST

CENTRAL TAXES STATE TAXES CENTRAL EXCISE DUTY

(excluding petroleum, natural gas, ATF, tobacco, etc)

VAT / SALES TAX including Purchase Tax

ADDITIONAL EXCISE DUTIES

Central Sales Tax (administered by the State)

SERVICE TAX LUXURY TAX

ADDITIONAL CUSTOMS DUTY (CVD)

ENTERTAINMENT TAX(unless levied by local bodies)

SPECIAL ADD. DUTY OF CUSTOMS (SAD)

SURCHARGES & CESSESS

SURCHARGES & CESSES ENTRY TAX

EXCISE DUTY UNDER M.T.P. ACT.

TAXES ON LOTTERY, BETTING AND GAMBLING

FEATURES OF THE PROPOSED GST MODEL

Ø Destination based Taxation.

Ø Apply to all stages of the value chain.

Ø Apply to all taxable supplies of goods or services (as against manufacture, sale or

provision of service) made for a consideration except- § Exempted goods or services § Goods or services outside the purview of GST§ Transactions below threshold limits.

Ø Dual GST having two concurrent components –• Central GST levied and collected by the Centre• State GST levied and collected by the States.

FEATURES OF THE PROPOSED GST MODEL

Ø CGST and SGST on intra-State supplies of goods / services in India

Ø IGST (CGST plus SGST) applicable to (i) Inter-State supplies of goods / services in India (ii) Inter-state stock transfers of goods (iii) Import of goods / services

Ø IGST levied and collected by the Centre

Ø Export of goods and services – Zero rated

All goods / services to be covered under GST except: ü Alcohol for human consumption - State Excise plus VAT ü Electricity - Electricity Duty ü Real Estate - Stamp Duty plus Property Taxes ü Petroleum – Till GST Council decides (A) will be out of the purview of GST; (B) sales tax / central levies will continue at the current rate

Ø Tobacco products – under GST plus Central Excise

Against SGST

Input Tax Credit in GST Model

Against IGST

ITC on SGSTAgainst SGST

Against IGST

ITC on CGSTAgainst CGST

Against CGSTITC on IGST

Against IGST

ORDER TO BE MAINTAINED

MODEL FOR INTER-STATE TRANSACTIONS OF GOODS / SERVICES

THE WORKING GROUP HAS

RECOMMENDED THE IGST

[INTEGRATED GST] MODEL FOR

INTER-STATE SUPPLIES

OF GOODS / SERVICES.

NET AMOUNT PAYABLE- CGST=110 – 100 =10, & SGST=110 – 100 =10

CGST:100 SGST:100

LOCAL PUR INVOICE

Value: 1000CGST: 100SGST : 100Total:1200

LOCAL SALE INVOICE

Value: 1100CGST: 110SGST : 110Total:1220

Out-put

CGST:110 SGST:110

ASSUMPTIONBasic price: 1000Value addition : 10%IGST rate : 20%CGST rate :10%SGST rate : 10%

In-put

IGST MODEL (100% LOCAL PURCHASE SALE)

NET AMOUNT PAYABLE: CGST=111.1 – 111.1 =0, SGST=111.1 – (200-111.1)=22.2

AS THE DEALER HAS NO ITC ON LOCAL INPUTS,

HE WILL FIRST ADJUST ITC ON IGST, WITH CGST & THEN THE BALANCE,

IF ANY, WITH SGST.

CENTRAL PUR INVOICE

Value: 1000IGST : 200Addl. Tax:10Total:1210

LOCAL SALE INVOICE

Value: 1111CGST: 111.10SGST : 111.10Total:1333.20

Out-put

CGST:111.1 SGST:111.1

ASSUMPTIONBasic price: 1000Value addition : 10%IGST rate : 20%CGST rate :10%SGST rate : 10%Addl. Tax :1%

In-put

IGST MODEL (100% CENTRAL PURCHASE AND 100% LOCAL SALE)

IGST:200

ADVANTAGES OF IGST MODEL

MANINTAINS UNINTERRUPTED ITC CHAIN IN INTER-STATE TRANSACTIONS;NO UPFRONT PAYMENT OF TAX, THUS NO BLOCKAGE OF FUNDS FOR INTER-STATE TRANSACTIONS;

EVEN ALLOWS SET-OFF OF SGST WITH IGST & VICE VERSA;

SELF MONITORING MODEL;

LEVEL OF COMPUTERISATION IS LIMITED TO INTER-STATE TRANSACTIONS;

ALLOWS INTER UNIT TRANSFER OF IGST-ITC;

SUCCESSFULLY ADDRESSES B2C TRANSACTIONS.

Constitutional Amendment Bill

Features of Constitutional Amendment Bill

122nd Amendment Bill introduced in LS on 19.12.2014

Concurrent jurisdiction for levy of GST by the Centre and the States –proposed Article 246A

Services means anything other than goods – proposed Article366 (26A)

Authority for Centre to levy & collection of IGST on supplies in the course of inter-State trade or commerce including imports – proposed Article 269A

Authority for Centre to levy non-vatable Additional Tax – to be retained by originating State

Goods includes all materials, commodities & articles – Article 366 (12)

GST defined as any tax on supply of goods or services or both other than on alcohol for human consumption – proposed Article 366(12A)

Features of Constitutional Amendment Bill

Goods and Services Tax Council (GSTC) – proposed Article 279A

To be constituted by the President within 60 days from the coming into force of the Constitutional Amendments

1/3rd weighted votes for Centre & 2/3rd for all States together

Consists of Union FM & Union MOS (Rev)

Consists of all State Ministers of Finance

Decisions by majority of 75% of weighted votes of members present & voting

Quorum is 50% of total members

Features of Constitutional Amendment Bill

Council to make recommendations on the followingØ Taxes, etc. to be subsumed in GST

Ø Special provisions for special category States

Ø Exemptions & thresholds

Ø GST rates & Band of GST rates

Ø Model GST Law & procedures

Ø Date from which GST would be levied on petroleum products

Ø Council to determine the procedure in performance of its functions

Ø Council to decide modalities for dispute resolution arising out of its recommendations.

