Presentation on theme: "GOODS AND SERVICE TAX (GST) IN INDIA"— Presentation transcript:
1 GOODS AND SERVICE TAX (GST) IN INDIA – Challenges AheadJanuary 29, 2012
2 AGENDA Present Indirect Taxation system in India Concept of GST and other salient pointsWhy GSTProposed GST Model and How it would workIGST MODELChallenge before usOpportunity for Company Secretary
3 PRESENT INDIRECT TAX SCENARIO IN INDIA INDIRECT TAXATIONSales Tax / VATEntertainment TaxLuxury TaxTaxes on lottery,betting and gamblingEntry TaxOctroi etc.Central ExciseCustom DutyExport DutyService TaxCentral sales TaxSTATECENTRAL
4 GST – GLOBAL SCENATIOMore than 150 countries have already introduced GST/ National Level VATTypically GST is a unified Tax System in most of the CountriesCanada and Brazil only have dual GSTStandard rate of most of the Countries ranges between %
5 WHAT IS GST ?GST is a tax on goods and services, which is leviable at each point of sale or provision of services, in which at the time of sale of goods or providing the services the seller or service provider can claim the input tax credit (ITC) which he has paid while purchasing the goods or procuring the services.A Comprehensive value added axValue added in each stageon goods and servicesTaking Input Tax Credit (ITC)
6 Total Tax collection =(30+10+10)=Rs50 which equal to 20% of Rs.250/- GST CHARTWholesaler40-30=10150+(15+15)200+(20+20)Departmentof TaxManufacturerRetailer50-40=1030250+(25+25)CustomerAssume GGST & SGST is 10%Total Tax collection =( )=Rs50 which equal to 20% of Rs.250/-
7 Self policing or voluntary compliances SALIENT POINTS OF GST:A Comprehensive Tax on Goods and ServicesMulti-point Tax on value added at each stageTax is only cost to the end customerConsumption based tax not origin baseNo cascading due to input credit mechanismSelf policing or voluntary compliancesReduction of Tax evasion /Widens the taxation base
8 WHY GST ?Division of power for imposition of tax between Central and State (Excise vs. VAT)Multiplicity of taxes at the Central and States Level.Multiplicity of taxable event.Complexity in the present systemCascading effect (i.e Tax on Tax) or Double TaxationCentral Sales Tax (CST): No ITCComposite ContractsNo harmonized system of taxation
9 India is federal country. GST MODELDUEL GSTCENTRAL GSTSTATE GSTWhy Dual GST :India is federal country.Centre and States have been assigned power to levy taxesBenefits of Dual GST:Reduction of no. of taxes at centre and StateDecrease in effective Tax for widen of tax baseRemoval of current cascading effectReduction of transactional cost through simplified tax compliances
10 Subsuming of Central CST Additional Excise DutyAdditional Custom Duty (CVD)Service TaxCentral Excise DutyCentral GSTExcise Duty levied under the MTP ActSpecial Additional Duty of Customs
11 State Cesses & Surcharges Taxes on lottery, betting & gambling Subsuming of State GSTState Cesses & SurchargesEntry TaxLuxury TaxVAT / Sales TaxState GSTEntertainment TaxTaxes on lottery, betting & gambling
12 DECISION DEFERRED ON FOLLOWING TAXES NOT- SUBSUMING IN GSTBasic Custom dutyBasket of petroleum products: crude, motor sprit (including AFT) and HSDAlcoholic beveragesStamp dutyPurchase TaxElectricity dutyTaxes on Natural GasTax on vehicles and transport of goods & passengersDECISION DEFERRED ON FOLLOWING TAXES
13 Salient Features of the Proposed GST Model Applicable to all transactions of goods and services except:the exempted goods and servicesGoods which are outside the purview of GST andthe transactions which are below the prescribed threshold limitsCGST and SGST are to be paid to the accounts to the centre and the states separately.ITC (Input Tax Credit):ITC on central GST would be utilized only against the payment of CGST. The same principal will be applicable for SGST.Cross utilization of ITC between the CGST and SGST would not be allowed.The taxpayer would have to maintain separate book of accounts for utilization/refund of credit.
