GST an Insight

8/7/2019 GST an Insight

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Goods & Service Tax (GST)

Presentation by : CA Balakrishnan.S


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GST is a comprehensive value added tax on goods and services

It is collected on value added at each stage of sale or purchase in the supply chain

No differentiation between Goods and Services as GST is levied at each stage in thesupply chain

Seamless input tax credit throughout the supply chain till tax is charged on final

consumption value

At all stages of production and distribution taxes are a pass through and tax is borne

by the final consumer

Exemption limit to be uniform; to maintain value chain, exemption limit to cover

only retail trade where transactions with ultimate consumers; this will ensure

proper input tax accounting and rebating mechanism for exports.

GST


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GDP of IndiaUS $1200 bil;

Desirable Tax/GDP ratiosay 25%;

Total Tax collection US $ 300 bil; say Rs.15,00,000 Cr.

Assume 60% Indirect TaxesRs.900,000 Cr15% rate of GST

This amount of Rs.15,00,000 Cr is much higher than the current tax collection;Government should ensure that atleast US $ 100 bil is used for investmentwhich will ensure that Indias infrastructure will become world class.

Two Es which are very essential for inclusive growtheducation &employment; Government should focus on these two.


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Why GST?

India should become a manufacturing hub, so that manufactured andvalue added products are exported. Simple tax policy will ensure thatIndia becomes attractive destination for foreign direct investment.

Taxes should not be exportedthis policy alone can ensure that our

goods are competitive in the world market and we are able to export. Acomprehensive GST encompassing all forms of indirect taxes will ensurethat at every successive stage, tax component is determinable. Withproper GST, we can ensure that taxes are not exported by refundingtaxes on goods/services exported.


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Article 246Parliament has exclusive power to make laws with respect to matters in

List I of Seventh ScheduleDuties of excise on manufacture; Tax on inter-State sale or

purchase; consignment sales; taxes on services; stamp duty on negotiable

instruments, policies of insurance, shares/debentures, etc;

Legislature of any State has exclusive power to make laws for such State in respect of

matters enumerated in List II of Seventh ScheduleTaxes on sale or purchase of goods

(other than inter-State sale/purchase); taxes on entry of goods into local area for

consumption/use/sale; rates of stamp duty in respect of documents other than those

mentioned in List I;

Parliament and Legislature of any State have powers to make laws in respect of

matters enumerated in List III of Seventh ScheduleTrade and commerce in and the

production, supply and distribution of products of any industry where control of such

industry by the Union is declared by Parliament by law to be expedient in public

interest and imported goods of same kind; foodstuffs including oil seeds and oils;

cattle fodder; raw cotton; raw jute;

Article 254Inconsistency between laws made by Parliament and Legislature

matters listed in List I or in List IIIlaw made by Parliament shall prevail.


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India has a well developed Tax structure with a three-tier federal structure, comprising

of the Union Government, the State Governments, and the urban/rural local bodies.

The power to levy taxes and duties is distributed among the three tiers of

governments, in accordance with the provisions of the Indian Constitution; Article 265

provides for levy of taxes and collection of taxes.

The main taxes/duties that the Union Government is empowered to levy are Income

Tax (except tax on agricultural income, which the State Governments can levy),

Customs duties, Central Excise and Sales Tax, and Service Tax.

The principal taxes levied by the State Governments are Sales Tax (tax on intra-State

sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on

manufacture of alcohol), Land Revenue, Duty on Entertainment and Tax on profession

and callings.

Local bodies are empowered to levy tax on properties, Octroi, Tax on Markets, and

tax/user charges for utilities like water supply, drainage, etc.

Current Taxation Structure


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Article 245 - Subject to the provisions of this Constitution, Parliament may make laws

for the whole or any part of the territory of India, and the Legislature of a State may

make laws for the whole or any part of the State.

Article 246(1) - Notwithstanding anything in clause (2) and (3), Parliament has

exclusive power to make laws with respect to any of the matters enumerated in List I in

the Seventh Schedule (called Union List); 246(2)Parliament, and subject to clause (1),

the Legislature of a State also, have power to make laws with respect to matters

enumerated in List III (called concurrent list); 246(3)Legislature of a State hasexclusive power to make laws for such State or any part thereof in respect of matters

enumerated in List II (called State List).

The Constitution Of India


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41-Trade and commerce with foreign countries; import and export across

customs frontiers; definition of customs frontiers;

42-Inter State trade or commerce;

83-Duties of customs including export duties;

84-Duties of excise on tobacco and other goods manufactured or producedin India, except alcoholic liquors for human consumption, opium, Indian

hemp and other narcotic drugs and narcotics;

85-Corporation Tax;

86-Taxes on the capital value of the assets, exclusive of agricultural land, of

individuals and companies; taxes on the capital of companies;87-Estate duty in respect of property other than agricultural land;

Seventh Schedule - List I - Union List :-

Contd..


