2. TAXES
Economist De Marw has stated
“A tax is a price which each citizen
pays to the Government to cover
his share of the cost of
general public services which he consumes”.
5. TYPES OF TAXES
DIRECT TAXES
Income Tax, Professional Tax,
Wealth Tax
INDIRECT TAXES
Central Excise, Service Tax, Custom
Duty
6. TYPES OF TAXES
Direct Taxes
Progressive Tax
Increase as proportion of income
Person liable to pay when income exceeds
specified limit.
Payment only on specified dates.
Indirect Taxes
Regressive Tax
Decreases as proportion of income
Every one liable to pay (poor or rich)
Payment 24 x 365
7. Classification of
Indirect Taxes
Central Indirect Taxes:
Central Excise Duty, Custom Duty,
Central Sales Tax and Service Tax
State Indirect Taxes:
State Excise Duty, Sales Tax or VAT,
Consignment Tax, Property Tax, Entry
Tax or Octroi.
8. One line meaning of
Indirect Taxes
Central Excise Duty:
Tax on manufacture or production of excisable goods in India.
Custom Duty:
Tax on import or export of goods.
Service Tax:
Tax on services provided or to be provided.
Sales Tax:
Tax on sale or purchase of goods.
VAT:
Tax on value added by the dealer of the goods
Central Sales Tax:
Tax on inter state sale of goods
10. Indirect Taxes in India
Central Govt. State Govt.
•VAT replaced State Sales Tax
* Excise Duty – CENVAT Credit
from 1st April, 2005
• Service Tax -- CENVAT Credit
(Gujarat 2006)
• Custom Duty
(Sales Tax, WCT, TOT, S.Charge)
Proposed Goods & Services Tax Act
Proposed Goods & Services (State – GST)
Tax Act. (Central) - Merger of all state taxes including Octroi
- Service Tax Levy to the States.
( Proposed from 1st April 2010
( Proposed from 1st April 2010 )
On the same goods and services, Central Govt. and State Govt. would
11. VAT CONCEPT FIRST DEVELOPED
BY
WILHELM VON SIEMENS
IN
GERMANY IN 1919
ADOPTED IN 1968
12. VAT adopted by the Countries
Standard
Standard
Country Year VAT Country Year
VAT Rate
Rate
France 1948 20% Russia 1992 18%
Brazil 1967 18% Spain 1986 16%
Australia 2000 10% Sweden 1969 25%
Banglades 1991 15% U.K. 1973 20%
h
Canada 1991 NA Korea (S) 1977 10%
China 1994 17% Israel 1976 17%
Nepal 1997 10% Denmark 1967 25%
12
Pakistan 1990 15% India 1986
13. VAT Revenue Ratios : 2001
Percentage
Percentage
Country to Tax
to GDP
Revenue
Belgium 15 7
Denmark 20 10
France 18 8
Germany 18 7
Spain 17 6
Sweden 18 7
UK 18 7 13
14. Tax Revenue Growth in India
In 10 years
Income Tax Corp. Tax 450%
Custom Duty 131%
Central Excise Duty 145%
Service Tax 2474%
State Indirect Taxes 231%
Aggregate 259%
Direct & Indirect tax to GDP 6% & 15%
18. What is VAT/GST ?
1. VAT is multipoint Sales Tax,s with facility of set-
off for tax paid on purchases.
2. Collected in installments at each stage of
transaction from production to consumption.
3. Does not have cascading effect due to ITC.
4. VAT is tax on consumption. Final burden of tax is
fully & exclusively borne by ultimate consumer.
5. VAT is equivalent to last point retail sales price tax.
6. VAT is not charged on exports.
19. What is VAT/GST ?
VAT = Out put tax – Input tax
= Tax on sale – tax on purchase
= Tax payable – input tax credit
= Output tax on sale of taxable
goods minus input tax paid on
purchases
= Tax at each stage of sale starting
from production or import to
ultimate consumer
20. Goods and Services Tax (GST)
• Further significant improvement in
Indirect Taxation (awaited)
• Next logical step – towards a
comprehensive indirect tax reforms.
• GST likely to be introduced from
April 1, 2011……???
21. Justification of GST
• Shortcomings of VAT (Break ITC chain)
• GST include comprehensively more indirect
Central and State taxes and integrate goods
and service taxes for set-off
• Revenue gain for the Centre and State
• Increase compliance, reduce evasion
• Dealers’ psychology favors VAT/GST
22. Why GST
• Several State Indirect taxes
• CENVAT load on the goods, cascading effect
• No integration of VAT on goods and services at the
State level
• Goods produced on the basis of physical inputs as well
as services
• GST is VAT plus service tax & an improvement over
VAT
• Central Sales Tax (CST) will also be removed
23. GST model accepted
• GST have three components:
o Levied by the Centre
i. Central GST(CGST)
ii. Integrated (IGST),
o Levied by the States
State GST. (SGST)
• GST model to be implemented through multiple
statutes. Each state will have separate its’ own Act
24. GST model
Uniform
• Definition of taxable event,
• Taxable person,
• Measure of levy,
• Valuation provisions,
• Basis of classification etc.
