Goods & Services Tax

Narendra Singh, Roll No - 14

Mushtaq Khan, Roll No - 03
“A government should tax its
people like a shepherd shears his
flock or a bee gets nectar from a
flower ”
…….. Chanakya
 OBJECTIVE

TO PRESENT BEFORE THE CLASS THE JOURNEY FROM

“SALES TAX TO GST”
Agenda

• From Sales Tax to VAT.

• GST-Global Scenario

• Why is GST considered as the preferred tax structure?

• Constitution of the Joint Working Group

• GST- Current State of Play

• Present Structure

• Features of Proposed GST Model

• Rate of GST

• Issues & Challenges

 The Problem – “Sales Tax”

• The existing sales tax structure allows for double taxation

thereby cascading the tax burden.
• Increased cost of goods – consumer bears the brunt.
• Tax evasion.
 INDIRECT TAX

TAX ON GOODS AND SERVICES

The following indirect taxes apply

EXCISE DUTY
Manufacturing units need to pay an excise duty on goods produced in India. The duty varies between products and the unit is
required to periodically deposit the duty on removal of products. Furthermore, these units are to maintain detailed stock records
and accounts in respect of duty payable on final goods, credit claimed on inputs etc and submit annual returns. Submission
dates are linked to level of operations.

CUSTOMS DUTY
Movement of goods across borders would need compliance to customs duty regulations. This duty varies between products. The
compliance requirement includes determination and deposit of duty prior to clearance of goods by the customs authority.

SERVICE TAX
Businesses rendering specified services are liable to a Service Tax at 12 percent plus education cess on the billable value. They
are required to monthly deposit the tax collected.

CENTRAL SALES TAX (‘CST’) / VALUE ADDED TAX (‘VAT’)

Businesses trading in goods between states are liable to charge CST whereas those trading within the same state are subject to
VAT. The rate of VAT / CST varies between products and states. The businesses are required to deposit the tax collected and
submit bi – annual / quarterly returns with the sales tax authorities.

Besides, certain states of India levy entry / octroi tax on movement of goods.

14
 VAT

• General consumption tax assessed on the value added

to the goods and services.
• Deductions allowed from the VAT liability, the amount of
tax which the business has paid to the other taxable
person/entity on purchase of business activity.
 Lets see an example !

* The transaction chain under VAT assuming that

a profit of Rs 10 is retained during each sale.
 Some instances of VAT deviations

• Paddy, rice, wheat & pulses taxed at 4% in AP but exempt in W. Bengal, Mah
and Delhi.

• VAT on tyres is 12.5% in Delhi, Punjab, but 8% in Haryana.

• VAT on tea is 4% in Assam, West Bengal and Delhi but 12.5% elsewhere.

• VAT on capital goods figuring in 4% list, but taxed at 12.5% in Mah and AP.

• Drugs - 6% (MRP) Assam

- 4% on minimum retail price (MRP) only on first sale in W Bengal,Mah,
Orissa, Kerala & Meghalaya
- 4% in Andhra Pradesh, not on MRP

• LPG - 9% in Assam
- 12.5% in Delhi

• Gold - 0.25% in Rajasthan

- 2% in Assam but others 1%
 Here is the solution – GST !

• A simple tax structure with only one or two rates of taxes

• Uniform single tax across the supply chain
• Reduced transaction cost in the hands of the tax payers
• Increased tax collections due to wider tax base and better compliance
• Improvement in international cost competitiveness of indigenous goods
and services
• GST encourages an unbiased tax structure that is neutral to business
processes, business models, organization structure, product substitutes
and geographical locations
 Lets see an example !

Stage of supplyPurcha Value Value at Rate GST on Input Net

chain se Additi which of Output Tax GST=GST
Value on supply of GST Credit on output-
of Input Goods and Input Tax
services credit
made to
next stage
Manufacturer 100 30 130 10% 13 10 13-10=3

Whole seller 130 20 150 10% 15 13 15-13=2

Retailer 150 10 160 10% 16 15 16-15=1

Total GST paid to the govt = Rs 16/

GST-Global Scenario

• More than 140 countries have already introduced GST/National VAT

• Most countries have a single GST rate

• Typically it is a single rate system but two/three rate systems are also
prevalent depending upon the requirement of the implementing nation

• Standard GST rate in most countries ranges between 15-20%

• All sectors are taxed with very few exceptions/ exemptions

• Full tax credits on inputs – 100% set off

• Canada and Brazil alone have a dual VAT

• US does not have a national level VAT

 Main differences between VAT and GST
VAT GST

Only by the States; Centre has no role To be imposed by the Centre and the
States in coordination

Only on goods. Centre and States to tax both goods and

services

States’ exclusive legislative power to taxCentre to be empowered to tax goods;

sale of goods States to be empowered to tax services

Replaces only the State sales tax; centralWill replace central excise and service
excise and other taxes are unaffected tax etc. imposed by the Centre, and VAT,
entry tax etc. imposed by the States

No input tax credit for inter-State Tax paid in exporting State would be
transactions available as credit against inter-State
transactions
Constitution of the Joint Working Group

• The Empowered Committee (EC) in consultation with the Central

Government, had constituted a Joint Working Group (JWG) in May
2007 to lay out the road map for the GST

• The JWG had been entrusted with the task of studying global GST
models and identify alternate models for introduction in India

