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Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena
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Travail 4m General Sale Tax (GST) 2 Goods & Service Tax (GST) in India _ Jena

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Training material on Goods and Service Tax of India is designed keeping the Value Added Tax and General Sales Tax in the background. General tax reforms in major direct and indirect taxes of India are …

Training material on Goods and Service Tax of India is designed keeping the Value Added Tax and General Sales Tax in the background. General tax reforms in major direct and indirect taxes of India are discussed as intruduction. Impact of direct taxation is analyzed with some original concepts and examples. Some of the concepts and most of the examples and computations demonstrated in VAT and GST section are also original of the author.

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  • 1. Tax Reform in India Direct Tax Indirect Tax with focus on Value Added Tax (VAT) & Goods & Service Tax (GST) 1 Chidananda Jena Email: chidananda.jena@gmail.com Skype/ YM: chidanandajena
  • 2. Tax Policy is not only designed to collect tax and finance development and national interest, but also meant to bring economic and social change, reduce inequality, form capital of federal and local governments, corporations, families and individuals and instill on citizens and governments a sense of shared responsibility in each stated objective. 2
  • 3. 3 Outline
  • 4. Direct Tax Reform  Tax GDP Ratio Worldwide  Indian Tax Distribution  International Tax Distribution  Direct Tax Reforms in India  New Direct Tax Code  Effects of Direct Tax  Cascading effect of Direct Tax on Earnings  Cascading effect of Direct Tax on Consumer  Reduction of Income in Direct Tax  Direct Tax rewards spendthrifts 4
  • 5. Indirect Tax Reform  Customs  Excise  Service Tax 5
  • 6. VAT  Principles of VAT  VAT Computation and Levy  Input Tax Credit (ITC)  VAT over Sale Tax  Consignment Transaction for Principal of other state  Interstate Sale  Comparison of Consignment and Interstate Sale in VAT  Zero VAT, ITC Carry forward and Refund  VAT-Consumption States to benefit  VAT: Achievements and Deficiencies 6
  • 7. GST  Why GST  Taxes to Subsume in GST  How GST different from VAT  Cascading Effect of CENVAT  Different Models of GST  Models of Interstate Sale  IGST Vs current VAT-CST  Challenges before Clearing house  Shifting of CGST share from producing to consuming State  Tax Rates and Base in GST: GoI and States Stand  Challenges for determining place of Sale or Supply 7
  • 8. Constitutional Provisions  Constitutional Implications  Centre State Relations  Legislative, Administrative and Financial  Inter state Trade  GST Council & Dispute Settlement Authority  Taxing Export & Import  Taxing Petroleum and Edible Alcohol  Sixth Schedule  Seventh Schedule: Union and State List 8
  • 9. Progress Updates  Stand off between Centre and States on Compensation in lieu of CST loss  GSTN SPV  GSTN Portal  Negative List of Services 9
  • 10. 10 Elaborate
  • 11. Direct Tax Reform 11
  • 12. Tax GDP Ratio Worldwide 12 Tax GDP Ratio 2012 by Heritage Foundation Canada 32.2 Mexico 29.7 USA 26.9 Australia 30.8 Japan 28.3 New Zealand 34.5 Denmark 49 France 44.6 Germany 40.6 Italy 42.6 Netherland 39.8 UK 39 OECD Un-weighted Average 34.8 Argentina 37.2 China 17 India 17.7 Russia 36.9 Source (wikipedia)
