GST

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GOODS AND SERVICES TAX (GST) IN INDIA

• A Presentation by
• Himanshu R. Vishwakarma

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Concept of GST

• GST is a tax on goods and services with
  comprehensive and continuous chain of setoff
  benefits from the Producers point and Service
  providers point up to the retailer level.
• GST is expected be levied only at the destination
  point, and not at various points (from
  manufacturing to retail outlets). It is
  essentially a tax only on value addition at each
  stage and a supplier at each stage is permitted
  to setoff through a tax credit mechanism which
  would eliminate the burden of all cascading
  effects, including the burden of CENVAT and
  service tax.
• Under GST structure, all different stages of
  production and distribution can be interpreted as
  a mere tax pass through and the tax essentially
  sticks on final consumption within the taxing
  jurisdiction.
• Currently, a manufacturer needs to pay tax when a
  finished product moves out from the factory, and
  it is again taxed at the retail outlet when sold.
  The taxes are levied at the multiple stages such
  as CENVAT, Central sales tax, State Sales Tax,
  Octroi, etc. will be replaced by GST to be
  introduced at Central and State level.
• Continued.

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Concept of GST

• All goods and services, barring a few exceptions,
  will be brought into the GST base. There will be
  no distinction between goods and services.
• Under GST, the taxation burden will be divided
  equitably between manufacturing and services,
  through a lower tax rate by increasing the tax
  base and minimizing exemptions.
• However, the basic features of law such as
  chargeability, definition of taxable event and
  taxable person, measure of levy including
  valuation provisions, basis of classification
  etc. would be uniform across these statutes as
  far as practicable.
• The existing CST will be discontinued. Instead, a
  new statute known as IGST will come into place on
  the inter-state transfer of the Goods and
  Services.
• By removing the cascading effect of taxes (CST,
  additional customs duty, surcharges, luxury Tax,
  Entertainment Tax, etc. ),CGST SGST will be
  charged on same price .

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Existing Tax structure in India
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Proposed Tax Structure in India
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Subsuming of Existing Taxes
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Model of GST

• SGST and CGST for intrastate transaction In the
  GST system, both Central and State taxes will be
  collected at the point of sale. Both components
  (the Central and State GST) will be charged on
  the manufacturing cost. This will benefit
  individuals as prices are likely to come down.
  Lower prices will lead to more consumption,
  thereby helping companies.
• IGST for Interstate transaction IGST Model
  will be in place for taxation of inter State
  transaction of Goods and Services. The scope of
  IGST Model is that center would levy IGST which
  would be CGST plus SGST on all inter State
  transactions of taxable goods and services with
  appropriate provision for consignment or stock
  transfer of goods and services.
• The GST paid on the purchase of goods and
  services, to be paid on the supply of goods and
  services.
• There should be no distinction between raw
  materials and capital goods in allowing input tax
  credit. The tax base should comprehensively
  extend over all goods and services up to final
  consumption point on value addition.
• Assessable value for all the taxes will be same.

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Stakeholder in Business Chain
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GST Set off Chain
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Set-off methodology

• Since the Central GST and State GST are to be
  treated separately, in general, taxes paid
  against the Central GST shall be allowed to be
  taken as input tax credit (ITC) for the Central
  GST and could be utilized only against the
  payment of Central GST. The same principle will
  be applicable for the State GST.
• Cross utilization of ITC between the Central GST
  and the State GST would, in general, be allowed.
• ADC paid on Import of goods and service would
  fall under the IGST and this duty would be
  allowed for setoff of SGST and CGST.

