2 IntroductionGST - a single comprehensive tax levied on goods and services consumed in an economy.A tax on final consumption.In simple terms, GST may be defined as a tax on goods and services, which is levied at each point of sale or provision of serviceAt the time of sale of goods or providing the services, the seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or procuring the service.France was the first country to introduce GST in The standard GST rate in most countries ranges between 16-20%.In India the GST rate is still under consideration but is expected to 16%.
3 VAT - considered to be a major improvement over the pre-existing Central excise duty at the national level and the sales tax system at the State levelGST - a significant breakthrough & the next logical step towards a comprehensive indirect tax reformsKeeping this overall objective in view, an announcement was made by Shri. P. Chidambaram, the then Union Finance Minister in the Central Budget ( ) to the effect that GST would be introduced and implemented.BIRTH OF GST
4 Types of GST Central Goods & Services Tax (CGST). State Goods & Services Tax (SGST).Interstate Goods & Services Tax (IGST).
5 No problems of “tax on tax” and burden of cascading effect. VAT – GST ANALYSISPrior to VAT - burden of multiple taxes in the pre-existing Central Excise duty and the State Sales Tax systems.Burden of multiple taxations (i.e. “tax on tax”) with a cascading effectWhen VAT is introduced in place of Central excise duty, a set-off is given, i.e., a deduction is made from the overall tax burden for input taxIn the case of VAT in place of sales tax system, a set-off is given from tax burden not only for input tax paid but also for tax paid on previous purchasesNo problems of “tax on tax” and burden of cascading effect.
6 GST-Cascading effect of service tax and CENVAT is removed. WHY DOES VAT FALL SHORT??Vat ShortcomingsNon-inclusion of several Central taxes in CENVAT such as additional customs duty, surcharges, etc.,Several taxes in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc., and yet not subsumed in the VAT.CENVAT load on the goods remains included in the value of goods to be taxed under State VAT – a cascading effectGST-Cascading effect of service tax and CENVAT is removed.
7 Conceptual Definition Destination Based Consumption tax to be charged on each transaction point.Combined Tax chargeable to goods & Services.Replacement of all type of indirect taxes.(Excise, customs, service tax, vat, Entertainment tax, luxury tax, Octroi)
8 What GST can do?? Removal of cascading effects To remove complexity of multiple taxesRemove the complicacy in composite contractsIncludes more indirect Central taxes .Integrate goods and service taxes for the purpose of set-off reliefLead to revenue gain
9 IN & OUT THE “INs” Power to States to levy Service Tax Comprehensive Set-off ReliefsMore Revenue to the CentreTHE “OUTs”Various Indirect Taxes – primarily the CST, VAT, Central Excise & Service TaxVarious Forms for filing – Just ONE form required
10 FEATURES OF GST. Cont… 2 Components: one levied by the Centre (Central GST)the other levied by the States (State GST)implemented through multiple statutes (one for CGST and SGST statute for every State).chargeability, definition of taxable events and taxable person, measure of levy, basis of classification- uniform across these statutesCont…
11 FEATURES OF GSTThe Central GST & the State GST would be applicable to all transactions of goods and services made for a considerationExcept Goods & Services outside the purview of GSTExcept those below the threshold limitsThe Central GST and State GST are to be paid to the accounts of the Centre and the States separately.The Central GST - allowed to be taken as input tax credit (ITC) - can be utilized only against the payment of Central GST. The same principle is also for State GST.Cross utilization of ITC between the Central GST and the State GST would not be allowed except under the IGST modelThe administration of the Central GST to the Centre and for State GST to the States
12 Threshold limit…Gross Annual Turnover of ` 10,00,000/- both for goods and services for all the States and Union Territories will be adoptedKeeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for Central GST for services may also be appropriately high.
13 ASSESSMENT & TINNeed to submit periodical returns, in prescribed common format, to both the Central GST authority & the State GST authoritiesPAN-linked Taxpayer Identification Number (TIN) with a total of 13/15 digits would be allottedAssessment, enforcement, scrutiny and audit - by the authority which is collecting the tax, with information sharing between the Centre and the States.
14 NATURE OF SUBSUMED TAXES It should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of servicesIt should be part of the transaction chain - commences with import/ manufacture/ production of goods or provision of services at one end & the consumption of goods and services at the otherIt should result in free flow of tax creditTaxes, levies & fees – not relating to supply of goods & services should not be subsumedRevenue fairness for both the Union and the States
15 Additional Excise Duties CENTRAL TAXES SUBSUMEDCentral Excise DutyAdditional Excise DutiesThe Excise Duty levied under the Medicinal and Toiletries Preparation ActService TaxAdditional Customs Duty, commonly known as Countervailing Duty (CVD)Special Additional Duty of Customs - 4% (SAD)Surcharges & Cesses
16 Taxes on lottery, betting and gambling. Luxury tax STATE TAXES SUBSUMEDVAT / Sales taxTaxes on lottery, betting and gambling.Luxury taxEntertainment tax (unless it is levied by the local bodies).State Cesses and Surcharges in so far as they relate to supply of goods and services.Entry tax not in lieu of Octroi
17 Alcoholic Beverages kept out of the purview of GST. Sales Tax/VAT can be continued to be levied on alcoholic beverages as per the existing practice.If Vatable by some States, no objection to that. Excise Duty, presently being levied by the States, will also not be affected.
