First Discussion paper on GST: - Old Wine in New Bottle
The article by:
CA Pradeep Jain
Empowered Committee of State Finance Ministers has recently issued the First Discussion paper on Goods and Service tax in India dated November 10, 2009. The complete analysis (as provided under this article later on) signifies a situation wherein there has been no change in the current tax structure.
Presently the Excise duty is levied at Central level and VAT is levied at state level, both of these taxonomies have their own administration authorities, their own statues governing them, even further the taxpayer is required to maintain separate records for the two of these, file separate return for each, he is not allowed to cross adjust the tax credit between the two and many more.
The similar situation is with the GST model as picturised by the discussion paper. There will be dual tax structure CGST and SGST, both of these will be administered by different tax authorities, taxpayer will have to file different return under both, further he will not be allowed to cross adjust the tax credit between them etc. In totality there is no benefit to the industry with the implementation of GST except the phasing out of CST. With the implementation of GST the Government will be benefited only by increasing its tax base and nothing else. This is just like “Old wine in a new Bottle”.
A detailed analysis of the Discussion paper is produced hereunder.
The Empowered Committee thereafter taking a detailed view on the recommendations of the Working Group of officials and other related matters on the structure of GST presented its First Discussion Paper, along with an Annexure on Frequently Asked Questions and Answers on GST, for discussions with industry, trade, agriculture and people at large.
Although since the inception of the term GST in the tax regime of India we have come to know about many of the issues relating to the said taxonomy. But still we are reproducing hereunder the highlights of the Discussion paper as follows: -
· There will be a Federal system with the objective of having an overall harmonious structure of rates.
· GST shall have two components: one levied by Centre referred to as Central GST, and other levied by the States referred to as State GST.
· The dual GST model will be implemented through multiple statutes, one for CGST and SGST statute for every State.
· CGST and SGST will be applicable to all transactions of goods and services except the exempted goods and services.
· CGST and SGST are to be paid to the accounts of the Centre and the States separately.
· Taxes paid against the CGST / SGST shall be allowed to be taken as input tax credit (ITC) for CGST / SGST and could be utilized only against the payment of CGST / SGST respectively.
· Cross utilization of ITC between the CGST and SGST would not be allowed except in case of inter-State supply of goods and services under the IGST model.
· The problem related to credit accumulation on account of refund of GST shall be avoided by both Centre and States except in cases such as exports, purchase of capital goods, input tax at higher rate than output tax etc.
· The administration of the CGST will vest with Centre and for SGST with States.
· A uniform SGST threshold across States is recommended at a gross annual turnover of Rs.10 lakh both for goods and services. However the threshold for CGST for goods may be kept at Rs.1.5 crore. Threshold for CGST for services is still to be released.
· There would be a compounding cut-off at Rs. 50 lakh of gross annual turnover and a floor rate of 0.5% across the States.
· Taxpayer would need to submit periodical returns to both CGST authority and to the concerned SGST authorities.
· Taxpayers will be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits.
· The following Central Taxes should be subsumed under GST:
1. Central Excise Duty
2. Additional Excise Duties
3. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
4. Service Tax
5. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
6. Special Additional Duty of Customs - 4% (SAD)
7. Surcharges, and
· Following State taxes and levies would be subsumed under GST:
1. VAT / Sales tax
2. Entertainment tax (unless it is levied by the local bodies).
3. Luxury tax
4. Taxes on lottery, betting and gambling.
5. State Cesses and Surcharges in so far as they relate to supply of goods and services.
6. Entry tax not in lieu of Octroi.
The introduction of Discussion paper on GST by Empowered Committee has drawn us to the conclusion that there will remain a tri structure tax regime in the GST model wherein the tax will be levied as Central GST or State GST or Inter-State transactions of GST i.e. IGST. Each of these will be administered by different authorities, taxpayer will have to deposit the tax collected separately, cross adjustment of tax credit between CGST and SGST not allowed, taxpayers are required to file the returns to these authorities separately etc. Thus, at the end it construes that there will be no major change in the tax structure; we can name it just an extension of VAT across the country covering in its scope Service tax and CENVAT.