  • 13. Indian Tax Distribution 13 All India Tax Distribution 2012-13 ($/Rs conversion at 12-13 level apx) figures are approximations in Bn $ ($1=$ 50) % of PAN India Tax Corporate Tax 70.34 21.53% Income Tax 38.26 11.71% GoI Direct Taxes 108.61 33.24% Customs 32.97 10.09% Union Excise 34.40 10.53% Service Tax 26.54 8.12% GoI Indirect Taxes 93.91 28.75% Total Govt of India Taxes 207.61 63.55% State share transferred 58.81 18.00% Balance tax with National Govt 148.42 45.43% VAT of State 74.51 22.81% State Own Tax Revenue (mostly Indirect) 124.18 38.01% Total Tax at the disposal of State 182.99 56.01% PAN India Total Indirect Tax 218.09 66.76% PAN India Total Tax 326.69 100.00%
  • 14. International Tax Distribution 14 Comparison of OECD Countries in % of total Tax (Aproximately) USA Canad a Mexic o UK German y France Finlan d EU (unweig hted) Austral ia Japan (some taxes missing) OECD (unwei ghted) Personal Income Tax 35.3 34.6NA 28.7 23.9 17.5 31 25 38.5 17.5 24.9 Corporation Tax 8.1 10.4NA 7.8 3.5 5.7 7.7 8.1 16.7 13 9.3 Social Security Contribution 26.4 17.5 18.7 18.5 40.5 40.2 26.7 29.8 5.6 18.5 27 Direct Tax from earning 69.8 62.5 18.7 55 67.9 63.4 65.4 62.9 60.8 49 61.2 Property Tax 12.1 10 1.6 11.9 2.4 7.3 2.3 5.4 9.5 10.3 5.6 Goods and Service Tax 18.2 26.1 52.5 32.7 29.4 25.5 32 30.4 29.7 20.3 32.1 Consumption Tax (in GST) 8.4 15.1 19.4 19.8 17.9 16.8 19.4 18.9 13.7 9.5 18.9 Source: Tax Reform Trend in OECD Countries; Centre for Tax Policy and Administration, OECD
  • 15. Direct Tax Reform in India 15  No change in concept or computation in direct tax reform  Progress in computerization/ strengthening administration, increasing Tax Base, Lowering Tax Rates  Reduction in Exemption and Provision  Scope of revenue leakage is high-Transfer Pricing, income/ profit transfer internationally, Tax Haven/ different tax rates internationally, tax treaties etc.  Corporatization is high in India due to scope for avoiding tax (Refer share of PIT and CIT in total tax) and parity of CIT and PIT- Rent Seeking tendency high  Presumptive Tax-MAT  Cascading effect is enormous in Direct Tax
  • 16. New Direct Tax Code 16  Simplified and rationalized  reduced exemption and incentives, lowering rate & structure, parity of domestic & foreign firms, Clarity in definition of resident & non- resident  One Accounting Year  EET (PPF, Insurance) Vs previous EEE  Reduction of provisions that can be abused  Tax neutral for public and government  Parity of long term and short term capital gain-indexation benefit  Tax rate same at 25% for domestic and foreign firms, removal of deduction, moving towards assets base deduction  Loss carried forward till adjustment  Assets classification simplified- depreciation at same rate
  • 17. New Direct Tax Code 17  MAT moving from income to asset based  Companies will try to reduce wasteful assets and gestation period  Wholly situated modified to partly situated- good for foreign firms/ NRIs  Taxing media companies broadcasting Indian program through satellite to Indian audience, generating revenue from advertisements of Indian Companies  Commission given lots of power in permanent establishment, transfer pricing, associated enterprise, arms length price issue
  • 18. Effect of Direct Tax 18  People paying income tax again pay tax on spending- Cascading  Profit earned by a Corporate/ Person from revenue earned through sale of goods and service are ultimately paid by consumer-payable income tax is built in the prices of goods and services-Cascading  Tax on earning reduces people’s wealth more than equivalent consumption tax  Direct Tax punishes savings
  • 19. Low Income Group Middle Income Group  Earns $100  Exemption Limit=$100  Balance for Consumption= $100  Pays VAT@10%= $9  Consumption= $91  Tax to Government on total earning=$9=9%  Earns $200  Exemption Limit=$100  Income Tax @20%=$20  Balance for Consumption =$180  Pays VAT@10%=16  Consumption=$164  Tax to Government on total earning=$36=18% 19 Cascading Effect of Direct Tax on Earning Note: Scenario is different for high income groups as the spending is much less than total income, Tax Credit refund for low income group is practiced in developed economy, but no relief for middle class