18 Tobacco Products will be subjected to GST with Input Tax Credit (ITC). Centre may also be allowed to levy excise duty on tobacco products over and above GST without ITC.
19 Centre could also continue its levies. Petroleum Products Sales Tax could continue to be levied by the States on these products with prevailing floor rate. crude, motor spirit (including ATF) and HSD would be kept outside GST. Centre could also continue its levies.
20 INTERSTATE TRANSACTIONS OF GOODS & SERVICES Scope of IGST Centre levies IGST = CGST+SGSTThe Inter-State seller pays IGST on value addition – (ITC of IGST, CGST & SGST on his purchases)The Exporting State Centre (the credit of SGST used in payment of IGST)The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State.The Centre will transfer to the importing State the credit of IGST used in payment of SGST.
21 Merits of IGST No refund claim in exporting State, as ITC is used Takes 'Business to Business' as well as 'Business to Consumer‘ transactionsUninterrupted input tax credit chainNo upfront payment of tax or substantial blockage of fundsE-registration, correspondence by – increase in compliance levelNo refund claim in exporting State, as ITC is usedSelf-Monitoring
22 Special rate for precious metals . Rates of GSTIn India the GST rate is still under consideration but is expected to be 16%-20%Adopt a two-rate structure –a lower rate for necessary items & goods of basic importance & a standard rate for goods in general.Special rate for precious metals .The States are of the view that for CGST relating to goods, the Government of India may also have a two-rate structure, with conformity in the levels of rate under the SGST. For taxation of services, there may be a single rate for both CGST and SGST.The exact value of the SGST and CGST rates, including the rate for services, will be made known duly in course of appropriate legislative actions.
23 Need For GSTNeed of GST has been arisen due to following shortcomings at central & state level.The shortcoming in CENVAT - non-inclusion of several Central taxes such as additional customs duty, surcharges, etc., and thus keeping the benefits of comprehensive input tax and service tax set-off out of reach for manufacturers/ dealers.No step has yet been taken to capture the value-added chain in the distribution trade below the manufacturing level in the existing scheme of CENVAT.There are, even now, several taxes which are in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc., and yet not subsumed in the VAT.Moreover, in the present State-level VAT scheme, CENVAT load on the goods remains included in the value of goods to be taxed under State VAT, and contributing to that extent a cascading effect on account of CENVAT element. This CENVAT load needs to be removed
24 Benefit of Goods and Services Tax Eliminates cascading effect of taxes across all supply chain by reducing cost of doing business and makes the economy competitive.Eliminates multiplicity of taxes, rates, exemptions and exceptions.Eliminates dual taxation of the same transaction (e.g. VAT & Service tax on EPC (engineering, procurement and construction) contracts.Reduces cost of production.Achieves, uniformity of taxes across the territory, regardless of place of manufacture or distribution.Provides, greater certainty and transparency of taxes.Ensures tax compliance across the economy.
25 Illustration: 1 Suppose hypothetically Rate of CGST is 10% and Rate of SGST is 10%.When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the Same State .Say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods.He would be required to deposit the CGST component into a Central Government account and
26 The SGST portion into the account of the concerned State Government. He need not actually pay Rs. 20 (Rs Rs. 10) in cash.He would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs).But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases andFor SGST he can utilize the credit of SGST alone.In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.
27 Implications of GST on imports and exports Imports, would be subject to GST. Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed.Exports, however, will be zero-rated, meaning exporters of goods and services need not pay GST on their exports. GST paid by them on the procurement of goods and services will be refunded subject to certain conditions, limitations and procedures.
28 Impact on small enterprises Three categories of small enterprises in the GST regime.Those below the threshold need not register for the GST.Those between the threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the GST regime.The third category of small enterprises above the turnover threshold will need to be within the GST framework.
29 Benefits to Trade and Industry Seamless input tax credit.Removal of current restrictions on input tax credit.Higher thresholds to benefit small businesses.Input tax credit even on tax paid on inter-State procurement.Uniform tax rates, legislations, procedures and formats across all the States.Common returns/formats under CGST and SGST making compliance easier and economical.
30 Illustration:2 Suppose, again hypothetically, The rate of CGST is 10% andThe rate of SGST is 10%.When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of MaharashtraSay Rs. 100, the company would charge CGST of Rs. 10 as well asSGST of Rs. 10 to the basic value of the service.
31 He would be required to deposit the CGST component into a Central Government account and The SGST portion into the account of the concerned State Government.He need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash.It would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc).But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase.while for SGST he can utilise the credit of SGST alone.In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.