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Discussion Paper on GST (11.11.2009)

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India Goods & Services Tax
 Proposed Framework


The Empowered Committee of State Finance Ministers has released
the First Discussion Paper on Goods and Services Tax (GST) on
10.11.2009. This note outlines the key proposals provided in the
discussion paper.




     Accretive Business Consulting Private Limited
Introduction
               A dual tax structure is proposed – having two components
Introduction
               >    One levied by the Centre (CGST) and the other by the State (SGST).
               >    The implementation of the same would be through multiple statutes, viz., one for the
   Scope            Centre and one each for the respective State.

               The Centre and the State would have concurrent powers in the administration of the GST
               for the entire value chain and all the tax payers.
   Rates
               The CGST and SGST would be applicable on all transactions of goods and
               services, except,
Thresholds     >    exempted goods and services - the list is yet to be finalised and it is envisaged to be
                    uniform across States
               >    goods and services which are proposed to be kept outside the purview of GST,
 Inter-state        such as, petroleum products and goods containing alcohol
  supplies

               Most levies other than basic custom duty and select State levies are proposed to be
 Input Tax     included (subsumed) within the GST framework
  Credits
               Import of goods into India is proposed to be subjected to both, CGST and SGST in
               addition to the basic customs duty
Compliances
               Import of services to be liable to both, CGST and SGST

               Inter-State supply of goods and services would work under an Integrated GST (IGST)
  Others       framework
Introduction
Introduction   Uniformity in laws across states envisaged - various States appear to have
               a consensus on the following:

   Scope
               >    Basic definitions and charge of tax
               >    Rate/s of tax
   Rates       >    Provisions relating to computation, valuation and classification
               >    Rules for availment and utilization of input credits
               >    Basic exemption thresholds for levy of tax
Thresholds
               >    Submission of returns in a common format to the extent practicable
               >    Structure and framework of compounding scheme of taxation
 Inter-state
  supplies     >    Process and timelines for refund of unutilized SGST

 Input Tax     The Governments should ensure that the in-principle agreements are
  Credits      honoured. Previously, though the States had a prior in-principle agreement
               on various aspects under the VAT regime, uniformity across State
Compliances    legislations is yet to be achieved.


  Others
Scope of the Levy
Introduction   It is proposed that the following central and state levies be subsumed into the dual
               GST.
                      Central levies                    State levies                Levies which would remain
   Scope                                                                            outside the purview of GST
               1. Central Excise Duty        1. VAT / Sales tax                  1. Levies on items containing
               2. Additional Excise Duties   2. Entertainment tax (unless it        alcohol and petroleum
   Rates                                        is levied by the local bodies)      products to remain status
               3. Excise Duty on
                                                                                    quo, viz., would not be under
                  Medicinal and Toilet       3. Luxury tax
                                                                                    the GST regime.
                  preparations               4. Taxes on lottery, betting and
Thresholds                                                                    2. Excise Duty by Centre may
               4. Service Tax                   gambling
                                                                                 continue on tobacco
               5. Countervailing Duty        5. State Cesses and                 products. This would be in
 Inter-state                                    Surcharges in so far as they
               6. Special Additional Duty                                        addition to the proposed
  supplies                                      relate to supply of goods
                  of Customs (SAD)                                               GST.
                                                and services
               7. Surcharges and cesses
 Input Tax                                   6. Entry tax which is not in lieu
  Credits
                                                of Octroi
                                             7. Purchase Tax *
Compliances
                * The subsumation is yet being discussed by the Empowered Committee in consultation
                with the Government of India.
  Others
Scope of the Levy
Introduction   A comparison of the applicability of GST vis-à-vis the current scheme of taxation is
               provided hereunder.
               Nature of        Proposed GST structure          Current scheme of taxation
               transaction
   Scope
               Importer         - Basic customs duty            -   Basic customs duty
                                - CGST                          -   Countervailing duty
                                - SGST                          -   Special additional duty of customs
   Rates                                                        -   Protective duties
                                                                -   Surcharges and cesses
                                                                -   Entry tax / octroi / purchase tax
Thresholds     Manufacturer     - CGST + SGST                   - Excise duty (multiple, in certain
                                  or                              cases)
                                  IGST                          - VAT / CST
                                                                - Entry tax / octroi / purchase tax
 Inter-state
  supplies     Reseller         - CGST + SGST                   - Central excise duty
                                  or                            - VAT / CST
                                  IGST                          - Entry tax / octroi / purchase tax
 Input Tax
  Credits      Service          - CGST + SGST                   - Service tax
               provider           or
                                  IGST
Compliances    Works            - CGST + SGST                   -   Central excise duty
               contractors        or                            -   VAT / CST
                                  IGST                          -   Service tax
                                                                -   Entry tax / octroi / purchase tax
  Others
Rates of Tax
                                                                  The precise rate/s of
Introduction   Goods - A two-rate structure                       SGST and CGST to be
               >  lower rate for necessary items and goods of     made known duly in
                  basic importance and                            the course of
   Scope                                                          appropriate legislative
               >  a standard rate for goods in general.           actions.

