Tax on consumption Who pays tax? - rather it is tax on consumer - it is not a tax on businesses What is the status of businesses? - they are only agents of government to collect tax (unpaid tax collectors) Exemptions create distortions Levied on import to ensure neutrality Turnover based vs. value addition Tax on Value Added = turnover based tax – input tax credit As credit is allowed, businesses want invoices
Goods & Service Tax (GST) as the name suggests, is a tax on supply of goods or service. Any Person, providing or supplying goods or service will be liable to charge GST. The person Supplying the goods or service is allowed to take credit for taxes paid on purchases, consequent to which, GST becomes a tax on the value added by the supplier.
Major indirect taxes Levied by Rate Levied (range) Nature of tax VatState1% to14.50%0n purchase & sale of goods Entry tax/octroiState1% to 12.50%On entry on good into local area Entertainment taxState 15% to 45%On entertainment & events Luxury taxState 15% to 30%On specified luxuries Electricity taxState 5% to 20%On supply of electricity Motor vehicle taxState 5% to 25%On motor vehicles Stamp dutiesState 5% to 25%On specified transaction Central exciseCentral 1% to 12%On manufacture of good CustomCentral 2.5% to 24%On import or export of good ServiceCentral 12%On provision of taxable service
Justification of GST & How does it works!!! Burden of Tax fall under GST Benefit of GST : - To industry, trade, exporters & agriculture - Small entrepreneurs and small trader - Common consumers Salient features of proposed GST model Why is Dual GST required? How would a particular transaction of goods and services be taxed under CGST and SGST Taxes proposed to be subsumed under GST
World over in more than 150 countries there is GST or VAT, which means tax on goods and services. Under the GST scheme, no distinction is made between goods and services for levying of tax. In other words, goods and services attract the same rate of tax. GST is a consumption based tax where ultimate burden of tax fall on the consumer of goods/ services. Most of the countries follows single GST Structure. Canada and brazil have a dual VAT structure
EFFECTS OF GST Less tax cascading Increase in investment Improved competitive position of Indian Producers Improved factor productivity Broader tax base, lower rates Simpler and rational tax structure Improved tax administration Reduced red tapism
11 CURRENT SYSTEMPROPOSED GST REGIME Multiple state indirect taxes – Entry tax, Luxury tax, Tax on lotteries, Entertainment tax GST to subsume most state taxes, thus single tax at state level ensuring better compliance & administration Threshold limits for VAT liability varies from state to state GST proposes to have a threshold limit of Rs. 10 lacs across states
Dual GST signifies that GST will be levied by both, the Central Government and the State, on supply of goods or services. Under the Constitution, the taxing powers are presently split between the State and the Centre. In case of certain transactions, the power to tax is vested with the Centre and while in certain others, the power is vested with the State. Under GST, the power to tax on supply of all goods and services rendered will be vested in the hands of both, the State and the Centre. 13
WHAT IS DUAL GST? In certain cases, such as the interstate transactions, the power to tax will be vested with the Central Government, while the revenue will in some appropriate manner, get distributed to the States. Considering the dual taxation power to tax transactions under GST, the structure is referred to as Dual GST. Considering the basic framework of the constitution and keeping its structure intact, Dual GST appears to be implementable solution for India scenario.
1) The goods and services tax council shall make recommendation to the union and the states The taxes, cesses and surcharges levied by the union, the states and the local bodies which may be subsumed in the goods and services tax The goods and services that may be subjected to, or exempted from the goods and services tax Model goods and services tax laws, principle of levy, apportionment of integrated goods and services tax and the principle that govern the place of supply The threshold limit of turnover below which goods and services may be exempted from goods and services tax The rates including floor rates with bands of goods and services tax Any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster Special provision with respect to the states of Arunachal Pradesh, Assam, Jammu and Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and uttarakhand and
GST COUNCIL 2) The goods and services tax council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. 3) While discharging the function conferred by this article, the goods and services tax council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services. 4) The goods and services tax council shall determine the procedure in the performance of its functions. 5) Every decision of the goods and services tax council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:- a) The vote of the central government shall have a weightage of one-third of the total votes cast, and b) The votes of all the state governments taken together shall have a weightage of two-thirds of the total votes cast, In that meeting.