  • 20. Cascading Effect of Direct Tax on Consumer 20  Corporation C sells cold drinks @ $1 per bottle  Consumer pays VAT/GST @ 10%=10 cents per bottle  Corpn C sells 1 Bn bottles and gross revenue is $10Bn  Corpn C collects from consumer and pays VAT/GST of $1Bn  Operating Expenses etc. $1 Bn  Raw materials cost $ 5Bn  Depreciation, interest etc $ 2 Bn  Profit after depreciation and interest=$ 2 Bn  Income Tax due at this stage @ 20%= $40 Mn  Consumers utlimately pays this $ 40 Mn hidden in the cost of cold drinks sold by Corpn C  VAT/GST @ 10% on $ 40 Mn is $ 4 Mn  Consumers pay VAT of $ 1 Bn in which there is $4 Mn cascading effect of direct tax + direct tax of $ 40 Mn= $ 1.4 Bn
  • 21. Income Tax Consumption Tax  A earns $100  Pays Tax @ 20%=$20  Balance=$80  Consumption in Yr 1  $40  Investment 4m Yr 1-10  $40  Earnings $40  Tax@20%=$8  Net=$72  No Income Tax  B earns $100  Consumption in Yr 1  $50 inclusive of tax  Tax@20%=$10  Actual Consumption=$40  Investment 4m Yr 1-10  $50  Earnings $50  Total =$100 21 Reduction of Income in Direct Tax
  • 22. Income Tax Consumption Tax  Consumption in Yr 10  $72  Total Effect  Total Earning $140  Tax=$28  Actual Consumption=$112  Tax effect=@20%  Consumption in Yr 10  $100 inclusive of Tax  Tax @20%=$20  Actual consumption=$80  Total Effect  Total Earning $ 150  Tax=$30  Actual consumption=$120  Tax Effect=@20% 22 Reduction of Income in Direct Tax (Cont) Note: Assuming rate of earning on savings more than inflation, there is a net loss to the public under income tax regime
  • 23. Spendthrift Economical  A earns $100  Pays Tax @ 20%=$20  Balance=$80  Consumption in Yr 1  $80  B earns $100  Pays Tax @ 20%=$20  Balance=$80  Consumption in Yr 1  nil  Investment 4m Yr 1-10  $80  Earnings $80  Tax@20%=$16  Net=$144 23 Direct Tax rewards Spendthrift
  • 24. Spendthrift Economical  B’s Consumption in comparison to no tax scenario=$80/100=80%  Consumption in Yr 10  $144  Consumption in comparison to no tax scenario=$144/200= 72% 24 Direct Tax rewards Spendthrift (Cont) Source: Progressive Consumption Taxation; The choice of Tax Design by Alan Viard, American Enterprise Institute, NYU, School of Law
  • 25. Indirect Tax Reform 25
  • 26. Customs 26  Peak customs duty 10 %, committed to bring to 5%  Multiple tax rates persists for closely related items  Exemptions persist  Standard Commodity Classification followed  Transaction Value instead of deemed value  Fast Track Clearance Scheme limited-Delay persists  Should encourage self declaration as much as possible  Provision for Advance Ruling implemented, but lingering  MODVAT with negative list
  • 27. Excise 27  Structure and rates of duty lowered: peak rate 16% and two rates  CENVAT ( Credit/offset) diluted  Cascading still persists  Populist exemptions persist  Physical restriction by tax administration reduced largely with self declaration of tax payer  Adoption of standard commodity classification list
  • 28. Services 28  Tax Base increase by leading to double tax by centre and state  Interpretation of Services as Goods by states leading to double taxation  ITC not interchangeable
  • 29. VAT 29
  • 30. Principles of VAT  Uniform Tax Rate PAN India to eliminate Tax War  No Double Taxation and Cascading effect  ITC (Input Tax Credit)-differential to be paid to Govt.  Tax is not a part of sale price  Entire tax collected at different stages inside a state to be refunded/ adjusted in case of interstate sale/Export  Parity of CST sale & Commission sale  CST sale would have been tax free within few years 30