   Rates       However, a special rate for precious metals        The list of exempted
                                                                  goods and whether the
               would be prescribed.                               same would be
                                                                  retained under the
Thresholds
                                                                  SGST in the initial
               Services – It is envisaged that there may be a
                                                                  years is being
               single rate for services for both SGST and         deliberated upon.
 Inter-state
  supplies
               CGST.
                                                                  Differential rates for
                                                                  goods and services
 Input Tax     Exports and supplies to SEZs to be zero-rated.     could continue to
  Credits
                                                                  result in controversies
                                                                  on classification of
               Supplies from SEZs into the domestic tariff area
                                                                  transactions
Compliances    will not be eligible for any concessions.


  Others

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Discussion Paper on GST (11.11.2009)

  • 1. India Goods & Services Tax Proposed Framework The Empowered Committee of State Finance Ministers has released the First Discussion Paper on Goods and Services Tax (GST) on 10.11.2009. This note outlines the key proposals provided in the discussion paper. Accretive Business Consulting Private Limited
  • 2. Introduction A dual tax structure is proposed – having two components Introduction > One levied by the Centre (CGST) and the other by the State (SGST). > The implementation of the same would be through multiple statutes, viz., one for the Scope Centre and one each for the respective State. The Centre and the State would have concurrent powers in the administration of the GST for the entire value chain and all the tax payers. Rates The CGST and SGST would be applicable on all transactions of goods and services, except, Thresholds > exempted goods and services - the list is yet to be finalised and it is envisaged to be uniform across States > goods and services which are proposed to be kept outside the purview of GST, Inter-state such as, petroleum products and goods containing alcohol supplies Most levies other than basic custom duty and select State levies are proposed to be Input Tax included (subsumed) within the GST framework Credits Import of goods into India is proposed to be subjected to both, CGST and SGST in addition to the basic customs duty Compliances Import of services to be liable to both, CGST and SGST Inter-State supply of goods and services would work under an Integrated GST (IGST) Others framework
  • 3. Introduction Introduction Uniformity in laws across states envisaged - various States appear to have a consensus on the following: Scope > Basic definitions and charge of tax > Rate/s of tax Rates > Provisions relating to computation, valuation and classification > Rules for availment and utilization of input credits > Basic exemption thresholds for levy of tax Thresholds > Submission of returns in a common format to the extent practicable > Structure and framework of compounding scheme of taxation Inter-state supplies > Process and timelines for refund of unutilized SGST Input Tax The Governments should ensure that the in-principle agreements are Credits honoured. Previously, though the States had a prior in-principle agreement on various aspects under the VAT regime, uniformity across State Compliances legislations is yet to be achieved. Others
  • 4. Scope of the Levy Introduction It is proposed that the following central and state levies be subsumed into the dual GST. Central levies State levies Levies which would remain Scope outside the purview of GST 1. Central Excise Duty 1. VAT / Sales tax 1. Levies on items containing 2. Additional Excise Duties 2. Entertainment tax (unless it alcohol and petroleum Rates is levied by the local bodies) products to remain status 3. Excise Duty on quo, viz., would not be under Medicinal and Toilet 3. Luxury tax the GST regime. preparations 4. Taxes on lottery, betting and Thresholds 2. Excise Duty by Centre may 4. Service Tax gambling continue on tobacco 5. Countervailing Duty 5. State Cesses and products. This would be in Inter-state Surcharges in so far as they 6. Special Additional Duty addition to the proposed supplies relate to supply of goods of Customs (SAD) GST. and services 7. Surcharges and cesses Input Tax 6. Entry tax which is not in lieu Credits of Octroi 7. Purchase Tax * Compliances * The subsumation is yet being discussed by the Empowered Committee in consultation with the Government of India. Others
