1

Presented By Presented By

CA Swatantra Singh, CA Swatantra Singh, B.Com , FCA, MBAB.Com , FCA, MBA

Email ID: Email ID: singh.swatantra@gmail.com New Delhi , 9811322785New Delhi , 9811322785,,

www.caindelhiindia.com, www.caindelhiindia.com, www.carajput.com www.carajput.com

GST – Where are we and what next ?

To recapitulate – GST Principles

Imports - Taxed

Exports – Relieved of tax

Business

Internal trade – Tax sticks to goods

Business

GST Model

Central Level GST……

State Level GST……

Centre and State to legislate, levy and administer

How is it different from current system ?

Tax on manufacture of goods & provision of services – Tax on supply of goods & services

Multi point tax with input tax credit - same

Standard rate across country – national level - same

Exports – zero rated – almost full input tax credit – same

Imports –subject to CenVAT/Service tax - same

Central VAT/Service Tax to GSTCurrent and Proposed Design Features

Invoice based credit system - same

Registered dealer concept for maintaining chain – not required

Value added by trade not captured – will be captured

Origin based Manufacturing Sector Goods VAT & Service Sector VAT to Central GST

Central VAT/Service Tax to GSTCurrent and Proposed Design Features

Tax on sale of goods – services not covered – services will be covered

Multi point tax with input tax credit - same

Exports – zero rated – full input tax credit for state VAT and partial for service tax - same

State VAT to State GSTCurrent and Proposed Design Features

Imports – tax free – will be taxable

Invoice based credit system - same

Value added by trade for goods captured – same

Destination based Trade Sector Goods VAT to S-GST

State VAT to GSTCurrent and Proposed Design Features

To what advantage – why dual model ?

Achievable from constitutional perspective

No adverse impact on Central and State Government revenues/ cash flows

No need for major shift in staffing requirements

GST on import of goods – issue of unequal treatment of domestic and imported goods addressed

Exports can be relieved of taxes – more competitive

Two level GST - merits

2004-05

(as a % of the total revenue)

2005-06

(as a % of the total revenue)

2006-07

(as a % of the total revenue)

Sales Tax * 61.7 61.6 62.6

State Excise Duties 11.6 11.6 11.4

Stamp duty & Reg. fee 10.4 10.7 11.0

Other Taxes 16.3 16.1 15.0

Total 100 100 100

* Comprises of General Sales Tax, Central Sales Tax, Sales Tax on motor spirit and Purchase Tax on sugarcane, etc.

Source: Economic Survey 2006-07 and State Finance report from RBI website

Revenue Receipts- Indirect Taxes (State level)

Cost of compliance for businesses- will continue to be high

Apprehensions/risks continue:

– Variable rates/Exemptions/trade diversion

– Non uniformity of classification

– Double taxation – overlap between states and Centre and states

– Multiplicity of litigation…….

Two level GST - Demerits

““Feel Good” Factor ( ? )Feel Good” Factor ( ? )

Australia ? United States of America ? Canada ? Brazil ? EU ?

International Comparatives?

Major Reform….what is reform ?

A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform.

Full of challenges

Issues and Challenges

Constitutional Amendment

Taxes to be

Subsumed

Comprehensive

Number of lawsRates

Classification

Valuation

Input tax

credit

Interstate sales

Goods & Services

Basic exemption

Constitutional Amendments

Central List

State List

New List ??

Taxes to be subsumed?

Central Level

State Level

Comprehensive

Sin/Demerit goods?

Services ?

Statute/Rules

Two

28 +

Rates

Same at Centre and State/for goods & services?

Same for intra state and interstate transactions ?

Same for special types of transactions like works

contracts, leases ?

How many ? Fixed / Variable – flexibility within

range ? Exemptions ?

Who should determine ?

GST Rates - International comparison

* CENVAT: 10.3 % + VAT;12.5 % Source: KPMG

GST Rates - International comparison

10.012.5 13.0 14.0 15.0

17.0 17.5/15 19.0 19.6 20.0

24.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Aus

tral

ia

New

Zeal

and

Can

ada

Sout

hA

fric

a

Mex

ico

Chi

na UK

Ger

man

y

Fran

ce

Italy

Indi

a

Classification

Common across the

country?