  • 31. VAT Computation  VAT =(Output tax + Purchase tax) - Input tax  VAT- on the sale and purchase  A dealer collects tax on his sales, retains the tax paid on purchases and pays the balance in every tax period  TOT- Nominal rate on TTO of Sale 31
  • 32. VAT Levy on Sale & Purchase  Tax on sale turnover of taxable goods.  Purchase tax is on transactions, unlike purchase tax 3B goods of Sales Tax Act.  Purchase tax is levied when taxable goods are purchased under circumstances where no tax on sale is leviable.  When purchased from unregd. dealers.  Where the goods consumed or used otherwise than through intra-state/ inter-state/ export /SEZ/STP/EHTP/EOU sale. 32
  • 33. Input Tax Credit (ITC)  ITC can be claimed only by Regd. VAT Dealers.  ITC on goods purchased within the state from Regd. VAT Dealers .  ITC allowed on  Intra State Sale  Inter state sale/STP/SEZ/EOU/EHTP/Export out of the country.  Consignment/ Commission Transaction from one state to another  On stocks held on appointed day.  ITC Readjustment for goods returned.  Tax Invoice fundamental for claim of ITC. 33
  • 34. ITC on Capital goods  ITC to be allowed on capital goods spread over 2/3 years followed by refund  ITC on consumables except negative list goods. 34
  • 35. No Input Tax Credit- ITC  Against CST, VAT paid in another state  In respect of sales exempted from VAT  On material purchased from a regd. VAT Dealer, but given away as gift  For TOT dealers  In respect of stock of goods remaining unsold at the time of closure of business  On old capital goods/ vehicles for conveyance or transport 35
  • 36. No Input Tax Credit-ITC  To liable unregistered dealer  Purchase and Sale of Suspended Dealer  Raw materials when the finished product is exempt.  Proportionately if part of finished goods is exempt 36
  • 37. Sales Tax VAT  OMC (ore) sells $1000/ collects & Pays Tax@4% $40/  Shree Metallics (sponge iron manufacturer) purchases $1040/ margin $60/ sells $1100/ collects and Pays Tax@4%$44/ total $1144/  OMC sells $1000/ Collects & PaysVAT @4% $40/  Shree Metallics purchases $1000/ margin $60/ sells at $1060/ Collects VAT@4% $42.4/ Pays Tax $ 2.4/ 37 Sales Tax vs VAT
  • 38. Sales Tax VAT  Saurav Alloys (manufacturer of ingot) purchases $1144/ margin $56/ sells $1200/ collects and pays Tax $48/  Rerolling Mill manufacturer purchases $1248/ margin $ 52/ sells $ 1300/ collects & pays Tax $52  Saurav Alloys purchases $1060/ margin $56/ sells $1116/ collects VAT $44.64/ pays tax $2.24/  Rerolling Mill purchases $ 1116/ margin $ 52/ sells $ 1168/ collects VAT $46.72/ pays tax $2.08/ 38 Sales Tax vs VAT
  • 39. Sales Tax VAT  Trader purchases at $1352/ including tax of $184/  Companies keep margin of $168/  No further Tax  Trader purchases at $ 1168/ and total VAT $46.72/ total $ 1214.72/  All Companies keep margin of $168/  Trader sells to consumer adding margin of few dollars and adding tax of few cents 39 Sales Tax vs VAT
  • 40. Sales Tax VAT  TIISCO, Odisha sells at $1200/ It does not get ITC $ 40 tax on input of $ 1000/  Collects no tax  Trader sells with 10% margin =$1320/  Jhar. Sales Tax $52.8/ Odisha Sale Tax $40/  TIISCO sells at $1200/ It gets ITC in access of $ 40 on input of $ 1000/=no ITC here  Collects no tax  Trader sells with 10% margin =$ 1320 /  VAT(J) $ 52.8 / VAT(O) $ 40 / 40 Consignment Transaction by agent in another State Tax Benefit under VAT if tax rate is higher than CST rate. Excess tax shall be given ITC
  • 41. Sales Tax VAT  JMC - Iron Ore sells $ 1000/ Tax 4% $ 40/  TIISCO manufactures Coils purchases $ 1040/ margin $ 160/ sells $1200/ CST 4% $ 48/ total $1248/  JMC - Iron Ore sells $ 1000/ VAT 4% $ 40/  TIISCO - CR Coils purchases $ 1000/ margin $ 160/ sells $1160/ CST 4% $ 46.4/ ITC- $ 40/ refunded total $ 1206.4/ 41 Interstate Sale