  • 5. Scope of the Levy Introduction A comparison of the applicability of GST vis-à-vis the current scheme of taxation is provided hereunder. Nature of Proposed GST structure Current scheme of taxation transaction Scope Importer - Basic customs duty - Basic customs duty - CGST - Countervailing duty - SGST - Special additional duty of customs Rates - Protective duties - Surcharges and cesses - Entry tax / octroi / purchase tax Thresholds Manufacturer - CGST + SGST - Excise duty (multiple, in certain or cases) IGST - VAT / CST - Entry tax / octroi / purchase tax Inter-state supplies Reseller - CGST + SGST - Central excise duty or - VAT / CST IGST - Entry tax / octroi / purchase tax Input Tax Credits Service - CGST + SGST - Service tax provider or IGST Compliances Works - CGST + SGST - Central excise duty contractors or - VAT / CST IGST - Service tax - Entry tax / octroi / purchase tax Others
  • 6. Rates of Tax The precise rate/s of Introduction Goods - A two-rate structure SGST and CGST to be > lower rate for necessary items and goods of made known duly in basic importance and the course of Scope appropriate legislative > a standard rate for goods in general. actions. Rates However, a special rate for precious metals The list of exempted goods and whether the would be prescribed. same would be retained under the Thresholds SGST in the initial Services – It is envisaged that there may be a years is being single rate for services for both SGST and deliberated upon. Inter-state supplies CGST. Differential rates for goods and services Input Tax Exports and supplies to SEZs to be zero-rated. could continue to Credits result in controversies on classification of Supplies from SEZs into the domestic tariff area transactions Compliances will not be eligible for any concessions. Others
  • 7. Exemption Thresholds Introduction The empowered committee has recommended the following thresholds for basic exemption from GST. Scope Particulars CGST SGST Goods INR 15 Mil Rates Services Not specified (envisaged to INR 1 Mil be in excess of INR 1 mil) Thresholds A compounding scheme of taxation for SGST is also proposed for Inter-state dealers having a gross annual turnover below INR 5 Mil with a flat supplies rate of tax at 0.5%. Input Tax Credits Compliances Others
  • 8. Inter-State Supplies (IGST) Introduction Tax on inter-State supplies would be levied by the Central Government and would be the sum of CGST and SGST on such goods and services - the Integrated GST (IGST) framework Scope The mechanism is expected to facilitate and ensure Clarity required > uninterrupted input tax credit chain on inter-State for determining transactions and when a service Rates > no upfront payment of tax for inter-State buyers / would be suppliers. classified as inter- State. Thresholds The scheme broadly involves: > Payment of IGST by the seller on his supplies after adjusting available credit of IGST, CGST and SGST on Inter-state the purchases There is no supplies mention of > The buyer would be entitled to claim credit of IGST paid on such purchases in the importing State treatment in cases Input Tax > The component of SGST used in discharging the IGST on of free supplies, Credits supplies would be transferred by the exporting State to captive the Centre consumption and > The Centre to transfer to the importing State, the related party Compliances transactions. component of IGST used in discharging SGST Appropriate mechanism would be provided for treatment of Others stock transfers