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Set off Heads
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Functioning of GST

• The illustration shown below indicates, in terms
  of a hypothetical example with a manufacturer,
  one wholesaler and one retailer, how GST will
  work.
• Manufacturer Let us suppose that CGST rate is
  10 and SGST rate is 5 , with the manufacturer
  making value addition of Rs.30 on his purchases
  worth Rs.100 of input of goods CGST paid _at_10)
  and services used in the manufacturing process.
  The manufacturer will then pay net CGST of Rs. 3
  after setting-off Rs. 10 as CGST paid on his
  inputs (i.e. Input Tax Credit) from gross CGST of
  Rs. 13 and Rs, 6.5 as SGST.
• Gross Value130 on that CGST 13/- and SGST
  6.5/-
• Input Credit CGST 10-/ and SGST NIL/-
• Net Liability Rs. 3 6.5 9.5/-
• Wholesaler The manufacturer sells the goods to
  the wholesaler. When the wholesaler sells the
  same goods after making value addition of (say),
  Rs. 20, he pays net CGST of only Rs. 2, after
  setting-off of Input Tax Credit of Rs. 13, from
  the gross CGST of Rs. 15 and net SGST of only
  Rs. 1, after setting-off of Input Tax Credit of
  Rs. 6.5, from the gross SGST of Rs. 7.5 to the
  manufacturer.
• Gross Value150 on that CGST 15/- and SGST
  7.5/-
• Input Credit CGST 13-/ and SGST 6.5/-
• Net Liability Rs. 2 1 3/-
• Continued.

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Functioning of GST

• Retailer Similarly, when a retailer sells the
  same goods after a value addition of (say) Rs.
  10, he pays net CGST of only Re.1, after
  setting-off Rs.15 from his gross GST of Rs. 16
  and net SGST of only Rs. 0.5, after setting-off
  of Input Tax Credit of Rs. 7.5, from the gross
  SGST of Rs. 8/- paid to wholesaler.
• Gross Value160 on that CGST 16/- and SGST 8/-
• Input Credit CGST 15-/ and SGST 7.5/-
• Net Liability Rs. 1 0.5 1.5/-
• Total Liability Thus, the manufacturer,
  wholesaler and retailer have to pay only Rs. 6 (
  Rs. 3Rs. 2Rs. 1) as CGST Rs. 8 ( Rs. 6.5Rs.
  1Rs. 0.5) as SGST and on the value addition
  along the entire value chain from the producer to
  the retailer, after setting-off GST paid at the
  earlier stages. This is shown in the table in
  next slide. The same illustration will hold in
  the case of final service provider as well.
• Continued.

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CGST SGST Tax Liability working
Stage of Supply Chain Purchase Value Of Input Value Addition Value at Which Supply Goods and Services Made to Next Stage Rate ofSGST Rate ofSGST CGST on Output CGST on Output Input Tax Credit on CGST Input Tax Credit on SGST Net CGSTCGST on output-Input Tax Credit Net SGSTSGST on output-Input Tax Credit
Manufacturer 100 30 130 10 5 13 6.5 10 0 1310 3 6.5-0 6.5
Whole Seller 130 20 150 10 5 15 7.5 13 6.5 1513 2 7.5-6.51
Retailer 150 10 160 10 5 16 8 15 7.5 1615 1 8-7.50.5

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Mechanism of Dual Taxation

• After introduction of GST, all the traders
  including manufacturer will be paying both the
  types of taxes i.e. CGST and SGST. The Central
  GST and the State GST would be levied
  simultaneously on every transaction of supply of
  goods and services except the exempted goods and
  services, goods which are outside the purview of
  GST and the transactions which are below the
  prescribed threshold limits. Further, both would
  be levied on the same price or value unlike State
  VAT which is levied on the value of the goods
  inclusive of CENVAT, i.e CGST SGST will be
  charged on same price
• Supply of Goods Suppose the rate of CGST is 10
  and that of SGST is 10. When a wholesale dealer
  of steel in Uttar Pradesh supplies steel bars and
  rods to a construction company, which is also
  located within the same State for , say Rs. 100,
  the dealer would charge CGST of Rs. 10 and SGST
  of Rs. 10 in addition to the basic price of the
  goods.
• Supply of Services  Suppose, that the rate of
  CGST is 10 and that of SGST is 10. When an
  advertising company located in Mumbai supplies
  advertising services, to a company manufacturing
  soap which is also located within the State of
  Maharashtra for, Rs. 100, then the ad company
  would charge CGST of Rs. 10 as well as SGST of
  Rs. 10 to the basic value of the service.
• In both the cases, he would be required to
  deposit the CGST component into a Central
  Government account and the SGST portion into
  concerned State Government account. He need not
  actually pay duty in cash, as he would be
  entitled to set-off this liability against the
  CGST or SGST paid on his purchases (say, inputs).
  But for paying CGST he would be allowed to use
  only the credit of CGST SGST paid on his
  purchases respectively. In other words, CGST
  credit cannot, in general, be used for payment of
  SGST. Nor can SGST credit be used for payment of
  CGST.