  • 42. Stock Transfer CST  JMC- Iron Ore sell $1000/ VAT (J) @ 4% $ 40/  TIISCO- Jharkhand purchase $ 1040/ no ITC for VAT of $ 40 / margin@10%= $104/ sell Value $1144/ No CST  Jharkhand tax $40/  Benefit of $4 to TIISCO  JMC- Iron Ore sell $1000/ VAT(J) @ 4% $ 40/  TIISCO, Jharkhand purchase $ 1000/ margin @10%= $ 100/ sell $1100/ CST (J) @4%=$44/ VAT(j)-$40/ refunded Total Value=$1144/  Jharkhand Tax $ 44/ 42 Consignment Transfer Vs Interstate Sale in VAT
  • 43. Zero VAT ITC for Zero rated sales. Zero rating on Goods exported out of the state Goods exported out of the country Goods sold to SEZ, STP, EHTP, EOU 43
  • 44. Adjustment of ITC  ITC to be adjusted against outstanding tax, penalty under the VAT Act or against tax due under CST Act  Excess of ITC after adjustment to be carried over as an input tax credit to subsequent tax periods up to 2 years.  Refund of ITC will be given after 2 years / the dealer may opt for further carry forward.  Refund of ITC on goods exported out of the country on application in every tax period. 44
  • 45. Refund  Refund arising out of an order to be allowed, without application, within a period of 60 days  Refund to be adjusted against arrears  Refund for export to be allowed on application within 90 days after audit  Audit to be completed within 30 days  Refund can be granted provisionally against bank guarantee  8% interest on refund after due date 45
  • 46. Consumption Tax beneficial to poor States  Net consuming state to benefit the reduction of CST and refund of ITC in producing state  Consumers bear the State Sales Tax & CST of other states in addition to the own state ST of Orissa for goods brought in- VAT will reduce tax burden.  Integration of Industry will stop. Industries will migrate to less developed state- raw material, Coal, Land & Labour is cheap and plenty. Doubling & Cascading effect of tax is no more a worry.  Ancillary Industries will grow-generation of huge employment & new business avenues.  Main cause of industries in mineral rich states now-VAT 46
  • 47. Achievement of VAT 47  Abolition of First Point (under pricing) or Last Point (intractable) Sale Tax- Appropriate Revenue Collection at appropriate level  Reduction of Cascading effect of Tax at manufacturing stages as ITC on raw materials and Capital goods allowed  Reduction of Cascading effect for Refund of VAT for Inter- state sale and Export  Reduction of CST leading to further reduction of cascading  Rationalization of Tax Structure and Uniform Floor Rate amongst States  Consuming state collects VAT from Consumers
  • 48. Deficiency in VAT 48  Tax War not fully contained  Still many rates persist  Exemptions continue or crept in  Narrow Base  CST not abolished as Revenue Neutrality not achieved  Check Post System could not be abolished  No Coordination between Central Excise and States on cross verification of transactions  Many Taxes on Goods & Services both by Centre and States  Conflict between state and centre whether service/goods  Cascading effect not eliminated fully  Commodity classification not standardized
  • 49. GST 49
  • 50. Why GST 50  Conflict between Union Govt (Central Excise) and State VAT on taxing new products as Goods/ Services  Mobile Recharge Vouchers (Goods)/ Easy Recharge (Not Goods)  Software sold online/ Software sold in a DVD  Beverages Served in Luxury Hotels attract VAT and Service Taxes in addition to Central Excise and State Excise  Assembling/Packaging - Whether Manufacturing/ Service and thus taxable as Excise/ Services  States taxing selective services under Luxury Taxes, Hire Purchases/Right to Use/Lease  Works Contract a Service/ Goods/ Manufacturing?
