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Introduction of Goods and Service Tax (GST) will indeed be the next logical step towards a widespread indirect tax reforms in India since the introduction of Value Added Tax in 2005. The reference of GST was first made in the Budget of 2006-07 by the then Finance Minister P. Chidambaram as a single centralized indirect tax. The GST Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 passed on May 6, 20015 in Lok Sabha seek to amend the Constitution to introduce Goods and Service Tax vide proposed new article 246A. GST Scheme was supposed to be implemented from 1st April 2016, but this deadline seems difficult to be met as The Bill has been stuck in Rajya Sabha.

A study by the National Council of Applied Economic Research has estimated that GST roll out would boost GDP growth by anywhere between 0.9-1.7%, besides increasing tax collections, promoting exports and reducing litigations, prices of commodities and cascading effect of taxes.

Meaning and Objective of GST

G-Goods
S-Services
T-Tax

Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. Under GST, every person is liable to pay tax on his output and is entitled to get input tax credit (ITC) on the tax paid on its inputs and the final consumer shall bear the tax. GST, being a destination based consumption tax is based on VAT principle.

The two main objectives of GST are:

1. Eliminate double taxation i.e. cascading effect of taxes on production and distribution cost of goods and services so as to have a truly national market.

2. Integration of various indirect taxes levied by Union and State governments.

The First Discussion Paper released by the Empowered Committee of the State Finance Ministers on 10th November, 2009 states that there would be a ‘Dual GST’ in India i.e. taxation power lies with both the Centre and State Government. While the Centre is empowered to tax services and goods upto the production stage, the States have power to tax sale of goods.

GST Rate Structure

The GST rates are to be based on RNR (Revenue Neutral Rate). It is a rate that would be levied so that the tax revenue of the government will at least remain same as the present tax system.

There would be a two-rate structure: a lower rate for select goods of mass consumption and a standard rate for goods in general. There will also be a special ate for precious metals and a list of exempted items. For goods in general, government is considering pegging the rate from16-18%.

This tax does not apply to alcohol, real-estate, electricity and petroleum products. Tax on tobacco products will be subject to GST

Manufacturing State (the State in India where goods are manufactured will be allowed to levy an additional tax on supply of goods, not exceeding 1% in the course of inter-state trade or commerce.

Worldwide, almost 150 countries have introduced GST ( France being first in 1954). GST Rates of some countries are as follow:

Country

Rate of GST

United Kingdom

20%

China

17%

New Zealand

15%

Australia

10%

Japan

5%

Taxes to be subsumed under GST

State Taxes which will be included in GST:

  • Vat/Sales Tax
  • Entertainment tax (unless levied by local bodies)
  • Taxes on lottery, betting and gambling
  • Luxury Tax, Entry tax and Octroi
  • State cess and surcharges to the extent related to supply of goods and services

Central Taxes which will be included in GST:

  • Central excise duty
  • Additional excise duty
  • Excise duty levied under The Medical and Toiletries Preparation Act, 1955
  • Service Tax
  • Additional Customs duty, commonly known as Countervailing Duty (CVD)
  • Special Additional Duty of Customs (SAD)
  • Education Cess and Surcharges

Model of GST

Dual Model:

GST shall have two components, Central GST (CGST) and State GST (SGST). The rates will be approved appropriately, reflecting revenue considerations and acceptability.

Clause 270(1A) of the Bill provides that the goods and service tax levied and collected by the Government of India, except the tax apportioned with the States under clause 269A(1) shall also be distributed between the Union and the States in the manner provided in clause 269A(2).

Cross Utilization:

Cross utilization of ITC, between CGST and SGST both in case of input and capital goods would not be permitted except in case of inter-state supply of goods and services.

No surcharge on GST:

Clause 271 of the Bill which empowers the Parliament to increase any duties or taxes by surcharge for the purpose of Union has been amended in the Bill by providing an exception under Clause 246A to Goods and Service Tax.

GST on Export and Import:

GST on export will be zero-rated. Both CGST and SGST will be levied on import of goods and services to India against which complete set-off will be available.

Exemption /Composition Scheme:

The small taxpayers whose gross turnover is less than Rs 1.5 crore will not be covered under GST law and not required to pay tax.

A compounding option should be provided with an upper ceiling on gross annual turnover (say Rs 50 lakhs) and a floor rate without credits, with respect to gross annual turnover.

Treatment of goods exempted under one state and taxable under the other to be provided.

Registration under GST:

PAN based identification number will be allowed to each taxpayer in order to integrate GST with Direct tax. A combination of PAN number, two digits for state code and two or three check digits may be used.