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GST on Import of Goods and services

• With Constitutional Amendments, both CGST and
  SGST will be levied on import of goods and
  services into the country.
• The incidence of tax will follow the destination
  principle(Place of supply rules).
• Tax revenue in case of SGST will accrue to the
  State where the imported goods and services are
  consumed.
• Full and complete set-off will be available on
  the GST paid on import on goods and services.
• Thus, import of goods will attract BCD and IGST.
  It may be noted that import of services, as
  against service tax at present, in GST regime,
  will attract IGST.
• Basic Custom Duty will continue to there under
  GST system. However, the additional custom duty
  in lieu of CVD /Excise and the Special Additional
  Duty (SAD) in lieu of sales tax/VAT will be
  subsumed in the import GST.
• The import of services will be subject to Central
  GST and State GST on a reverse charge mechanism.
  In other words, the GST will be payable by the
  Importer on a self declaration basis.

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Taxable Person

• It will cover all types of person carrying on
  business activities, i.e. manufacturer,
  job-worker, trader, importer, exporter, all types
  of service providers, etc.
• If a company is having four branches in four
  different states, all the four branches will be
  considered as TP (Taxable person) under each
  jurisdiction of SGs.
• A dealer must get registered under CGST as it
  will make him entitle to claim ITC of CGST
  thereby attracting buyers under B2B (Business to
  Business) transactions.
• Importers have to register under both CGST and
  SGST as well.

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GST on Export of Goods and Services

• GST on export would be zero rated.
• Similar benefits may be given to Special Economic
  Zones (in processing zones only).
• No benefit to the sales from an SEZ to Domestic
  Tariff Area (DTA).
• GST paid by Exporter on the procurement of goods
  and services will be refunded.

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Registration under GST

• Each taxpayer would be allotted a PAN linked
  taxpayer identification number with a total of
  13/15 digits.
• This would bring the GST PAN-linked system in
  line with the prevailing PAN-based system for
  Income tax facilitating data exchange and
  taxpayer compliance.
• The exact design would be worked out in
  consultation with the Income-Tax Department.

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Returns under GST

• The taxpayer would need to submit periodical
  returns to both the Central GST authority and to
  the concerned State GST authorities.
• ITC credit can also be verified on the basis of
  the returns filed and revenues reconciled against
  Challan data from banks.
• Common standardized return for all taxes (with
  different account heads for CGST, SGST, IGST) can
  come into picture.
• Common standardized Challan for all taxes (with
  different account heads for CGST, SGST, IGST) can
  come into picture.

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Taxable Event
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GST Invoice

• The Task Force on GST said the computation of
  CGST and SGST liability should be based on the
  Invoice credit method. i.e., allow credit for tax
  paid on all intermediate goods and services on
  the basis of invoices issued by the supplier.
• Invoice level detail is necessary for the
  reconciliation of tax deposits, and the
  end-to-end reconciliation of ITC. An effective
  IGST implementation may also require
  invoice-level details.
• A number of states are capturing invoice details
  even in the existing VAT systems. It is proposed
  to follow a two-pronged approach with Dealer
  level granularity of returns in the first phase
  followed by invoice level in the next phase.