  • 51. Why GST (Cont) 51  To reduce cost of Administration  To reduce Cost of Compliance  Registration & routine works handled by State  Return for CGST/ SGST/ IGST will be simultaneous  Payment of all GSTs simultaneous  Reduce Tax burden on Public, Trade and Manufacturing  Coordination between all Indirect Taxing Authorities  Information sharing through robust GST Network  One standard commodity classification by all states and Indian Tax administrations
  • 52. Why GST (Cont) 52  Next Stage in Tax Reform  Both Central Excise and State CT Dept wants to increase tax base by including goods and services day by day  Followed by more than 100 nations  Better mechanism to transfer ITC from one State to another rather than refunding to Tax Payers in selling state
  • 53. Union Taxes State Taxes  Central Excise Duty  Additional Excise Duty  The Excise Duty levied under Medicinal and toiletries preparation Act  Service Tax  Additional Custom Duty (CVD)  Special Additional Duty  Surcharge/ Education Cess Note: One major taxes administered by Central Govt. is left out, i.e Customs/Import  VAT  Entertainment Taxes  Luxury Taxes  Entry Taxes  Tax on lottery  State Cess and Surcharge on supply of goods and services Note: CST (shall be abolished) Most of the Taxes administered by Com Tax Dept included 53 Taxes likely to Subsume in GST
  • 54. How GST different from VAT 54  Same concept of ITC as VAT  ITC for service and goods combined  ITC on Centre GST and state GST not interchangeable  National excise and state VAT shall integrate  No CST Law  No tax incentive/disincentive for different types on interstate Transaction  Further reduction of cascading due to abolition of CST, integration of central excise, service and state VAT
  • 55. CENVAT @10% CGST @10%  Mnfr A sells $100+CENVAT $10  Trader B purchases $110  With mark up @10%, Trdr B sells at $ 121 to Trdr C  With mark up@ 10%, Trdr C sells at $ 133.10 to Mnfr D  With mark up @ 100%,Mnfr D sell at $266.20+CENVAT $26.62  Cost to Consumer $ 292.82  CENVAT = $10+$26.62 =$36.62  No ITC for break in Mnfcr Chain  Mnfr A sells $ 100+CGST $ 10  With mark up @10%, Trdr B sells $ 110+CGST $ 11 to Trdr C  With mark up@ 10%, Trdr C sells $121+CGST $12.10 to Mnfr D  With mark up @ 100%, Mnfr D sells $242+CGST $24.20  Cost to Consumer $ 266.20  Total CGST $24.20 55 CENVAT-Cascading CENVAT leads to cascading in cases where chain of traders involved in purchases from manufacturing unit and sells to manufacturing Unit-Break Manufacturing ITC Chain Saving by consumer= $26.62 (Tax $12.42+ Effect of Mark up on tax included in cost $14.20)
  • 56. Model 1: GST on Devolution 56  State GST:  State levy & collect GST  Centre withdraws from tax on Trade and Service  Centre have excise tax with state and centre sharing model  Central GST:  Centre levy and collect Tax  State VAT merged with CENVAT & Service Tax  Centre share more tax with respective States  Dual GST  State & Centre both collect Tax @ same Rate  Commodity Base Synchronised
  • 57. Union State  Gross Turnover of Services upto $ 1.5 Crore  GTO above $ 1.5 Crore for Goods and Services Note: Cannot predict if GTO will exceed the threshold  Gross Turnover of Goods upto $ 1.5 Crore  GTO above $ 1.5 Crore for Goods and Services Note: Cannot predict if GTO will exceed the threshold 57 Model 2:GST on the basis of threshold