  • 9. Credit for Input Taxes Introduction The proposed structure provides for > utilization of credit of CGST on inputs only against CGST payable on outputs; and Scope > SGST paid on inputs only against SGST payable on outputs Currently, CST paid Rates on inter-State Cross utilization of CGST and SGST would be allowed in purchases is not case of inter-State supply of goods and services under allowed as credit an IGST framework. under the VAT Thresholds mechanism. Under It is aimed that the accumulation of unutilized GST the GST regime, Inter-state credits would be avoided except in cases of exports, inter-State supplies supplies capital goods purchases and cases where the input GST would be subjected rate is higher than output GST rate. to IGST which may be claimed as credit Input Tax Credits In respect of import of goods into India, the CGST and by the buyer in the SGST paid to be availed as credit based on destination destination State. principle (no credit for basic customs duty). The importer Compliances will be eligible to claim credit of CGST and SGST paid on such imports in the destination State irrespective of where the CGST and SGST were paid. Others
  • 10. Compliances Payment of Tax Introduction > CGST and SGST should be collected separately and paid into the accounts of Centre and State respectively. Registrations Scope > Each taxpayer to be allotted a PAN linked taxpayer identification number (TIN). This would be inline with the existing PAN based system for Income Tax and facilitate Rates data exchange and tax payer compliance. All tax payers including exporters > All inter-State dealers to be e-registered and communication would be through emails. would have to Thresholds maintain separate Returns details for utilization > Separate returns to be filed for CGST and SGST. and refund of credit. Inter-state However, it is envisaged that the return formats would be supplies common to the extent practicable. No relaxation for Refunds documentation / Input Tax > Refund of unutilized CGST and SGST to be completed in credit claims for Credits a time bound manner. The procedures and timeline are exporters yet to be clarified. Compliances The functions of assessment, enforcement, scrutiny and audit would be undertaken by the authority collecting the tax with information sharing between Centre and States. Others
  • 11. Others Introduction Constitutional amendments - A Joint Working Group has been constituted to prepare a draft legislation for Constitutional Amendment to enable States to levy service tax and GST on imports and consequential matters thereto. Scope Special Industrial Area Scheme - The current tax exemptions and concessions under various industrial incentive schemes to be converted into Rates cash refund schemes after collection of taxes to enable a continuous chain of set-offs under the GST model. This model would continue upto its legitimate expiry date. It is recommended that no new exemptions or remissions would Thresholds be allowed under the GST framework. However, where need be, the same could be provided through a reimbursement mechanism. Inter-state supplies Dispute resolution and advance ruling - Appropriate provisions, rules and procedures would be made for dispute resolution and advance rulings. Input Tax Credits Compliances Others
  • 12. Concluding Remarks The discussion paper provides a much awaited clarity on the proposed framework and the levies which would be subsumed into the GST framework. This is a very positive step towards a comprehensive indirect tax reform in the country. Inspite of extensive deliberations over the last couple of years, the discussion paper fails to address the following. Consequently, it does not enable the trade and industry to assess the real impact of the change: > There is no indication on the tax rates > No reference made to the transitional provisions unutilsed credits under CENVAT and VAT mechanisms tax element contained in the goods in stock as on the date of implementation > Lack of clarity on time-lines for implementation and a transition window for enabling a smooth transition to the businesses
  • 13. Thank you “An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage” - Jack Welch Accretive Business Consulting Private Limited The views expressed and the information provided in this communiqué are # 112/12, 1st Floor, of general nature and is not intended to address the circumstances of any 11th Cross, 5th Main, Malleswaram particular individual or entity. The above content should neither be regarded Bangalore 560 003. INDIA as comprehensive nor sufficient for making decisions. No one should act on www.accretiveglobal.com the information or views provided in this publication without appropriate +91 (80) 4151 6187 professional advise. It should be noted that no assurance is given for any loss arising from any actions taken or to be taken or not taken by anyone vishnu@accretiveglobal.com based on this publication. badrinath@accretiveglobal.com This is meant for private circulation only.