Interpretations – how to

ensure uniformity?

Valuation

Tax base for both levels same ?

Common across the country ?

Interpretations – how to ensure uniformity?

MRP based and like – should continue ?

Interstate Transactions

Intra-state and Inter-state Trade – avoid double and no taxation

Goods

Services

Central Sales Tax Act – abolition or modification?

Central Sales Tax

Source: State finance report from RBI website; Budget speech 2007-08

Budgetary support of Rs 5495 crore

1934517371

14284

0

5000

10000

15000

20000

25000

2004-05 2005-06 (RE) 2006-07 (BE)

CST collection

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Manufacturer

(Maharashtra)

Buyer (Maharashtr

a)

Buyer (Delhi)

Sale price 100Add: CGST (10 percent) 10Add: SGST (10 percent) 10Total 120

Sale price 120Add: IGST (20 percent) 24Total 144IGST payable (24-10-10) 4IGST payable by utilising IGST, CGST, SGST

CGST + SGST

IGST

Proposed IGST Model

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Impact of taxing Inter-state stock transfers: Illustration

Company A manufactures Product P which is stock transferred at INR 1000

Raw Material

Pre – GSTPrice Excis

e (10%)

VAT (12.5%) /

CST (2%)

Product X (local)

400 40 55

Product Y (inter-state)

400 40 8.8

Total 800 80 63.8

Raw Material

Post - GST

Price

CGST (10%)

SGST (10%)

IGST (20%)

Product X (local)

400 40 40 -

Product Y (inter-state)

400 - - 80

Total 800 40 40 80

Input Tax Credit

Comprehensive for each level

Central to Central and State to State

Restrictions and limitations – capital goods, consumables, promotional materials, fuel?

Deemed sale transactions

Interpretations – how to ensure uniformity ?

Credit available for utilisation

IGST

CGST

SGST

Output Liability

IGST, CGST, SGST

CGST, IGST

SGST, IGST

Proposed Credit utilisation under GST

Basic Exemption

Common or different?

For goods and services

For Central GST and State GST

Between States

Should apply on cumulative basis?

Others

Incentive Schemes

Records

Advance Rulings

Assessments / Audits

Transition provisions ……

& More……

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Taxable event – sale / supply (for inter-state) / raising of invoice

MRP scheme to be abolished

Job work arrangements - valuation, treatment of credit etc

Job work – whether supply of ‘goods’ or ‘service’?

Impact on high seas sales, exemption to in-transit sales?

Transition related matters – closing stock, accumulated credit

Other Issues

Central Indirect Tax Regulatory Authority/GST Council…

…formalization of EC...

… a possible solution ?

Road ahead – what businesses ought to do?

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Changes in effective tax rates for supplies as well as purchases

Transactions/ Supplies which are currently exempt from tax may become liable to GST, and vice-versa

Input taxes which are currently a cost may be eligible as ‘credit’ in future

Special tax computation schemes, valuation provisions may be amended/ withdrawn

Supply chain: Tax cost on sourcing/ distribution/ logistics

Finance: Impact on cash flows, project costs

Marketing: Impact on product price, promotional schemes

IT: Invoicing, returns, MIS reports

What this transition will entail

Pur goods in Maharashtra

Interstate Purchase

Import - Tech services

Interstate Services

60

40

50

40

10Domestic Services

Stock transfer to Gujarat

Sale to Rajasthanconsumer

Sale to Madhya Pradesh dealer

80

100

70

Import goods 100

Sale in Maharashtra

150

AssumptionsC-GST: 12 %S-GST: 8 %I-GST: 20 %

Manufacturer-Maha

Compute GST Liability

Basic Elements of GST

GST is an indirect tax on consumption. GST (multi-stage) is contemplated to be charged and

collected at each stage of the production / processing / trading, on the value addition of goods and services

A dual GST is being proposed wherein a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.

Imports would be subject to GST.

Basic Elements of GST

Exports would be zero-rated. GST must contemplate set-off of tax paid

on inputs / capital goods and services. GST will require maintenance of accounts

of tax paid on purchases and sales of goods and services.