  • 58. Models in Interstate Sale 58  VAT-CST Model: Zero Rated; ITC Adjusted/Carried Forward & Refunded/ Transferred for Seller; Purchaser pays full VAT in consuming state  Reverse Charge Mechanism: Seller pay SGST to Exporting State; Purchaser pays again SGST in Consuming State; Purchaser gets certificate from Consuming State and gives to Seller; Seller claims refund-Taxing Tax Payers  Clearing House Mechanism: Seller pay SGST in exporting state, provide details to clearing house; clearing house will collect SGST from exporting state to Consuming State; Issue Certificate to Seller and Purchaser; Seller can claim refund and Purchaser can claim ITC- Challenging  IGST Model: Seller pay differential tax to Centre; Exporting State transfer credit used in IGST to Centre; Purchaser claim ITC; Centre transfer ITC claimed by Purchaser to Consuming State; Clearing House-More Challenging
  • 59. VAT @10% + CST @2% SGST/IGST @10%  Trdr A (State 1) purchases $ 100+VAT $ 10  With Mark Up@10%, Trdr A makes interstate sale to Trdr B (State 2) at $ 110 + CST $ 2.20=$ 112.20  Trdr A claims refund from State1 =$ 10-$2.20 =$ 7.80  With marks up @10%, Trdr B sells $ 123.42+VAT $ 12.34  Consumer pays $ 135.76  State 2 CTD gets VAT 12.34  State 1 gets CST of $2.20  Total Tax=14.54  Trdr A (State 1) purchases $ 100 + SGST $ 10  With Mark Up@10%. Trdr A makes interstate sells to Trdr B (State2) $ 110 + IGST $ 11  With marks up @10%, Trdr B sells $121 + SGST $ 12.10  Consumer pays = $ 133.10  Trdr B gives State 2 SGST=$ 12.10 - $11=$ 1.10  Trdr A gives Centre IGST= $11-$10=$ 1  Clearing House collects $ 10 from State 1+ $ 1 from Centre IGST & pay $ 11 to State 2 59 IGST Vs VAT-CST Model
  • 60. Challenges for Clearing House 60  State 1 accepting an interstate sell by Trader A to trader B in State 2.  Verifying ITC on purchases of Trader A by State 1 before transferring ITC to Clearing House is a challenge  Correlating invoice to invoice of purchase to sale not possible  Presently refund is not easily given and hence ITC is carried forward for a long time  Trader B availing ITC while State 2 would not receive the ITC transfer will be a huge strain on consuming state  Without clarity, verification mechanism, Enforcement mandate of clearing house, State 1 will gain at the cost of State 2
  • 61. CENVAT @10% CGST @10%  Mnfr A (State1)sells at $100+CENVAT $10  Trader B (State2) purchases $ 110  With mark up @10%, Trdr B sells at $121  Total CENVAT $ 10  If Centre and State Sharing is 50:50, State 1 gets $ 5  Mnfr A (State1)sells at $100+CGST $10 to Trdr B (State2)  With marks up @10%,Trdr B sells at $110+CGST $11  Total CGST $ 11  CGST chain is not broken, CGST credit will be reflected in Central Excise Commissionerate of state2  If Centre and State Sharing is 50:50, State2 gets $ 5.50 61 Share of CGST to Consuming State Consuming State does not get share of CENVAT Centre: State Tax Sharing Arrangement as ITC on CENVAT stops at manufacturing-if manufacturing happens in one state and consumption in another
  • 62. Rate & Base in Dual GST-State Stand 62  Standard Rate= 8/ 9% CGST+8/ 9% SGST  Essentials life support= 4% CGST+4% SGST  Gold Silver Bullion Diamond=1% CGST+1% SGST  Common Exempt List with limited regional exceptions  SIN (Alcohol+Tobacco) Products+Petroleum Products out of GST = Taxed as present
  • 63. Rate & Base in Dual GST- GoI Stand 63  Petroleum Products out of GST = Taxed as present  Special Central Excise on Tobacco even as it will be in GST  For rest start with different Rate: Graduate to One Rate 1st Year  Standard Rate= 10% CGST+ 10% SGST  Services = 8% CGST+8% SGST  Essentials life support= 6% CGST+6% SGST 2nd Year  Standard Rate= 9% CGST+ 9% SGST  Services = 8% CGST+8% SGST  Essentials life support= 6% CGST+6% SGST 3rd Year  One Rate = 8% CGST+8% SGST
