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Roadmap to Goods & Roadmap to Goods & Service TaxService Tax
-- By CA Raghav BajajBy CA Raghav Bajaj
© Copyright Raghav Bajaj
22
2 things bound to happen in a human’s life
Death Taxes
Doesn’t
get worse
every
year!!! “The hardest thing in the world to
understand is the income tax.”
© Copyright Raghav Bajaj
33
Objectives ofObjectives ofThe paperThe paper
GST-What & Why?? The GST model Conclusion
Cascading Effect of taxes
Multiple levels of taxation
Treating goods & services on the same
footing
Ensuring that the credit chain doesn’t
break
Reduction in inflation
Rate Structure
Inter State Transactions
Minimal exemptions
The Indian Constitution
Extinction of CST © Copyright Raghav Bajaj
44
GST-What & Why??
Cascading Effect of taxes
Multiple levels of taxation
Treating goods & services on the same footing
Ensuring that the credit chain doesn’t break
Reduction in inflation
© Copyright Raghav Bajaj
55
Cascading EffectCascading Effect
Centre cannot levy tax beyond point of Centre cannot levy tax beyond point of manufacturing.manufacturing.
States cannot levy tax on services.States cannot levy tax on services.
Unfriendly input tax credit rules.Unfriendly input tax credit rules.
© Copyright Raghav Bajaj
66
Cascading Effect (Cascading Effect (contd.contd.) – Illustration) – Illustration
Rajasthan Chattisgarh
Goods manufactured in RajasthanGoods manufactured in Rajasthan 100.00100.00
Add: - Excise Duty @ 10%Add: - Excise Duty @ 10% 10.0010.00
Total CostTotal Cost 110.00110.00
Add: - CST @ 2% on 110 (Add: - CST @ 2% on 110 (inter state salesinter state sales)) 2.202.20
Purchase price in ChattisgarhPurchase price in Chattisgarh 112.20112.20
Add: - Value Added by buyer in ChattisgarhAdd: - Value Added by buyer in Chattisgarh 40.0040.00
Total CostTotal Cost 152.20152.20
Add :- VAT levied @ 10% on 152.2Add :- VAT levied @ 10% on 152.2 15.2215.22
TotalTotal 167.42167.42
CST
levied on
excise
also
VAT
levied on
prior
taxes also
Goods sold
© Copyright Raghav Bajaj
77
Cascading Effect (Cascading Effect (contd.contd.) – Illustration) – Illustration
Who bears the Ultimate Burden
???
Final Consumer!!
No credit of excise in CST
No credit of excise & CST in VAT
© Copyright Raghav Bajaj
88
Harmonization & Simplification ofIndirect Taxation
Subsumes various central and state statues Subsumes various central and state statues Central StatuesCentral Statues State StatuesState Statues
The Excise Law The Excise Law State VAT State VAT
Additional duties of customs Additional duties of customs Entry Taxes not in lieu of OctroiEntry Taxes not in lieu of Octroi
The Service Tax The Service Tax Taxes on lottery etc. Taxes on lottery etc.
CST CST Entertainment taxes Entertainment taxes
Purchase tax, Octroi might Purchase tax, Octroi might notnot be subsumedbe subsumed
Basic Custom duties
will remain outside
the GST regime
© Copyright Raghav Bajaj
99
Objectives ofObjectives ofThe paperThe paper
GST-What & Why?? The GST model Conclusion
Cascading Effect of taxes
Multiple levels of taxation
Treating goods & services on the same
footing
Ensuring that the credit chain doesn’t
break
Reduction in inflation
Rate Structure
Inter State Transactions
Minimal exemptions
The Indian Constitution
Extinction of CST © Copyright Raghav Bajaj
1010
The GST model
Rate Structure
Inter State Transactions - IGST
Minimal exemptions
The Indian Constitution
Extinction of CST
© Copyright Raghav Bajaj
1111
Rate ForGST
CGST – Central GST SGST – State GST
© Copyright Raghav Bajaj
1212
Expected GST RateExpected GST Rate
16%-16%-18%18%
© Copyright Raghav Bajaj
1313
Inter state GST - IGSTInter state GST - IGST
© Copyright Raghav Bajaj
1414
The GST model
Rate Structure
Inter State Transactions
Minimal exemptions
The Indian Constitution
Extinction of CST
© Copyright Raghav Bajaj
1515
Minimal exemptions in GST
More exemptions = More problems
© Copyright Raghav Bajaj
1616
The GST model
Rate Structure
Inter State Transactions
Minimal exemptions
The Indian Constitution
Extinction of CST
© Copyright Raghav Bajaj
1717
Constitutional Amendment Bill (CAB)
Presently, the centre can impose taxes on manufactured goods and services;
While states can only tax sales of goods. At present, the States do not have the power to levy taxes on services.
The CAB was tabled before the Parliament of India on 22 March 2011 by the Finance Minister of India.
The CAB needs to be passed by a 2/3rd majority in both Houses of Parliament.
Subsequently it needs to be ratified by at least 50% of the state legislative assemblies before it can legally amend the present provisions of the Constitution.
After ratification of the CAB, the center and state assemblies will have to pass the GST legislation.
© Copyright Raghav Bajaj
1818
GST and the Constitution of India
The amendments have 3 components: 1. Grant of new powers to the Centre
and the states to levy GST, 2. Deletion of powers to levy taxes that
are to be subsumed by the GST, and 3. Empowering the finance ministries
to collectively determine the design of GST
18© Copyright Raghav Bajaj
1919
The GST model
Rate Structure
Inter State Transactions
Minimal exemptions
The Indian Constitution
Extinction of CST
© Copyright Raghav Bajaj
Changes to the Finance Bill 2011-2012 for introducing GST
IT infrastructure Number of exceptions to excise duty
have been reduced Negative list of services (27 services
proposed under 9 broad categories)[Source: http://www.cbec.gov.in/taxservices-negativelst.pdf]
Definition of service
20© Copyright Raghav Bajaj
2121
Expectations from GST
Cost of production
Rise in demand
Competitiveness
Govt. revenues
© Copyright Raghav Bajaj
2222
Yes to GST but when???? The introduction of a new GST has been
long-awaited in India. But the burning question is — what is the expected time line for its implementation?
The government has expressed its intention to introduce a national-level GST by 1 April 2012.
However, the implementation has been delayed in the past and this may not be a firm date.
22© Copyright Raghav Bajaj
2323
Conclusion
Reduction in compliance costs
Reduction in inflation
Opportunity for CA’s
Globally fruitful results
© Copyright Raghav Bajaj
GST – a weapon against corruption
Reduction in the ‘cash’ component of the economy
Heavy reliance on technology PAN based GST registration Shifting from origin to destination
based taxation
24© Copyright Raghav Bajaj