14 Salient Features of the Proposed GST Model Threshold limit :Minimum exemption limit has not decided as yet.Present exemption limit:Service tax:Rs. 10 lacsCentral excise Rs.1.5croresVat in different states Rs.1 lac to 5 lacs.Compound/ Composition Scheme:For Gross annual turnover of Rs. 50 lacs and the floor rate of 0.5% for small traders and small scale industries.Optional GST registration is also allowed to dealers whose turnover below the compounding cut-off.Each taxpayer would be allotted a PAN-linked taxpayer identification no. with a total of 13/15 digits.Works contract Tax (WCT) would be abolished on or after implementation of GST.
15 RATE STRUCTUREIn GST, the rate may be expected be in the range of 16-20%There may single rate for GST on services at the Central and State levelBut in case of goods, there would be a few rates for Central and State GST :Standard rate for general (RNR)Special rate for gold & silver, other precious metal etc.lower rate for necessary and goods of basic importantExempted goods considering the special need of each stateIn every transaction, both CGST and SGST would apply at pre-determined level.
16 Constitutional Amendments is Required IMPORT BE TAXED UNDER GST ?Both CSGT & SGST will be levied on import of goods and servicesIncidence of tax will follow the destination based principalTax so paid will be available as input tax credit (ITC)Constitutional Amendments is Required
17 EXPORT & EXEMPTIONExport would be zero ratedSimilar benefits will be given to Special Economic Zones (SEZs).Industrial incentives & Special Industrial Area Scheme :The tax exemption, remission etc. related to industrial incentives would be converted into cash refund scheme after collection of tax.Area based exemptions will continue up to legitimate time.No new exemption, remission etc. would be allowed.
18 IGST MODEL: INTER-STATE TRANSACTIONS IGST (CGST+SGST) on all inter-state transactions of taxable goods and servicesSupplier will pay IGST after set-off available credit of IGST, CGST & SGST on his purchases.The exporting state will transfer to the central agency the credit of SGST used for payment of IGSTThe importing taxpayer will claim ITC of IGST against his IGST,CGST and SGST tax liability.The central agency will transfer to the importing state the credit of IGST used in payment of SGST.
19 ILLUSTRATION Delhi Mumbai Central Agency Input Credit in Hand IGST 100 CGST 50SGST 25MumbaiInput Credit in HandIGST 200CGST 25SGST 25CentralAgency
20 Uninterrupted ITC chain on inter-state transactions ADVANTAGE OF IGST MODELUninterrupted ITC chain on inter-state transactionsNo upfront payment of tax or substantial blockage of funds for the inter-state seller or buyerNo refund claim in exporting StateSelf- Monitoring modelIT facilityAll inter-state dealers will be e-registered
21 RULES REGARDING SET-OFF OF GST OutputInputSet-off AllowedIGSTSGSTYESCGSTNO21
22 MAJOR CHALLENGESGST RatesConstitutional Amendments for :Sharing of resources and compensationAdministrative preparedness to implement the new tax regimeGST Council and Dispute settlement authoritySetting up IT structure :Treatment of un-utilised tax credit carried forward under CENVAT and State VATDesign and Structure: IGST Model, Issue like Service
23 Opportunity for CS and Other Professions Advisory /Support to GovernmentTraining to Corporate StaffDecision making functions such as market strategies, stock transfer etc.Registration of service tax in each State and cancellation of CST etc.Special Audit /Certification like non applicability, exemption etc.Helping the small business for composition schemeImpact on various sectors
24 “Law cannot stand still, it must change with the changing social concepts and value. If the law fails to respond to the needs of the changing society, then either it will stifle the growth of society and choke its progress”P N BhawatiTHANKS