Features of Constitutional Amendment Bill

Amendment in the Seventh Schedule:

List I, entry 84 to be substituted: “84. Duties of excise on the following goods manufactured or produced in India, namely:— (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco products.";

List I, entry 92 & 92C to be omitted.

Features of Constitutional Amendment Bill

Changes in List II, Entry 52 to be omitted

Entry 54 to be substituted: "54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.";

Entry 55 to be omitted

Entry 62 to be substituted: “62. Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.".

Features of Constitutional Amendment Bill

Assignment of Additional tax @ < or = 1% on supply of goods to origin based States (i.e. States from where the supply originates) for two years or such other period recommended by the GST Council

Compensation to the States for loss of revenue arising on account of implementation of GST for such period which may extend to five years.

ROAD TO GST MILESTONES

ROAD TO GST- MILESTONESØ Budget 2006-07: Announcement of intent to introduce GST by 2010

Ø May, 2007 to September, 2009: Discussions on roadmap & design between Empowered Committee of State Finance Ministers (EC) & GOI

Ø November, 2009: First Discussion Paper (FDP) released by EC

Ø January, 2010: Comments on FDP by GOI

Ø June, 2010 : Three sub-working Groups constituted by GOI vRegistration, return, payment, refund, audit & dispute resolution mechanism related issues

vDrafting of Central GST & model State GST legislations

vBasic design of IT systems required for GST in general and IGST in particular

ROAD TO GST- MILESTONES (CONTD.)

Ø July, 2010: Empowered Group on IT Infrastructure set-up

Ø March, 2011: Constitution (115th Amendment) Bill introduced in LS – Since lapsed with dissolution of LS

Ø November, 2012: Committee on GST Design set-up by EC

Ø January, 2013: Report submitted by Committee on GST Design

Ø February, 2013: Three Committees constituted by EC -

§ Dual Control, Thresholds and Exemptions

§ RNRs for SGST & CGST and Place of Supply Rules

§ IGST and GST on Imports

Ø March, 2013 – GSTN incorporated as a Section 25 Company

ROAD TO GST- MILESTONES (CONTD.)

Ø June, 2013: Committee to draft model GST Law

Ø July, 2013: Report submitted by Sub-Group-I on Business Processes

Ø August, 2013: Standing Committee on Finance submitted Report on the Constitution (115th Amendment) Bill

Ø April, 2014: Committee to examine Report of the sub-Group-I on Business Processes constituted by EC

Ø June, 2014: Report submitted by Committee on IGST and GST on Imports

Ø June, 2014: Report submitted by Committee on Dual Control, Thresholds & Exemptions

Ø October, 2014: Report submitted by Committee on RNRs & Place of Supply Rules

Ø December, 2014: Constitution (122nd Amendment) Bill introduced in LOK SHABA

ROAD TO GST- MILESTONES (CONTD.)

Ø Two major players: Centre & States

I. Empowered Committee of State Finance Ministers (EC) -§ Finance Ministers of all State Governments§ Chairman- Shri K. M. MANI, Hon’ble Finance Minister of Kerala§ Assisted by State Finance Secretaries/ Commissioners of

Commercial Taxes

II. Government of India -§ Department of Revenue§ CBEC

Ø Other Stakeholders – not directly involved in discussions

TWO SIGNIFICANT ISSUES

HOW TO TAX INTER-STATE

SUPPLIES

IN A DESTINATION BASED

TAX REGIME?

[ALREADY DISCUSSED - THE IGST MODEL]

HOW TO TAX SERVICES

EFFECTIVELY?

TRANSACTIONS LIABLE FOR GST (intra-state supply / inter-state supply / import)

TRANSACTIONS NOT LIABLE FOR GST (exempted services)

TERRITORIAL SCOPE (to include or not territorial water, sea bed, sub soil, water and air space above such water)

SERVICES – DEFINITION

TAXABLE PERSON

GOVT. AS TAXABLE PERSON

PLACE OF SUPPLY / TIME OF SUPPLY

ZERO RATING OF SUPPLY (export / deemed export)

ISSUES RELATING TO SERVICES

CURRENT STATUS

v AMENDMENT BILL reintroduced in Lok Sabha on 19.12.2014

v Procedure for passage of Constitutional Amendment Billü To be passed by 2/3rd majority in both the Houses of

Parliament ü To be ratified by at least 50% of the State

Legislaturesü Assent by the President of India

v Thereafter, GSTC to be constituted by the President of India within 60 days

v GSTC to recommend GST Laws to the Union & the States

v GST Law(s) to be introduced in Parliament / State legislatures

CURRENT STATUS

v DRAFTING OF LEGISLATION

ü Committee & three sub-committees of officials (Centre & States) constituted to finalize model legislation (CGST, SGST and IGST)

v BUSINESS PROCESSES AND IT FRAMEWORK

ü IT Infrastructure for GST to be put in place jointly by the Centre & States

ü Empowered Group headed by Dr. Nandan Nilekani finalized the design and modalities of GSTN

ü NSDL appointed the Technology partner

ü GSTN established as a Section 25 Private Ltd. Co. on 28.03.2013

Thank You

BINOD KUMARCOMMISSIONER, CT, WB