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Rate of Tax

• The combined GST rate is being discussed by
  government. The rate is expected around 16 per
  cent. After the total GST rate is arrived at, the
  States and the Centre will decide on the CGST and
  SGST rates. Currently, services are taxed at 12
  per cent and the combined charge indirect taxes
  on most goods are around 20 per cent.
• Today the Rate of GST in some countries are
  Australia10, France19.60, Canada5, Germany19,
  Japan5, Singapore7, Sweden25, New Zealand15
  Pakistan17

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Exemption of Goods and Services

• Alcohol, tobacco, petroleum products are likely
  to be out of the GST regime.
• Tax on items containing Alcohol Alcoholic
  beverages would be kept out of the purview of
  GST. Sales Tax/VAT could be continued to be
  levied on alcoholic beverages as per the existing
  practice. In case it has been made VA table by
  some States, there is no objection to that.
  Excise Duty, which is presently levied by the
  States may not also be affected.Tax on
  Petroleum Products  Petroleum and petroleum
  products have also been constitutionally brought
  under the GST. However, it has also been provided
  that petroleum and petroleum products shall not
  be subject to the levy of GST till notified at a
  future date on the recommendation of the GST
  Council.
• Tax on Tobacco products Tobacco products would
  be subjected to GST with ITC. Centre may be
  allowed to levy excise duty on tobacco products
  over and above GST with ITC.
• Taxation of Services As indicated earlier, both
  the Centre and the States will have concurrent
  power to levy tax on goods and services. In the
  case of States, the principle for taxation of
  intra-State and inter46 State has already been
  formulated by the Working Group of Principal
  Secretaries /Secretaries of Finance / Taxation
  and Commissioners of Trade Taxes with senior
  representatives of Department of Revenue,
  Government of India. For inter-State transactions
  an innovative model of Integrated GST will be
  adopted by appropriately aligning and integrating
  CGST and IGST.

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Composition scheme

• A Composition/Compounding Scheme will be an
  important feature of GST, to protect the
  interests of small traders and small scale
  industries. The Composition/Compounding scheme
  for the purpose of GST should have an upper
  ceiling on gross annual turnover and a floor tax
  rate with respect to gross annual turnover.
• In particular there will be a compounding cut-off
  at Rs. 50 lakhs of the gross annual turnover and
  the floor rate of 0.5 across the States. The
  scheme would allow option for GST registration
  for dealers with turnover below the compounding
  cut-off.

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GST and Information Technology (IT) Interface

• Based on the legal provisions and procedure for
  GST, the content of work-flow software such as
  ACES (Automated Central Excise Service Tax)
  would require review.
• On the IT front, there has been consensus that
  there will be a common portal providing three
  core services (registration, returns and
  payments).

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Information Flow and Associated Entities
Send Challan
File Returns
Upload Challan Details
CGST and IGST Returns
SGST and IGST Return
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Increased Assessee Base

• Under the CGST model proposed, with threshold of
  annual turnover of Rs.10 lakhs, the present
  Assessee base of Excise and Service Tax of about
  10 lakhs will increase to about 50 lakhs as every
  manufacturer and Trader above the specified
  threshold will be liable to CGST.

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Tax reconciliation between Central and State Govt.

• The Exporting State will transfer to the Centre
  the credit of SGST used in payment of IGST.
• The Importing dealer will claim credit of IGST
  while discharging his output tax liability in his
  own State,
• The Centre will to the importing State the credit
  of IGST used in payment of SGST,
• The relevant information will also be submitted
  to the Central Agency which will act transferas a
  clearing house mechanism.

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Flaws of GST Model

• Major flaw of this model is ,Local Dealers have
  to pay CGST in addition to SGST.
• In Addition to this, CGST mainly represents the
  Excise/service tax and SGST mainly represents the
  VAT portion but, because of No differentiation
  between Goods and Services service supply within
  the state would attract SGST as GST is levied at
  each stage in the supply chain and Assessee have
  to Pay CGST as well SGST.
• The issue which still needs to be resolved are,
  the revenue sharing between States and Centre,
  and a framework for exemption, thresholds and
  composition.