25. Central Taxes to be subsumed under GST
• Central Excise Duty
• Additional Excise Duties
• The Excise Duty levied under the Medicinal and
Toiletries Preparation Act
• Service Tax
• Additional Customs Duty, commonly known as
Countervailing Duty (CVD)
• Special Additional Duty of Customs – 4% (SAD)
• Surcharges
• Cesses
26. State Taxes to be subsumed under GST
• VAT/Sales tax
• Entertainment tax
• Luxury tax
• Taxes on lottery, betting and gambling.
• State Cesses and Surcharges
• Entry tax or octroi
27. Dual GST
• CGST and SGST both will be levied on all
transactions of goods and services.
• CGST and SGST are to be paid to the
accounts of the Centre and the States
separately
• Input tax credit (ITC) of CGST & SGST to
be taken separately and used separately,
cross utilisation barred.
28. Salient features of the GST model
• GST have two components: levied by the Centre
Central GST, levied by the States State GST.
• Dual GST model implemented through multiple
statutes
• Basic features of law chargeability, definition of
taxable event and taxable person, measure of levy
valuation provisions, basis of classification etc.
uniform
29. Salient features of the GST model
• CGST and SGST applicable to all transactions of
goods and services made for a consideration
except the exempted goods and services
• CGST and SGST are to be paid to the accounts of
the Centre and the States separately
• Allowed to be taken as input tax credit (ITC)
• Credit of CGST to be used against payment of
CGST only and Credit of SGST to be used against
payment of SGST
30. Salient features of the GST model
• Cross utilization of ITC between the Central
GST and the State GST would not be
allowed except in the case of inter-State
supply of goods and services under the
IGST model
• Refund of GST should be avoided by both
the Centre and the States except in the cases
such as exports,
31. Salient features of the GST model
• Uniform procedure for collection of both Central
GST and State GST would be prescribed in the
respective legislation for Central GST and State
GST
• Separate administration of the Central GST to the
Centre and for State GST to the States
• Threshold limit of gross annual turnover of RS.10
lakh both for goods & services for all States for
small trader or SSI to keep him out of purview of
SGST
32. Salient features of the GST model
• Threshold limit for Central GST for goods RS. 1.5
crore
• Threshold limit for Central GST for services may
also be appropriately high
• Separate threshold of services (Rs. 10 lakh)
• Composition/Compounding Scheme for the
purpose of GST cut-off at Rs. 50 lakh of gross
annual turnover and a floor rate of 0.5% across the
States.
33. Salient features of the GST model
• Taxpayer need to submit periodical returns, in
common format to both the CGST authority and to
the concerned SGST authorities
• Each taxpayer would be allotted a PAN-linked
taxpayer identification number with a total of
13/15 digits
• Assessment, enforcement, scrutiny and audit by
the authority collecting the tax, with information
sharing between the Centre and the States.
34. Purchase tax
• Food grains producing States and certain
other States earn substantial revenue from
Purchase Tax
• Purchase Tax has to be subsumed, but such
state are not prepared for it.
• Such states wants to keep purchase tax out
of GST net
35. Tax on items containing Alcohol
• Alcoholic beverages to be out of GST net.
• Existing practice to levy Sales Tax/VAT to be
continued on alcoholic beverages.
• State Excise Duty, presently being levied by the
States to be continued.
36. Tax on Tobacco products
• Centre may be allowed to levy
excise duty on tobacco products
over and above GST and that to
without ITC.
37. Tax on Petroleum Products
• Crude, motor spirit (including ATF) and HSD
would be kept outside GST net
• Sales Tax could continue to be levied by the
States on these products with prevailing floor
rate
• Centre wants to continue its levies like excise.
38. Taxation of Services
• Centre and the States will have concurrent
power to levy tax on all goods and services.
• Constitution requires, amendment to levy tax
on services by the states.
• At present only Centre levies tax on services
39. GST Rate Structure
• Two-rate structure proposed
i. Lower rate for necessary items and goods
of basic importance
ii. Standard rate for goods in general.
• Special rate for precious metals
• Exempted list under VAT regime including
Goods of Local Importance may be retained
• Revenue neutral GST rate is expected
40. Authority to tax goods and services
• Central Government can tax goods, only up
to manufacturing or importing level
• State Government can tax goods, after
manufacturing or importing level
• At present only Central Government can tax
Services and inter state sales
41. GST at the State
• Additional power of levy of taxation of
services for the States,
• System of comprehensive set-off for
cascading burden of CENVAT and service
taxes,
• Subsuming of several taxes in the GST
• Removal of burden of CST
42. Expectations from GST
• Effective GST model in a federal system
• Overall harmonious structure of rates
• Upholding the powers of Central and State
Governments in their taxation matters.