• Based on a study of the alternate models vis-à-vis India’s federal

structure, the JWG had suggested the best model for introduction of
GST in India

• JWG constituted 3 Sub-Working Groups for discussions in smaller

groups

• The JWG presented its report in November 2007

GST – Current State of Play

• Empowered Committee (EC) has submitted its report to the FM on the

recommended model

• EC has suggested a dual GST

• FM has requested the Finance Commission, headed by Dr. Kelkar, to

study the report and make recommendations. Finance Commission has
sought the views of various associations and chambers

• The Commission envisages that its recommendations will be submitted

to the FM by end 2008, in time for all subsequent work to commence
and conclude by first quarter 2010
Features of proposed GST Model

• Dual GST recommended by Joint Working Group of the EC

• EC has accepted the recommendations and submitted its report to the

Government

• Present available details form the basis for subsequent slides

Features of proposed GST Model

• Basic Structure

- Dual GST comprising Central GST and State GST

- Central GST and State GST, in themselves, to comprise both the

goods tax and the services tax

• Central GST and State GST to operate throughout the supply / value

chain
• Taxable event to be supplies - as against manufacture (excise) and sales

(VAT)
Features of proposed GST Model

• Rates
- uniform rates for services
- multiple rates for goods
• Imports to be charged to both Central and State GST
• Excise Free Zones could continue for their life spans
Features of proposed GST Model

• Input tax Credits ( ITC)

- full credits under the Central and the State GST that will operate in
parallel
- cross utilization of credits between Central GST and State GST not
permitted
- refund of unutilized accumulated ITC
• Inter-State transactions
- goods to be taxed in the destination/importing State
- services to be taxed in the State of consumption
- zero rating in the originating State
Features of proposed GST Model

• Basic Structure

- identified taxes to be subsumed by GST

- stamp duty, toll tax, passenger tax and road tax not subsumed in GST

- exports to be zero rated

Features of proposed GST Model
• Taxes proposed to be subsumed by GST
- Central excise
- Additional duties of customs
- Service tax
- VAT
- Central Sales tax
- Entertainment tax
- Luxury tax
- Octroi
- Lottery taxes
- Electricity duty
- State surcharges relating to supply of goods and services
- Purchase tax
Features of proposed GST Model

• Taxation of crude & petroleum products

- to be brought in GST with ITC
- excise duties ( without ITC) to be levied over and above GST by both
Centre & State
Or
- only crude, motor spirit & high speed diesel be out of the purview of
the GST → remaining products as per above
• Finance Commission will make recommendations in regard to petroleum
products
Features of proposed GST Model

• Treatment of services

• Any economic activity which is not supply of goods is supply of services

• All services to be taxed with few exceptions

• Central GST on services relatively easy to collect

• State GST on services will be far more complex – particularly on cross

border services
Features of proposed GST model

• Cross border Services

• Taxed at the place of consumption of services

• Difficult to determine the actual place of effective use/enjoyment of

services
• Rules for place of supply of services to be framed

• Currently no uniform practice exists

• Administrative convenience + convenience of the trade & industry to be

factored to determine the place of collection of service tax

Features of proposed GST Model

• Exemptions

- common lists for Centre and States with little flexibility for States to

deviate

- exemption schemes proposed to be converted to post-tax cash

refund schemes
GST Rate in Select Countries

• EU
- UK – 17.5%
- Germany – 19%
- France – 19.6%
- Belgium – 21%
• Australia – 10%
• New Zealand – 12.5%
• China – 17%
GST Rate in India

• What would be the GST rate in India?

• Clearly a huge debate and the rates which are typically being discussed
are as follows:
- 20%
- 14%
- 12%
• Any of the above, would still be less than the present cumulative rate of
indirect taxes
• The rate to be adopted would depend on the extent of coverage of GST
and ability to prune exemptions
Issues & Challenges

General

• By far the most important indirect tax reform in the area of indirect taxes is
just around the corner
• Huge issues and challenges which need utmost attention by the Government
• Ideally GST model should be finalised at least 12 months prior to
implementation.
• Trade & Industry should be consulted before finalisation so that the
implementation does not fail
• This will give certainty to the businesses and result in high compliance

• Finalization of the GST Laws is critical

Issues & Challenges
Specific Issues & Challenges - Law

• Rates
- integration of a large number of Central & State Taxes and obtaining of
consensus amongst States to abolish multiple local taxes
- multiplicity of taxes and tax rates

• Thresholds
- rationalization under Central & State GST

• Taxation of Petroleum /Alcohol/Tobacco products

- GST with ITC
- excise duties ( without GST)
Issues & Challenges

Specific Issues & Challenges - Law

• Taxation of Inter-State Services

- huge challenges due to its complexity

• Operating a seamless input credit system

- pure VAT/ no cascading

• Integrating the origin based tax with the destination based GST

• Uniformity across States

• Proper transition from existing tax structures

Issues & Challenges
Specific Issues & Challenges – Govt related

• Standardization of systems and procedures

• Uniform dispute settlement machinery

• Training

• Re-organization of administrative machinery for GST implementation is the

key

• Building information technology backbone – the single most important

initiative for GST implementation
Issues & Challenges

Specific Issues & Challenges – Govt related

• Protecting and balancing the present and future revenues of the Centre
and the States
- commission on Centre-State Relations (CCSR)
- views from Trade & Industry

• Impact on backward States

- safeguarding the interests of less developed States with lower revenue
potential
GST is about Common Indian Market

• Article 301 guarantees the right to freedom of

trade and commerce throughout India.
• The essential purpose of GST is the creation of
a truly unified Indian market by enabling free
movement of trade and commerce throughout
the country, unhindered by tax barriers and
disparities.
Let’s hope GST is

Great & Simplified Tax !!!

Thank you.