  • 64. Challenges in Place of Consumption 64  Place of sale of Goods & supply of Service / Consumption – conflict among states  Online Sale of Commodities by one dealer located in Delhi to States all over India  Consultancy Services provided by one Corporate in all states against a work order received centrally from another agencies in Delhi  Mobile Phone Services provided to a corporate house centralized at Delhi, but services utilized in different states
  • 65. Constitutional Implication 65
  • 66. Central Government State Government  Does not have power to Tax goods during Trading  Does not have power to tax Interstate trade (in the scenario of taxing (IGST)  Does not have power to Tax Services  Does not have power to tax import 66 Constitutional Implication Note: need for amendment of constitution: 115th Amendment Way Out: Centre levy tax and fix rate on services, states collect and appropriate; consensus required on modalities, rate and services devolved to states-No more discussed
  • 67. Constitution Amendment 67  Art 246 to Art 279:Amendment of relation of Centre and State  Legislative, Administrative and Finance  269A: Inter State Trade  279A: GST Council Centre to have Veto & 2/3rd majority of States/ Consensus/ Act of Parliament & Recommendatory; Like EC but as a Constitutional Body  279B: Dispute Settlement Authority States’ apprehend this will dilute federalism
  • 68. Constitution Amendment (Cont) 68  Art 286:Restricting States to tax Export and Import  Art 366 12A :Definition of Goods and Services Tax excludes Petroleum and Human Consumption Alcohol  Sixth Schedule: Dist Council of Autonomous Dist gets power to tax Entertainment & Amusement
  • 69. Constitution Amendment (Cont) 69  Seventh Schedule: Union and State List  Union List No 84: Union Excise duty list included Petroleum products (Earlier tobacco), excluded alcohol & narcotic drugs  Union List No 92:Service omitted  State List 52: Entry Tax power taken away from State and given to local bodies  State List 54:Taxes on Sale or Purchase of Goods replaced by Taxes on Sale; excludes Petroleum and Human Consumption Alcohol  State List 62: Local Bodies/Regional/Dist Council to tax Entertainment & Amusement
  • 70. Progress Updates 70
  • 71. Stand off 71  Draft Bill in its current form  issue of integrated GST for inter-state movement of goods and VAT on imports  Revenue neutral rate on GST - one that is not too high for the traders and not too low for states  mechanism so that tax payers have to coordinate only with one agency - centre or state  Arrear compensation not given since 2010-11 (Rs. 6,394 crore budgeted in 2013-14 for 2010-11)
  • 72. GSTN-SPV 72  AOA, MoA, Shareholders Agreement  Equity Sharing (51 Pvt+24.5 Centre+24.5 States, Uts and EC)  Board of Directors  6 from Govt+Govt nominated Chairman  CEO from Private Sector ( EC has recommended change)+7 from Pvt  Instantaneous Information and timely settlement of States Shares  GSTN IT Infrastructure owner EC
  • 73. GSTN Portal 73  Single window for e-filing of CGST, IGST and SGST in the shared portal  E-Services shall be done through this portal- disseminated at back end to respective states and Excise Dept.  Full Service Model: Some States can utilize  Limited Service Model: Regn, Return, Payment  Application Programming Interface (API): Adhere to common RRP formats, can have additional fields in their own system  Provide local language support
  • 74. Negative List on Services 74  Included  Transport  Advertizement  Entertainment  Sale of Goods  Not Included  Personal Services  Land & Building  Cable Operator & DTH Services  Note: Financial Services are not part of GST
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