GOODS AND SALES TAXGOODS AND SALES TAX

-- AN OVERVIEW -- AN OVERVIEW

BY,BY,

UMA SANTHOSH,UMA SANTHOSH,

VINOD.VINOD.

WELCOME!WELCOME!

One of the biggest taxation reforms in India -- the Goods and One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) -- is all set to integrate State economies and Service Tax (GST) -- is all set to integrate State economies and boost overall growth. boost overall growth.

GST will create a single, unified Indian market to make the GST will create a single, unified Indian market to make the economy stronger.economy stronger.

Before evaluating the cost advantages of shifiting to GSTBefore evaluating the cost advantages of shifiting to GST

lets find answer to below question.lets find answer to below question.

‘ ‘ Just what is GST all about and how will it impact us?’ Just what is GST all about and how will it impact us?’

What is GST?What is GST?

Goods and Services Tax -- GST -- is a comprehensive tax levy on manufacture, Goods and Services Tax -- GST -- is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.sale and consumption of goods and services at a national level.

GST is a consumer based tax and not origin basedGST is a consumer based tax and not origin based. Under this structure of . Under this structure of GST, the tax will be collected by the states where the goods or services actually GST, the tax will be collected by the states where the goods or services actually consumed.consumed.

The system allows the set-off of GST paid on the procurement of goods and The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply However, the end consumer bears this tax as he is the last person in the supply chain.chain.

Experts say that GST is likely to improve tax collections and boost India's Experts say that GST is likely to improve tax collections and boost India's economic development by breaking tax barriers between States and integrating economic development by breaking tax barriers between States and integrating India through a uniform tax rate.India through a uniform tax rate.

Are we late to implement?Are we late to implement?

Finance Minister Pranab Mukherjee while presenting the Budget on July Finance Minister Pranab Mukherjee while presenting the Budget on July 6, 2009, said that GST would come into effect from April 2010. 6, 2009, said that GST would come into effect from April 2010.

(Till now; the date of implementation has been pushed beyond from (Till now; the date of implementation has been pushed beyond from 01/04/2011 to may be 1st October 2011 or 1st April 2012.)01/04/2011 to may be 1st October 2011 or 1st April 2012.)

The implementation of GST will lead to the abolition of other taxes such The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, et cetera, thus electricity, taxes on transportation of goods and services, et cetera, thus avoiding multiple layers of taxation that currently exist in India.avoiding multiple layers of taxation that currently exist in India.

What are the benefits of GST?What are the benefits of GST?

Under GST, the taxation burden will be divided equitably between Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.increasing the tax base and minimizing exemptions.

It is expected to help build a transparent and corruption-free tax It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).and not at various points (from manufacturing to retail outlets).

Currently, a manufacturer needs to pay tax when a finished Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the product moves out from a factory, and it is again taxed at the retail outlet when sold.retail outlet when sold.

How will it benefit the Centre and the States?How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year by It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies?What are the benefits of GST for individuals and companies? In the GST system, both Central and State taxes will be collected In the GST system, both Central and State taxes will be collected

at the point of sale. Both components (the Central and State GST) at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.lead to more consumption, thereby helping companies.

What type of GST is proposed What type of GST is proposed for India?for India?

India is planning to implement a dual GST system. India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax Under dual GST, a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.will be levied on the taxable value of a transaction.

All goods and services, barring a few exceptions, will All goods and services, barring a few exceptions, will be brought into the GST base. There will be no be brought into the GST base. There will be no distinction between goods and services.distinction between goods and services.

Which other nations have a Which other nations have a similar tax structure?similar tax structure?

  Almost 140 countries have already implemented the Almost 140 countries have already implemented the GST. Most of the countries have a unified GST GST. Most of the countries have a unified GST system. Brazil and Canada follow a dual system where system. Brazil and Canada follow a dual system where GST is levied by both the Union and the State GST is levied by both the Union and the State governments. governments.

France France was the first country to introduce GST system was the first country to introduce GST system in 1954.in 1954.

Who would be impacted by the implementation of GST?Who would be impacted by the implementation of GST?

All Business whether engaged in the sales or supply of services would be All Business whether engaged in the sales or supply of services would be impacted by GST. If you are dealing Goods covered under GST or if you impacted by GST. If you are dealing Goods covered under GST or if you are rendering any service you will be covered under GST.are rendering any service you will be covered under GST.

What type of GST is expected to be applied in What type of GST is expected to be applied in India?? In India, dual GST is expected to be proposed wherein Centre and State In India, dual GST is expected to be proposed wherein Centre and State

will be levying on the transactions of the value of Goods or Service. In will be levying on the transactions of the value of Goods or Service. In India, due to federal structure, there is a proposal to introduce dual GST India, due to federal structure, there is a proposal to introduce dual GST system.system.