In a GST regime the tax component in any transaction is identifiable /computable

VAT vs GST - Preamble

VAT / CST

Governed under entry no. 54 of List II and entry no. 92A of the List I to the Seventh Schedule

GST

GST will be governed under List I of the Seventh Schedule

GST will be governed under List II of the Seventh Schedule

Or Possible that both CGST

and SGST will be governed under List III of the Seventh Schedule

VAT vs GST – Preamble

VAT / CST Article 286 lays down

the principles for formulating the transactions relating to export / import / sale effected outside the State

GST It appears that Article

286 may continue even under GST regime with certain modifications to include interstate movement of goods and principles relating to services

GST Preamble Taxes most likely to be subsumed by GST

Central Excise

Service tax

Additional duty of customs

VAT

Entry tax not in lieu of Octroi

Luxury tax, Entertainment tax, Electricity taxes. Most of the Local laws, except stamp duty.

State surcharges related to supply of goods and services

Customs duty will remain outside GST

VAT vs GST – Preamble

VAT / CST Currently there are 29 State

VAT laws

CST law – applicable in case of inter-State transaction and subject to tax at the rate of 2% (against C Form) or local rate (without C Form) as the case may be

GST It appears that even

under GST regime there will be 29 SGST laws and one CGST law.

IGST law will be favoured in respect of inter-State movement of Goods. The taxes charged under IGST could be available for set-off.

VAT vs GST - Preamble

VAT / CST

VAT is not adopted in its pure form

No set-off is allowed on central sales tax paid and other State levies such as luxury tax, entry tax etc

GST Same will be the case even

under GST regime No set-off will be allowed under

other State levies It appears there will be certain

restrictions in respect of allowing set-off of Central GST against State GST or vice versa. Further Customs duty paid may not be allowed as set-off under State GST.

VAT vs GST - Preamble

VAT / Service Tax / Excise Under VAT law – Goods

are listed for the purpose of levy of taxes

Under Service Tax – Taxable services are defined

Under Excise Law – Excisable Goods are listed for the purpose of levy of taxes

GST Under CGST / SGST –

- Goods will be listed for the purpose of levy of taxes. This will be based on the HSN classification

- Services will be defined as – those which are not goods. The law will only list down the exempted services.

VAT vs GST - Registration

VAT/CST Registration

mandatory if the total turnover is in excess of Rs. 2 lakhs (Rs. 1 lakh in certain cases).

One registration number (TIN) applicable for VAT / CST / KTEG / PT.

GST Registration is mandatory

under- SGST –threshold limits will be in

the range of Rs. 10 lakhs.

- CGST – threshold limits will be in the range of Rs. 10 lakhs

Two registration numbers may be applicable – one for CGST based on PAN number and other for SGST State wise which may include KTEG / PT

VAT vs GST - Transitional Provision

VAT / CST Transitional

provisions – allowed to avail set-off only in respect of those purchases which are:

- effected within the State;

- effected within one year; and

- Lying in the closing stock

GST Transitional provisions – Set-off

may be allowed in the following manner:

- Excise duty / service tax (CENVAT credit) will be allowed only against Central GST;

- VAT will be allowed to be set-off only against State GST;

- CST paid would not be entitled for set-off;

- Credits relatable to immediately preceding 6 months or 1 year and are lying in the stock / WIP in respect of goods. Services is an issue.

VAT vs GST – Output tax / Output service

VAT Applicable on sale of

goods It is an origin based

levy

The rate of tax followed by different States are:

- 1%, 4%, 7.5%,8%, 12.5%, 20%, 2%, 5%, 15% etc

GST Applicable on both goods and services In respect of goods, the SGST levy will

be origin based whereas in respect of service tax the levy will be consumption based.

The rate of tax that may be followed by different States are:

- Central GST - 8% to 10%, 0%, 1%, 4%, 20% and exempt

- State GST - 8% to 10%, 0%, 1%, 4%, 20% and exempt.

VAT vs GST – Output tax / Output service

VAT / CST Few commodities are

subject to tax under the KST law even after VAT is introduced.

GST It appears that KST / VAT

/ CST law will continue parallelly even under the GST regime and may not be repealed till such time litigation concludes and time for revision exists.

In respect of inter-State movement of goods IGST will be introduced.

Integrated GST (IGST)

In case of inter-State movement of goods- The dealer is required to pay IGST.

- IGST will be administered by the Central Government.

