GST - MeaningGOODS AND SERVICE TAX(GST) is acomprehensive value added tax on Goods andServices. It is collected on value added at each stage ofsales and purchase in the supply chain withoutstate boundaries.It would integrate all taxes currently leviedin India by central and state governmentson goods and services like excise duty,service tax, state VAT/Sales tax, entrytax/octroi, state excise duty, countervailingcustom duty, luxury tax, tax onconsumption/sale of electricity,entertainment tax etc. 1
Present Tax Structure Union State Municipal VAT R&D Cess Luxury Tax Toll Tax Service Tax Entertainment Tax Passenger TaxCentral Excise Motor Vehicles Tax Octroi/ Entry TaxCustoms Duty Electricity Duty State Excise 2
Federal GST; Option I Merits FEDERAL Demerits • Union Administered • Union dependency • Unified Tax Rate • Politically unviable • Common market • Damage to basic • Replaces all taxes GOODS & structure • Free from cascading SERVICE TAX • Seizure of State • Industry favoured autonomy 3
Dual GST; Option II- PROPOSED Central GST to cover Federal & State State GST to cover 1. Excise Duty 1. VAT 2. Service tax 2. Entertainment tax 3. Additional 3. State excise Custom duty GOODS & 4. Luxury tax SERVICE TAX 5. Entry tax 4
Dual GST- Certain Positive Features (Expected)• State GST to subsume all state related taxes ( VAT, Entertainment Tax, State Excise Duty, Electricity Duty, Entry Tax etc)- Single Legislation for State GST• Central GST to subsume all Central Taxes ( Central Excise Duty, CVD, Special Additional Duty, Service Taxes, Cess etc)- Single Legislation to cover all Central Taxes.• Central Sales Taxes to be phased out• Input Tax Credit available on inter state supplies- Both Central and State GST• Concept of C Form and other Central Forms are expected to be phased out;• Single Return to cover both Central and State GST• At present certain items are subjected to both VAT, Excise and Service Tax- Such anomalies are expected to be non-existent;• No concept of Works Contract Tax under GST system• No reversal of Input Tax Credit for Branch Transfer 5
GST; likely model• RNR to be between 16% to 18%• Dual GST; administered & monitored by Centre & State• 4 rate structure; zero rates for goods of special importance , special rates for gold & sliver (say 1%) , Merit rates (8% - 10%), Demerit rates(16% - 18%)• Single rate of GST for services• Invoice to carry one GST, split into CGST & SGST• Interstate sales to be taxed – Taxed by originating State but revenue accrues to destination State – Destination State to give input credit to CGST & SGST• Taxable event – supply of goods & services• State to levy tax on services; only after introduction of GST• Place of supply Rules; to be framed by Centre & be applied uniformly• Differential rates & exemptions would be gradually phased out 6
GST; Challenges & Issues• The ideal model for Indian scene• Constitutional changes• The optimum RNR• Shifting from originating to destination based / Consumption based tax model• Revenue deficit of poor states/producing states with low consumption-• Place of supply/ Service Rules• Place of Supply Rules for telecom , broadcasting , IT , BPO, Transport services etc 7
GST; Challenges• Conducive common market• Exemption/ exclusion list• Compensate states for revenue loss:• Tax credit on exempted goods• GST – Housing & Construction sector• GST – Rail sector• GST – Valuation – Branch & depot transport• GST on Food items• GST –non profit sectors & Public bodies 8
GST – Expectations• Withdrawal of Check Post• Limited number of rates of taxes• Abolition of Works Contract Tax• Input Tax credit may be available on Invoice system like Cenvat and VAT• Adjustment of Input tax credit on Central GST against output tax of State GST and Vice versa• Cross utilization of credits between Goods and Services• Carry forward of accumulated Input Tax Credit (VAT) and Cenvat Credit under GST system on the day of introduction of GST• Exporters may be allowed to procure materials without payment of GST-Abolition of Refund System.• Existing exemptions be continued; 9
GST – Expectations (Contd…)j) The tax benefits already enjoying by the EOU, SEZ, Soft ware Technology Park would continue to be available in the GST regime as well.k) All area based exemptions schemes already in force may be converted into post-tax cash refund schemes.l) Introduction of self assessment system under dual GST;m) Single Return system to cover both Central and State GST.n) Simple legislation for both State GST and Central GST-. Uniform legislation for State GSTo) Special Additional Duty (SAD) on imports may be replaced by State GST and Central GSTp) Dispute Resolution: The disputes with regard to questions of facts at the first stage may be undertaken by the respective authority. Further stages of appeal and issues relating to questions of law may be dealt with by a joint entitry comprising the Centre and states. This would ensure uniformity and fairness in decision making. 10
GST – Expectations (Contd…..)q) Units in Special Economic Zones may be relieved of the burden of all embedded taxes, whether central or states. Supplies made to SEZ units may also be kept outside the purview of GST.r) There should be a common and uniform threshold limit of exemption for small tax payers applicable to all states.s) There should be a common and uniform threshold limit of exemption for availing composition scheme amongst all states.t) The authority to amend the common exempted list and the common composition scheme, uniform threshold limit may be rest with a joint authority of Central and State Governments to ensure that no single State or Central Government amends either to these unilaterally.u) There should be a common and uniform list of exempted goods;v) Octroi and Entry tax should be brought within the ambit of GST 11
GST – Expectations (Contd….)w) Taxes on Tobacco products should be subjected to GST with Input Tax Credit facility;x) Alcoholic beverages should be brought under GST with ITC benefits;y) Petroleum products should be subjected to GST with ITC benefits. If there is specific administrative problem, all products excepting Crude, Motor spirit and HSD, all petroleum products including ATF should be brought within the limit of GST. 12
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