What is dual GST?What is dual GST? Under dual GST, it is levied by both the Central Goods and Service Tax Under dual GST, it is levied by both the Central Goods and Service Tax

(CGST) and State Goods and Service tax (SGST) will be levied on the (CGST) and State Goods and Service tax (SGST) will be levied on the taxable value of the transaction.taxable value of the transaction.

What will be the expected rate of GST?What will be the expected rate of GST? The rate is expected to be in the range of 14 to 16%. Once the total GST is The rate is expected to be in the range of 14 to 16%. Once the total GST is

determined, the central and states have to agree on Central GST and determined, the central and states have to agree on Central GST and State GST rates.State GST rates.

Cost advantages of shifting.Cost advantages of shifting.

GST makes the price of a product unique throughout the country.GST makes the price of a product unique throughout the country. The concept of warehouse changes when GST is introduced. In The concept of warehouse changes when GST is introduced. In

the present tax system a ware house is required for each state. the present tax system a ware house is required for each state. If If the dealer and the ware house are in different states, then the the dealer and the ware house are in different states, then the dealer needs to pay a Central Sales Tax of about 2%.dealer needs to pay a Central Sales Tax of about 2%.This This increases the price of the commodity. Thus companies use to increases the price of the commodity. Thus companies use to setup a warehouse in each state.setup a warehouse in each state. In GST as the CST gets In GST as the CST gets eliminated, the number of warehouses can get reduced.eliminated, the number of warehouses can get reduced.

Savings in paper work.Savings in paper work.

This can also This can also reduce much paperworkreduce much paperwork as as GST is not much complicated.GST is not much complicated.

The GST is a welcomed tax pattern as it The GST is a welcomed tax pattern as it can can reduce the price of the Goods increasing reduce the price of the Goods increasing the consumption the consumption and finally increases the and finally increases the production.production.

Savings in logistics..Savings in logistics..

Logistics constitutes 12-13% of GDP and Logistics constitutes 12-13% of GDP and saving of 5% in logistics cost saving of 5% in logistics cost can can unlock huge value for the economy.unlock huge value for the economy.

Any revenue loss on account of Removal Any revenue loss on account of Removal of Octroi taxes in the state of of Octroi taxes in the state of Maharashtra, will be temporary, as it Maharashtra, will be temporary, as it will will attract more investment attract more investment in the state.in the state.

What are the items on which GST may What are the items on which GST may not be applied?not be applied?

Alcohol, tobacco, petroleum products are Alcohol, tobacco, petroleum products are likely to be out of the GST regime.likely to be out of the GST regime.

Why are some States against GST; will they Why are some States against GST; will they lose money?lose money?

The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology systems and the administrative say that the information technology systems and the administrative infrastructure will not be ready by April 2010 to implement GST. infrastructure will not be ready by April 2010 to implement GST. States have sought assurances that their existing revenues will be States have sought assurances that their existing revenues will be protected.protected.

The central government has offered to compensate States in case of The central government has offered to compensate States in case of a loss in revenues.a loss in revenues.

Some States fear that if the uniform tax rate is lower than their Some States fear that if the uniform tax rate is lower than their existing rates, existing rates, it will hit their tax kittyit will hit their tax kitty. The government believes that . The government believes that dual GST will lead to better revenue collection for States.dual GST will lead to better revenue collection for States.

However, However, backward and less-developed States could see a fall in backward and less-developed States could see a fall in tax collectionstax collections. GST could see better revenue collection for some . GST could see better revenue collection for some States as the consumption of goods and services will rise.States as the consumption of goods and services will rise.

A WRAP UP ON A WRAP UP ON ADVANTAGES.ADVANTAGES.

1)Speeds up economic union of India;1)Speeds up economic union of India;

(2)Better compliance and revenue buoyancy;(2)Better compliance and revenue buoyancy;

(3)Replacing the cascading effect [tax on tax] created by (3)Replacing the cascading effect [tax on tax] created by existing indirect taxes;existing indirect taxes;

(4)Tax incidence for consumers may fall; (4)Tax incidence for consumers may fall;

(5)Lower transaction cost for final consumers;(5)Lower transaction cost for final consumers;

(6) By merging all levies on goods and services into one, GST acquires a (6) By merging all levies on goods and services into one, GST acquires a very simple and transparent character;very simple and transparent character;

(7) Uniformity in tax regime with only one or two tax rates across the (7) Uniformity in tax regime with only one or two tax rates across the supply chain as against multiple tax structure as of present; supply chain as against multiple tax structure as of present;

(8) Efficiency in tax administration; (8) Efficiency in tax administration;

(9) May widen tax base;(9) May widen tax base;

(10) Increased tax collections due to wide coverage of goods and services; (10) Increased tax collections due to wide coverage of goods and services; andand

(11) Improvement in cost competitiveness of goods and services in the (11) Improvement in cost competitiveness of goods and services in the international market.international market.

THANK YOUTHANK YOU