Submission of Return:

The taxpayer would need to submit periodical returns, in common format to both the CGST authority and to the concerned SGST authorities.

GST Network (GSTN):

GSTN, the IT backbone of GST shall be formed as Section 25 (not-for-profit), non-government, private limited company to design automation of GST and facilitate online registration, tax payment and filing of return.

Refund and Assessment:

The procedure and time limit for refund of unutilized CGST and SGST are yet to be clarified.

The function of assessment, scrutiny and enforcement will be undertaken by the authority collecting the tax.

GST Council:

In the Present Amendment Bill, after article 279 of the Constitution, the article 279A for the introduction of ‘The GST Council of India’ has also been inserted. The GST Council is empowered to make recommendations on issues of significance such as taxes to be subsumed under GST, rate structure, exemption list of goods/services, threshold limits. Further, it would also help in promotion of the uniform application of provisions of the GST Act, Rules and Regulations. The Council is also vested with some recommendatory powers in Article 269A(4).

Benefits of GST

  • GST is expected to reduce the average tax burden on the consumers.

Comparison between Present Indirect Tax Laws and Proposed GST Law

(inRs.)

Particulars

Present System (Without GST)

With GST

Manufacturer to Wholesaler

Cost of Production

10,000

10,000

Add: Profit Margin

4,000

4,000

Sale Price

14,000

14,000

Add: Excise duty @ 12%

1,680

-

Total Value

15,680

14,000

Add: VAT @12.5%

1,960

-

Add: CGST @ 12%

-

1,680

Add: SGST @ 12%

-

1,680

Invoice Price

17,640

17,360

Wholesaler to Retailer

Cost to Wholesaler

15,680

14,000

Add: Profit Margin @ 10%

1,568

1,400

Total Value

17,248

15,400

Add: VAT @12.5%

2,156

-

Add: CGST @ 12%

-

1,848

Add: SGST @ 12%

-

1,848

Invoice Price

19,404

19,096

Retailer to Final Consumer

Cost to Retailer

17,248

15,400

Add: Profit Margin @ 10%

1,725

1,540

Total Value

18,973

16,940

Add: VAT @12.5%

2,372

-

Add: CGST @ 12%

-

2033

Add: SGST @ 12%

-

2033

Invoice Price

21,345

21,006

Cost Saving for the consumer

-

339

% of Cost Saving

-

1.59%

- No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer. No refund claim in exporting State, as ITC is used up while paying the tax.

- GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower. This in turn will help Export being more competitive.

- The current state of Indian Economy demands fiscal consolidation and reduction in Fiscal deficit. A recent Report by CRISIL states that GST is the country’s best bet to achieve fiscal consolidation.

GST – Challenges for Success in India

Passing of Bill in Rajya Sabha: Since NDA Government does not have majority in the Rajya Sabha, is one of the main reason for delay in implementation of this scheme.

Consent of States: For implementing it is critical that GST bill is passed by the respective state Governments in state assemblies so as to bring majority

Threshold Limit in GST: While achieving broad based tax structure under GST, Both empowered committee and Central Government must ensure that lowering of threshold limit should not be a “taxing” burden on small businessmen in the country.

Extensive Training to Tax Administration Staff: GST is absolutely different from existing system. It, therefore, requires that tax administration staff at both Centre and state to be trained properly in terms of concept, legislation and Procedure.

Additional Levy on GST: The additional 1% tax can have a negative impact on government’s ‘Make In India’ campaign, as it favours international trade over intra-national trade. The Congress party is demanding scrapping of this additional tax.

Opportunities for CAs

The upcoming GST regime will open a big window of professional opportunities at both national and global level. The CAs would be in much demand for Operational Consultancy, Tax Advisory Services, International Research issues, Comparative study of Laws, Information and Knowledge Sharing, Technology Support Services, Budgetary Controls and Data Management.

To sum up

GST will redistribute the burden of taxation equitably between manufacturing and services, bringing about a quality change in the tax system.  It will broaden the tax base and lower the tax rates.  The distortions will be reduced fostering a common market across the country.  The compliance cost will come down and trade and industry will become competitive, leading to an increase in exports and lower prices for domestic consumer. It will impact the tax structure, Tax Incidence, Computation, Payment, Compliance, Credit utilization and Reporting, leading to a complete transformation of the current taxation system.

The author can also be reached at mehak.48@gmail.com


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Category GST, Other Articles by - MEHAK BATHLA 



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