- The buyer will be entitled to avail IGST as credit and can claim set-off against only CGST or IGST

VAT vs GST – Output tax / Output service

VAT / CST

The concept of HSN classification is not followed in totality.

Tax will be levied on sale price

GST It is widely expected that HSN

system of classification will be implemented only in respect of Goods but not in respect of services. Both Centre and State will list down the services which would be exempt.

The same concept will be implemented wherein the taxes will be levied on sale price. However, in respect of services, valuation rules might be considered.

VAT vs GST – Output tax / Output service

VAT / CST Declared goods under

the CST law is subject to tax at the rate of 4%

Each State has the power to exempt few commodities

C Form / Form F / Form H / Form I

GST The concept of declared

goods may be continued even under the GST regime specifically under State GST

Same may be continued even under the GST regime

Similar statutory forms will be continued in order to have control over the movement of goods from one State to another State

VAT vs GST – Output tax / Output service

VAT / CST Works contract is a

complex issue and subject to tax only in respect of goods sold.

Composition scheme is applicable for works contract

GST Possible that there will be a

different chapter itself in respect of works contract. However, each State may have its own method of levying taxes on works contract. A set-off valuation rules might be introduced in this regard.

Same may not be continued under the GST regime. However, each SGST law may have composition scheme for small dealers, subject to threshold.

VAT vs GST – Input tax / CENVAT credit

VAT / CST No set-off against

inter-State purchases

No set-off against duty paid under both Central Excise and Service Tax

No set-off against Customs duty paid

GST Set-off may be permissible in

respect of inter-State purchase – since the IGST payable in the buying State will be subject to e-clearing home mechanism.

Set-off may not be allowed in respect of customs duty under SGST.

VAT vs GST – Input tax / CENVAT credit

VAT / CST

Partial rebating is allowed in respect of goods used for both taxable and exempted

Stock transfer to a place outside the State - not liable to tax but subject to input tax restriction

GST

Partial rebating concept may be introduced even under the GST regime. There will be different formulae one needs to adopt for CGST and SGST

Major issue under the GST law more specifically concerned with stock transfer of services. It appears that there will not be any stock transfer concept under GST regime in respect of services.

VAT vs GST – Input tax / CENVAT credit

VAT / CST Input tax credit in respect of

specified capital goods is allowed immediately in few States.

Movement of capital goods from one State to another – input tax credit is allowed partially

GST IGST – set off may be

allowed over a period of time;

SGST – May vary between the States

SGST – May be allowed partially and be subject to restrictions

VAT vs GST – General Exemption

VAT / CST Sale to SEZ unit /

International Organization

Based on white paper – around 50 commodities were identified for the purpose of exemption

GST Same will continue

even under the GST regime

Similarly, States may be empowered to exempt certain commodities. In other words, goods which are exempt from State GST need not be exempted from IGST.

VAT vs GST - Administration

VAT / CST VAT / CST law –

administered by one authority

Clarification / Notification issued by the authorities / Government is applicable only in the State

GST State GST will be

administered by the State and Central GST will be by the Union.

Clarification / Notification issued by the Union in respect of Central GST may not hold good in the appropriate State and vice versa

VAT vs GST - Administration

VAT / CST Assessee / Dealer is

subject to various assessments, appeals etc.

Few States have abolished Advancing Ruling Authority

GST Even under the GST regime,

the dealer / assessee will have to undergo various assessments, appeals etc.

Advance Ruling provision may be enacted subject to certain conditions. It appears that two authorities will be constituted.

VAT vs GST - Administration

VAT / CST In respect of inter-State

transaction – CST law monitors the movement of goods and also the applicability of taxes

Checkpost is established for monitoring the movement of goods within the State

GST There will be clearing

housing mechanism which will be adopted in the GST regime for inter-State transactions.

The concept of checkpost will be continued even under GST regime

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Presented By Presented By

CA Swatantra Singh, B.Com , FCA, MBA CA Swatantra Singh, B.Com , FCA, MBA Email ID: singh.swatantra@gmail.comEmail ID: singh.swatantra@gmail.com

New Delhi , 9811322785,New Delhi , 9811322785, www.caindelhiindia.com, www.caindelhiindia.com,

www.carajput.comwww.carajput.com