INTRODUCTION 2 Goods and Service Tax is a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider can claim the input credit of tax which he has paid while purchasing the goods or procuring the serviceDHARMENDRA SHARMA
A BRIEF France was the first country to introduce this system in 1954. Today, it has spread to over 140 countries. Many countries have a unified GST system. However, countries like Brazil and Canada follow a dual system wherein GST is levied by both federal and state or provincial governments. In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction.Although, the finance minister, Mr.P.Chidamabaram in his budget speech in 2006 had said that GST would be implemented from 1st Aprail 2010 but being a democratic country, it is yet to be implemented due to lack of consensus between various states and union government. Once again,it has been mentioned in Budget 2012 presented by Hon’ble Finance Minister on 16/03/2012 that it would be implemented from 01/08/2012 positively. DHARMENDRA SHARMA 3
The GST can be divided into followingsections to understand it better DHARMENDRA SHARMA 4
The dealers registered under GST(Manufacturers, Wholesalers and Retailersand Service Providers) are required tocharge GST at the specified rate of tax ongoods and services that they supply tocustomers. The GST payable is included inthe price paid by the recipient of the goodsand services. The supplier must deposit thisamount of GST with the Government. DHARMENDRA SHARMA 5
If the recipient of goods orservices is a registereddealer(Manufacturers, Wholesalers and Retailers andService Providers), he willnormally be able to claim acredit for the amount ofGST he has paid, providedhe holds a proper taxinvoice. This “input taxcredit” is setoff against anyGST (Out Put), which thedealer charges on goodsand services, which hesupplies, to his customers. DHARMENDRA SHARMA 6
Ultimate Burden of Tax on Last CustomerThe net effect is that dealerscharge GST but do not keepit, and pay GST but get acredit for it. This means thatthey act essentially ascollecting agents for theGovernment. The ultimateburden of the tax falls on thelast and final consumer ofthe goods and services, asthis person gets no credit forthe GST paid by him to hissellers or service providers. DHARMENDRA SHARMA 7
Registration8 Dealers will have to register for GST. These dealers will include the suppliers, manufacturer s, service providers, wholesalers and retailers. If a dealer is not registered, he normally cannot charge GST and cannot claim credit for the GST he pays and further cannot issue a tax invoice DHARMENDRA SHARMA
Tax Period The tax period will have to be decided by the respective law and normally it is monthly and/or quarterly. On a particular tax period, which is applicable to the dealer concerned, the dealer has to deposit the tax if his output credit is more than the input credit after considering the opening balance, if any, of the input credit. DHARMENDRA SHARMA 9
10RefundsIf for a tax periodthe input credit of adealer is more thanthe output creditthen he is eligiblefor refund subject tothe provisions oflaw applicable inthis respect. Theexcess may becarried forward tonext period or maybe refundedimmediatelydepending upon theprovision of law.DHARMENDRA SHARMA
Exempted Goods and Services Certain goods and services may be declared as exempted goods and services and in that case the input credit cannot be claimed on the GST paid for purchasing the raw material in this respect or GST paid on services used for providing such goods and servicesDHARMENDRA SHARMA 11
12Zero RatedGoods andServicesGenerally, exportof goods andservices are zero-rated and in thatcase the GST paidby the exporter ofthese goods andservices isrefunded. This isthe basic differencebetween Zero ratedgoods and servicesand exemptedgoods and services.DHARMENDRA SHARMA
Tax InvoiceTax invoice is the basic andimportant document in theGST and a dealer registeredunder GST can issue a taxinvoice and on the basis ofthis invoice the credit (Input)can be claimed. Normally atax invoice must bear thename of supplying dealer, histax identification nos.,address and tax invoice nos.coupled with the name andaddress of the purchasingdealer, his tax identificationnos., address and descriptionof goods sold or serviceprovided. DHARMENDRA SHARMA 13
EFFECT ON ECONOMYIn a speech which was given in October 2009, DrKelkar had estimated the gains of GST for Indianeconomy based on similar gains made in Canada.“The Finance Commission had appointed a Task DHARMENDRA SHARMAForce on GST as well as commissioned a study byNCAER to assess its impact on growth in GDP andexports. The preliminary results of the NCAER studyindicate that the growth in GDP can be between 2-2.5per cent with the implementation of a well designedGST. This pioneering study explores the impact ofGST on growth through direct cost reduction as wellas cost reduction of capital inputs. The increase inexports can be between 10-14 percent. If we use 3per cent as a discount rate, and lower estimate of theGDP increase of 2 per cent accruing year after year,the net present value of the GST reform exceeds halfa trillion dollars.” 14
How will dual GST affectthe fiscal health of statesBeing a consumption-based tax, dual GST will result inbetter revenue collection for states with higherconsumption of goods and services. The backward andless-developed states would see fall in collections. TheCentre is expected to put in place a mechanism tocompensate states for any revenue loss due to GST.Theintroduction of the GST system is by far the mostimportant tax reform in India. Consensus andcoordination among states is required for it tosucceed. Before it can be introduced, the Centre andstates have to sort out issues like agreement on GSTrates, constitutional amendments empowering statesto tax services, taxation on inter-state transactions ofgoods and services, drafting of CGST and SGSTlaws, consultation with all stakeholders including tradeand industry associations beforefinalisation, administrative preparedness to implementthe new tax regime and resolution of all other issuesunder discussion. DHARMENDRA SHARMA 15
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