There are basically three components of GST which are as follows :- 1. SGST- STATE GOODS & SERVICES TAX 2. CGST-CENTER GOODS & SERVICES TAX 3. IGST-INTEGRATED GOODS & SERVICES TAX 17
Dual-GST: Centre and States to levy GST on common base Integrated-GST (IGST) for inter-state transactions (CGST + SGST); (eliminating CST) GST credit mechanism: CGST credits to offset CGST, IGST liability SGST credits to offset respective SGST, IGST liability IGST to offset IGST, CGST or any SGST liability Minimum exemptions; incentives to be eliminated Exports to be zero-rated, ambiguity on treatment of supplies to/ from SEZs Imports to be subject to basic customs duty, CGST and SGST 18
19 “SALE OF GOODS” “RENDERING OF SERVICES” “SUPPLY OF GOODS” “RENDERING OF SERVICES” There will be a change in terminology on the following under the upcoming GST law : However there will not be any change in terminology on the following under the upcoming GST law :
Recommended by Kelkar Task Force(KTF) Single or Unified GST Recommended by Empowered Committee Dual GST 21
22 TAXESSECTORS / PRODUCTS Subsumed into GST ► At Center level ► Customs, Central Excise ► Service Tax ► Central Sales Tax (will remain 1% for the period of two year or such other period as GST council may recommend) ► At State level ► State-VAT (sales tax) ► Entry Tax ► Other state levies such as Luxury tax, Entertainment tax, Lottery tax etc Outside GST structure ► At Center level ► Basic Customs Duty ► At State level ► Stamp duties ► State Excise (on alcohol) ► Taxes on entertainment and amusements to the extent levied and collected by a panchayat or a municipality or a regional council or a district council Outside GST structure (agreed) ► Unprocessed Food ► Liquor (alcohol) ► Power (electricity) Treatment ambiguous ► Real Property ► Tobacco ► Financial Services
The white paper recommends that upon introduction of GST, the tax incentives, exemptions, remissions, etc., would be converted into cash refund schemes. It would be possible that upon the introduction of GST, State Governments may restrict the refund only to SGST and Central Government may restrict to CGST. 26 GST, tax incentives, exemption s CASH REFUND SCHEMES
1) Exempted goods 2) Special Rate 3) Concessional Rate 4) Standard Rate 5) Specified Rate : The current list under the state VAT law : Precious Metals : Necessities and goods of basic importance : For all other goods : Services
29 The Empowered Committee has recommended a uniform Thresholds under Center & State GST Threshold of gross annual turnover of Rs.10 lakh both for goods and services for all the States and Union Territories. It has been kept for CGST, at Rs. 1.5 crores and for service may be higher than the present level of Rs. 10 Lakhs. However, there is no decision taken by the Centre on this issue.
COMPLIANCE - PAN based identification number, with two extra digits to distinguish between central & state GST - One periodic return to CGST, SGST, IGST
Registration brings a person within the control of the tax authorities. As per Task Force, all persons who are liable to income tax or whose sales exceed Rs. 5,00,000 are required to obtain a PAN. All persons with annual aggregate turnover of goods and services exceeding Rs. 10 lakh (excluding CGST and SGST) should be required to register and obtain a GST registration number. Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax, facilitating data exchange and taxpayer compliance. 32
The Empowered Committee has recommended that there should be a compounding/ composition rate of tax for the small taxpayers turnover not exceeding Rs. 50 lakhs. Since, by the introduction of the GST, it is expected that it will broaden the tax base and many dealers which hitherto not within the tax net, would come, therefore, it is required to make the taxation simpler for them. 33
It is expected that under the GST registration shall be linked to PAN or it would be a PAN-based registration. Discussion is going on whether to have a single registration or two/ multiple registrations for SGST and CGST. 34
Separate returns are required to be filed under a common format under both SGST and CGST. However, efforts are being made for making single registration possible for greater convenience of the tax payer’s. 35 Return
The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholeseller and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholeseller. When the wholeseller sells the same goods after making value addition of (say), Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. 36
37 Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholeseller. Thus, the manufacturer, wholeseller and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. This is shown in the table below. The same illustration will hold in the case of final service provider as well.
In the proposed GST, interstate transfers are proposed to be taxed under IGST scheme. However, there is no clarity whether the stock transfers to the branch or consignment sale would be covered under the said scheme. However, when there would be inter-branch transfer within the same state there would not be any levy of the tax. 40
43 Dual GST is expected to be a simple and transparent tax structure with only few rates of taxes. The result would be : Reduction in the number of taxes at the Central and state levels Cut in effective tax rate for many goods Removal of the current cascading effect of taxes Reduction of transaction costs for taxpayers through simplified tax compliance Increased tax collections due to wider tax base and better compliance
45 Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions. It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services. 46
In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies 47
The taxation of goods and services in India has, hitherto, been characterized as a cascading and distortionary tax on production resulting in mis-allocation of resources and lower productivity and economic growth. It also inhibits voluntary compliance. It is well recognized that this problem can be effectively addressed by shifting the tax burden from production and trade to final consumption. A well designed destination-based value added tax on all goods and services is the most elegant method of eliminating distortions and taxing consumption. Under this structure, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially ‘sticks’ on final consumption within the taxing jurisdiction. A ‘flawless’ GST in the context of the federal structure which would optimize efficiency, equity and effectiveness. The ‘flawless’ GST is designed as a consumption type destination VAT based on invoice- credit method.
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