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 GST Current 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 GST Current 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 GST Current 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 GST Current and Proposed Design Features
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 *61.761.662.6 State Excise Duties11.6 11.4 Stamp duty & Reg. fee10.410.711.0 Other Taxes16.316.115.0 Total100 * 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 ( ? )
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 laws Rates 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
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 10.0 12.5 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 Australia New Zealand Canada South Africa Mexico China UK Germany France Italy India
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 19345 17371 14284 0 5000 10000 15000 20000 25000 2004-052005-06 (RE)2006-07 (BE) CST collection
28 Impact of taxing Inter-state stock transfers: Illustration Company A manufactures Product P which is stock transferred at INR 1000 Raw Material Pre – GST PriceExcis e (10%) VAT (12.5%) / CST (2%) Product X (local) 4004055 Product Y (inter- state) 400408.8 Total8008063.8 Raw Material Post - GST Pri ce CGS T (10 %) SG ST (10 %) IGS T (20 %) Product X (local) 40040 - Product Y (inter- state) 400--80 Total80040 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?
33 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 ?
36 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 4010 Domestic Services Stock transfer to Gujarat Sale to Rajasthan consumer Sale to Madhya Pradesh dealer 8010070 Import goods 100 Sale in Maharashtra 150 Assumptions C-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
61 Presented By CA Swatantra Singh, B.Com, FCA, MBA CA Swatantra Singh, B.Com, FCA, MBA Email ID: firstname.lastname@example.org Email ID: email@example.com New Delhi, 9811322785, New Delhi, 9811322785, www.caindelhiindia.com, www.caindelhiindia.com, www.carajput.com www.carajput.com