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GOODS AND SALES TAX

-- AN OVERVIEW

BY,

UMA SANTHOSH,

VINOD.

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WELCOME!

One of the biggest taxation reforms in India -- the Goods and

Service Tax (GST) -- is all set to integrate State economies andboost overall growth.

GST will create a single, unified Indian market to make theeconomy stronger.

Before evaluating the cost advantages of shifiting to GST

lets find answer to below question.

Just what is GST all about and how will it impact us?

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What is GST?

Goods and Services Tax -- GST -- is a comprehensive tax levy onmanufacture, sale and consumption of goods and services at a nationallevel.

GST is a consumer based tax and not origin based. Under thisstructure of GST, the tax will be collected by the states where the goodsor services actually consumed.

The system allows the set-off of GST paid on the procurement of goods

and services against the GST which is payable on the supply of goods orservices. However, the end consumer bears this tax as he is the lastperson in the supply chain.

Experts say that GST is likely to improve tax collections and boost India'seconomic development by breaking tax barriers between States andintegrating India through a uniform tax rate.

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Are we late to implement?

Finance Minister Pranab Mukherjee while presenting the Budget on July6, 2009, said that GST would come into effect from April 2010.

(Till now; the date of implementation has been pushed beyond from01/04/2011 to may be 1st October 2011 or 1st April 2012.)

The implementation of GST will lead to the abolition of other taxes suchas octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty,telecom licence fees, turnover tax, tax on consumption or sale ofelectricity, taxes on transportation of goods and services, et cetera, thus

avoiding multiple layers of taxation that currently exist in India.

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What are the benefits of GST?

Under GST, the taxation burden will be divided equitably between

manufacturing and services, through a lower tax rate byincreasing the tax base and minimizing exemptions.

It is expected to help build a transparent and corruption-free taxadministration. GST will be is levied only at the destination point,and not at various points (from manufacturing to retail outlets).

Currently, a manufacturer needs to pay tax when a finishedproduct moves out from a factory, and it is again taxed at the retailoutlet when sold.

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How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year byimplementing the Goods and Services Tax as it would promoteexports, raise employment and boost growth. It will divide the tax

burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies?

In the GST system, both Central and State taxes will be collectedat the point of sale. Both components (the Central and State GST)

will be charged on the manufacturing cost. This will benefitindividuals as prices are likely to come down. Lower prices willlead to more consumption, thereby helping companies.

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What type of GST is proposed

for India?

India is planning to implement a dual GST system.

Under dual GST, 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.

All goods and services, barring a few exceptions, will

be brought into the GST base. There will be nodistinction between goods and services.

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Which other nations have a

similar tax structure?

Almost 140 countries have already implemented theGST. Most of the countries have a unified GST

system. Brazil and Canada follow a dual system whereGST is levied by both the Union and the Stategovernments.

France was the first country to introduce GST systemin 1954.

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Who would be impacted by the implementation of GST?

All Business whether engaged in the sales or supply of services would beimpacted by GST. If you are dealing Goods covered under GST or if youare rendering any service you will be covered under GST.

What type of GST is expected to be applied in India?

In India, dual GST is expected to be proposed wherein Centre and Statewill be levying on the transactions of the value of Goods or Service. InIndia, due to federal structure, there is a proposal to introduce dual GSTsystem.

What is dual GST?

Under dual GST, it is levied by both the Central Goods and Service Tax(CGST) and State Goods and Service tax (SGST) will be levied on thetaxable value of the transaction.

What will be the expected rate of GST?

The rate is expected to be in the range of 14 to 16%. Once the total GST isdetermined, the central and states have to agree on Central GST and

State GST rates.

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Cost advantages of shifting.

GST makes the price of a product unique throughout the country.

The concept of warehouse changes when GST is introduced. In

the present tax system a ware house is required for each state. Ifthe dealer and the ware house are in different states, then thedealer needs to pay a Central Sales Tax of about 2%.Thisincreases the price of the commodity. Thus companies use tosetup a warehouse in each state. In GST as the CST getseliminated, the number of warehouses can get reduced.

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Savings in paper work.

This can also reduce much paperwork asGST is not much complicated.

The GST is a welcomed tax pattern as it can

reduce the price of the Goods increasingthe consumption and finally increases theproduction.

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Savings in logistics..

Logistics constitutes 12-13% of GDP and

saving of 5% in logistics cost canunlock huge value for the economy.

Any revenue loss on account of Removalof Octroi taxes in the state ofMaharashtra, will be temporary, as it willattract more investment in the state.

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What are the items on which GST maynot be applied?

Alcohol, tobacco, petroleum products arelikely to be out of the GST regime.

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Why are some States against GST; will theylose money?

The governments of Madhya Pradesh, Chhattisgarh and TamilNadu say that the information technology systems and theadministrative infrastructure will not be ready by April 2010 toimplement GST. States have sought assurances that their existingrevenues will be protected.

The central government has offered to compensate States in caseof a loss in revenues.

Some States fear that if the uniform tax rate is lower than their

existing rates, it will hit their tax kitty. The government believesthat dual GST will lead to better revenue collection for States.

However, backward and less-developed States could see a fallin tax collections. GST could see better revenue collection forsome States as the consumption of goods and services will rise.

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A WRAP UP ON

ADVANTAGES. 1)Speeds up economic union of India;

(2)Better compliance and revenue buoyancy;

(3)Replacing the cascading effect [tax on tax] createdby existing indirect taxes;

(4)Tax incidence for consumers may fall;

(5)Lower transaction cost for final consumers;

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(6) By merging all levies on goods and services into one, GST

acquires a very simple and transparent character;

(7) Uniformity in tax regime with only one or two tax ratesacross the supply chain as against multiple tax structure as ofpresent;

(8) Efficiency in tax administration;

(9) May widen tax base;

(10) Increased tax collections due to wide coverage of goods and

services; and

(11) Improvement in cost competitiveness of goods and servicesin the international market.

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THANK YOU