• Model that would be easily implementable
• Acceptable to stakeholders.
43. Inter-State Transactions of Goods
and Services
• IGST Model: Centre would levy IGST i.e.
CGST plus SGST on all inter-State
transactions of taxable goods and services
• Inter-State seller will pay IGST
• Exporting State will transfer to the Centre
the credit of SGST used in payment of
IGST
• Importing dealer will claim credit of IGST
44. Inter-State Transactions of Goods
and Services
• Centre will transfer to the importing State the
credit of IGST used in payment of SGST
• Relevant information will also be submitted to the
Central Agency
• Central Agency will act as a clearing house
mechanism
• Central Agency will verify the claims and inform
the respective governments to transfer the funds
45. Inter-State Transactions of Goods
and Services
• Uninterrupted ITC chain on inter-State
transactions.
• 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.
• Self monitoring model.
46. Inter-State Transactions of Goods
and Services
• Level of computerization is limited to
inter-State dealers and Central and State
Govt. to computerize their processes
• Inter-State dealers be e-registered and
correspondence with bye-mail,
compliance level will improve
• Model can take B2B as well as B2C
transactions into account.
47. IT Infrastructure
• IT infrastructural requirement will be shared
by the Central Government through the use
of its own IT infrastructure facility
• Tying up the State Infrastructure facilities
• Improvement of the States' own IT
infrastructure, including TINXSYS in a
time bound manner
48. Manufacturing to consumption
• Higher the number of intermediaries, between
manufacturing and consumption, higher will
be value addition and aggregate tax, resulting
in to rise in prices, leading to inflation.
• Every increase in tax component is ultimately
born by consumer which, affects his budget.
• Tax paid by consumer, adds revenue to
exchequer.
50. Receipts On Government of Gujarat : Sales Tax/VAT
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
GR (%) -2.00% 4.70% 16.60% 16.80% 21.80% 71.70%
Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
VAT 3736.32 3661.74 38.34.14 4470.28 5222.87 6360.48 10918.78 12718.38
(Crore)
Source: Socio-Economic Review Gujarat State, 2008-09, P. S-122
51. GST/VAT: Tax on valuecoin
Other side of the added
• GST/VAT is tax on every value added by
assessee/dealer.
• Value addition is nothing but expenses
incurred and profit charged by assessee.
• Any increase in expense or profit of a dealer
increase GST/VAT as it is part of value
addition.
• Which results in price rise.
54. Consumer Price Index (Industrial Workers) Base year 86-87=100
YEAR Index Growth Rate
1998-99 414 -
1999-00 428 3.4%
2000-01 444 3.7%
2001-02 463 4.3%
2002-03 482 4.1%
2003-04 500 3.7%
2004-05 520 4.0%
2005-06 542 4.2%
2006-07 597 10.1%
Source: Hand Book of Statistics on The Indian Economy, RBI, 2008-09, P. 86
55. Growth Rate of Consumer Price Index (Industrial Workers)
Base year 86-87=100
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
56. Double Taxation
• Under GST/VAT scheme, profit component
of value addition is taxed once as indirect
tax.
• Same profit component is again taxed under
head profit or gain from business or
profession under Income Tax Act, 1961 as
direct tax
• It is a case of Double taxation.
57. All transactions to be taxed by
Central and State governments
• At present, Center taxes, only up to importing
(custom duty) or manufacturing (Excise Duty).
• On implementation of GST Center will tax sale
or purchase along with manufacturing (CGST).
• At present, State taxes, only after importing
or manufacturing i.e. sale or purchase (VAT)
• On implementation of GST state will tax
importing or manufacturing along with sale or
purchase (SGST)
58. Implementation of VAT
• 21 States - 1st April 2005
• BJP ruled States 1st April 2006
• Tamilnadu 1st Jan. 2007
• Uttarpradesh 1st Jan. 2008
• Uttarakhand and Jammu-Kashmir have yet
not implemented
59. Innovation
• Central Government had agreed at the time of
implementation of VAT that, any loss arising
in abolishing CST will be compensated.
• Government of Gujarat is demanding
220 crore on this account.
• GOG made budget provision for the year
2010-11, that if Central Government fails to
compensate till 1st July, 4% ITC will be
reduced on every inter state sales.
60. Implementation of GST
• Federal structure
• Different state governments ruled by
different political parties
• Amendments to constitution required
• No state would like to give up their
authority to levy taxes
• No state would like to share their power
with Central Government to levy taxes.