However, the release of the Discussion paper has given rise to following issues which are yet to be answered: -
âDoes Exemption of 1.5 Crores in CGST for goods will equally apply to dealers?
As GST will cover in its scope the levy of excise and VAT therefore the exemption limit of 1.5 Crores specified in the discussion paper will extend its hands to dealers also or the same will be limited to the manufacturers. If the rear view is opted then the definition of Manufacture will be rolled back in the GST tax regime.
âService tax threshold exemption limit under CGST?
The Empowered Committee has not specified the threshold exemption limit applicable to services under CGST. However they have clarified that the same will be in conformity with the existing threshold exemption of Rs. 10 Lakhs. The question is still unanswered and we hope to get the limits clarified by the Government very soon.
âIGST (Inter-state transaction of GST) levy will be equal to CGST plus SGST, thus the same will be single rates of separate records are to be maintained in this respect also?
It has been clarified that the IGST credit will be allowed to be set off against IGST, CGST or SGST payable by the taxpayer. In the current scenario CST is levied on interstate sale of goods, but the dealers aren’t allowed to avail the credit of the same and they are emphasizing on the scenario to buy the goods from within the state so as to avail the credit of VAT.
However in this new tax regime the IGST will be levied at the rate which will be equal to CGST plus SGST, this leads to a new issue that IGST will be levied at a single compound rate or two different rates i.e. CGST and SGST will be levied differently or not.
If the rear view is adopted then the question arises that the credit of the IGST will be allowed to be set off against both CGST and SGST separately or cross adjustments will be allowed. If the cross adjustment is allowed then the taxpayers availing exemption of 1.5 Crores under CGST will be willing to purchase goods and sale them outside the state as in that situation they will be getting the full credit of IGST thus benefiting them utmost. This scenario changes the complete situation as it exists presently. This difficulty is yet to be sorted and clarified by the Government.
âNon-subsuming of Stamp Duty and Basic Customs Duty under the GST tax regime!
Discussion paper on GST has clarified that the Stamp Duty and Basic Customs Duty will continue to be levied separately and shall not be subsumed under GST taxonomy.
âGST not to be levied on Petroleum Products?
As far as petroleum products are concerned, the discussion paper has clarified that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST. Sales Tax will be continued to be levied by the States on these products with prevailing floor rate and similarly, Centre will also continue its levies.
âReduction of non Cenvatable duty on imports!
In the present scenario Basic Customs duty along with Customs education cess and Customs Secondary and higher education cess are charged on the value of the imports which are non Cenvatable but in the GST tax regime only Basic Customs duty will be leviable which will be non Cenvatable rest all levies will be covered under GST. This will lead to cheaper imports.
âThe dual GST model would be implemented through multiple statutes one for CGST and SGST statute for every State.
Different statues will govern the SGST levy. This will lead to non uniformity in the tax structure at state levels. Further, there may arise complexities for smooth implementation of GST across the nation.
âNo Special Industrial Area Scheme benefits under GST!
Government has clarified that after introduction of GST, the Special Industrial Area Schemes, providing exemptions, remissions etc. would continue up to legitimate expiry time both for the Centre and the States but no new exemption, remission etc. or continuation of earlier exemption, remission etc. would be allowed.
âOnly refund scheme to exporters and no other incentives!
Under GST tax regime the exporters will be allowed only to refund claims for exports made by them. No other incentive will be allowed to them.
Thus, before parting we sum up the key findings of the GST model that the said tax revolution in the Indirect tax structure of the nation is just an extension of tax credit mechanism below manufacturing level wherein the interstate tax credit, CENVAT and credit of other indirect taxes will be allowed to be set off against the tax payable by the tax payer. There is nothing new in the same from the industry point of view and will be only broaden the tax base of Central Government.