Government of India unveiled on 11TH Nov 2009 First Discussion Paper on Goods and Services Tax.
The proposed GST structure in India proposes dual structure. GST shall have two components- Central GST and State GST. The model shall be implemented by multiple statutes- one for Central GST (CGST) and SGST (SGST) statute for every state.
Applicability of GST:
The Central GST and State GST would be applicable to all transactions of goods and services made for a consideration except exempted goods and services, goods which are outside the GST and the transactions which are below the threshold limits.
This white paper explained that GST would be applicable to all transactions of goods and services made for consideration. In such a case, what is the consequence when goods are sent for samples, testing, displaying, etc without charging any consideration whether theses transactions are not liable for GST or not. Since, the discussion paper is so silent on these transactions.
Chargeability to Tax:
Further, the basic feature of the law such as chargeability, definitions, assessee/person, levy including valuation provisions, basis of classification, etc would be uniform across these statues.
Though, the white paper is not clear on it would be a destination based tax uniformly both for CGST & SGST
An uniform procedure for collection of both Central GST and State GST shall be prescribed.
Collection of taxes:
Central GST shall be payable to the account of Central Government whereas State GST shall be payable to the account of State Government. Separate accounts for these taxes are to me maintained.
The same means that one dealer would be charged for both CGST AND SGST on the same valued transaction in the same Invoice separately and paying the CGST to Centre and SGST to State.
Input Tax Credit availment:
Input tax credit (ITC) of Central GST shall be allowed to be utilized for payment of Central GST only and ITC of state GST can be used for payment of State GST only. Cross utilization will not be allowed except in cases of inter state supply of goods and services under Integrated Goods and Services (IGST) model.
Threshold Limit: (Page 23)
Threshold limit proposed for Central GST for goods 1.5 crores and for services may be high. For all the states and union territories state GST for goods and services would be Rs. 10 laksh.
Further, a compounding scheme for the states GST is being proposed for turnover up to 50 lakhs of gross annual turnover and a flat rate of 0.5% across the states.
It is understood that the threshold limit for services, it is yet to be determined under Centre GST.
Integration of Indirect Taxes: (Page 25)
Under CGST, these taxes shall be subsumed:
Central Excise Duty
Additional Excise Duties
Excise duty levied on medicinal and toiletries preparation.
Additional Custom Duty (CVD)
Special Additional duty (SAD)
Following state taxes shall be subsumed in state GST:
Taxes on lottery, betting and gambling
State cesses and surcharges
Entry tax not in lieu of octroi.
Taxes which are outside the GST regime:
Tax on items containing alcohol
Tax on petroleum products
Items not covered under GST: (Page 27)
The proposed GST Structure keeps liquor and petroleum products out of the purview of GST. Regarding applicability of GST on natural gas, decision will be taken in course of time. Excise duty, presently levied by the states shall not be affected. Tobacco products shall be subject to GST with input tax credit. Centre shall be allowed to levy state excise duty over GST on tobacco products. GST shall be levied on imported goods and services by centre. Input tax credit shall be available and tax revenue shall go to the state based on following destination principle.
Interstate Transaction: (Page 28)
For taxation of inter state transaction, IGST model has been proposed. In the model Centre shall levy IGST, which would be CGST plus SGST. The seller shall pay IGST after adjusting available IGST, CGST and SGST. The importing dealer shall claim credit of IGST paid. The credit from one state shall be transferred to other state using a clearing house mechanism.
Remission/ Deferments/Exemption Schemes under the existing Act:
Existing central excise/sales tax concession scheme in the special area is likely to continue. Various schemes if needed shall be converted into cash refund scheme so that chain on input tax credit is not disturbed.
Rate of Taxes:
Rate of GST shall be prescribed in due course of time. It is expected to be revenue neutral. It is expected that target date may be met for implementation of GST.
The taxpayer would require submitting periodical returns in common format to both the Central and State GST authorities.
Mechanism of IGST:
Under this model the Centre will levy the IGST which will be CGST plus SGST on all inter-State transactions of taxable goods and services. Inter-State seller would pay the IGST on value addition after adjusting of IGST, CGST and SGST on purchases. The Exporting state will transfer to the Centre the credit of SGST used on payment of IGST.
About SEZ, EOU/STPI/EHTP etc:
A sale to SEZ units is zero rate of GST. Hewer, no benefits given to the sales from an SEZ to DTA
The white paper does not say any thing about how the GST will work for EOUs, STIP, EHTPs. In my view, EOUs are also zero rated since EOUs are meant for export of goods/services. Hence, the treatment for EOUs should be at part with SEZ as both promote exports to the Country.
GST on Imports:
On imports of goods and services, both CGST and SGST will be levied. The incidence of tax will be based on the destination principle and tax revenue accrual to the state in case of SGST will be based on the consumption of imported goods and services.
Here, there is a more ambiguity to determine which state the goods or services have been consumed to determine the revenue of the SGST.
In case of the administration power to the Central GST is the Centre and for State GST for State to be given. In case of amend or issue of any notifications, circulars, whether the states have been given power to amend these notifications or circulars, etc. or not is still unclear.
Constitution Amendment (Page 32)
Soon the amendment in Constitution will happen to enable the State to tax Services and Centre to Tax Goods which are hitherto restricted to the Centre and Sates respectively.
The proposed structure is certainly far better than the existing structure. However, a single GST structure, with tax revenue distributed between Centre & States would have been better for trade. Dealers have been losing sleep about the frequent change in rates of taxes. But in proposed draft it is suggested that to change rate there is need of Constitutional amendment, so not so frequent changes by bringing out notifications which are very difficult to track.Most importantly the proposed date of the Implementation has not been announced but the same is expected to be within the 1st of October, 2010.