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88-Duties in respect of succession to property other than agricultural land;

89-Terminal taxes on goods and passengers, carried by railway, sea or air;

taxes on railway fares and freights;

90-Taxes other than stamp duties on transactions in stock exchanges and

future markets;

91-Rates of stamp duties on negotiable instruments;

92-Taxes on the sale or purchase of newspapers and on advertisements

published therein;

92A-Taxes on the sale or purchase of goods other than newspapers, where

such sale or purchase takes place in the course of inter state trade or

commerceSixth Amendment-w.e.f.11.6.1956;92B-Taxes on the consignment of goods, whether the consignment is to the

person making it or to any other person, where such consignment takes place

in the course of inter state trade or commerceForth Sixth Amendment

w.e.f. 2.2.1983;

92C-Taxes on servicesEighty eighth amendmentw.e.f. 15.1.2004.

Seventh Schedule - List I - Union List :-


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49-Taxes on lands and buildings

51-Duties of excise on alcoholic liquors for human consumption; opium, Indian

hemp and other narcotic drugs and narcotics.

52-Taxes on the entry of goods into a local area for consumption, use or sale

thereon54-Taxes on the sale or purchase of goods other than newspapers, subject to

the provisions of entry 92A of List I

56-Taxes on goods and passengers carried by road or on inland waterways

57-Taxes on vehicles, whether mechanically propelled or not, suitable for use

on roads60-Taxes on professions, trades, callings and employment

63-Rates of stamp duty in respect of documents other than those specified in

List I

Seventh Schedule - List II - State List :-


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33-Trade and commerce in, and the production, supply and distribution of the

products of any industry where the control of such industry by the Union is

declared by Parliament by law to be expedient in public interest, and importedgoods of the same kind as such products; foodstuffs, including edible oilseeds

and oils; cattle fodder, including oil cakes and other concentrates; raw cotton,

whether ginned or unginned and cotton seed; and raw jute.

Seventh Schedule - List III - Concurrent List :-


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G

oods and Service TaxA tax on all goods and services consumed

Input Tax Credit

Taxes paid on goods and services by trade/industry/establishment is allowed as input

tax credit;


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Import of goods and services } Inputs

Agricultural production or mining }

Manufacture/Production

Goods and services consumed } Output

Export of goods and services }

Inputs to Output


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GST

Composite Tax on Goods & Services

Definition of import/export of both goods & services

Unit identification number

Single rate from origin to consumption

Inter-State movement

Maintain value chainno exemptions


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GST

Goods

Imported (from outside

India); Mined; produced(including agriculture)

Services

Generated from outside

India or generated withinIndia.


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Goods

ProductionIntermediate

StorageConsumption

Goods in physical form;

intermediate storage

possible

Services

Generationconsumption

Services cannot be stored,

except when it get

converted into goods

(electronic storage)

GSTcontd.


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GST Inter State Movement

Inter State Movement of goods may either be a) Business toBusiness or b) Business to Consumer. With uniform rate of tax,B to C might disappear, except in cases where goods arepurchased while on visit to the other place. Where there is

requirement of registration or other formality to be compliedwith in the importing State, then it may be treated similar to Bto B.

In respect of movement of goods from one State to another,based on destination principle, tax shall be levied and accrue

to importing State. Exporting State will transfer the inputcredit to the exporting State so that tax on value additionshall become payable at the point of subsequent sale.


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GST is a composite tax covering both Goods andServices. If the tax rate is uniform, classification

disputes may not arise. Since GST is proposed to

be dual levy, viz Central GST and State GST,

definition of Goods and Services need to be

simple so that further disputes involving

trade/industry amongst States will not arise.

Goods include all types of personal and real

property, except money. Services covers

everything other than Goods.


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Who ultimately bears the incidence of Tax, which is on Transaction Value to

customer.

Production to consumption

Production-Manufacturer

Wholesale

Distributor

Retailer

Consumer


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Profit

Value of

goods &

Services

Tax

Profit

Value of

goods &

Services

Tax

Profit

Value of

goods &

Services

Tax

EXPORT

CONSU

MPTION

Profit

Value of

goods &

Services

Tax

Mining

Agriculture

Import

Stages of

manufacture

Distributor Retail

Goods/Services - Flow


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Uniform rate of taxation within a given jurisdiction, ideally at a single rate;

Sales to be taxed under the destination principle;

Low costs of compliance and administration;

Each level of government to set its own tax rate subject to agreed ceilings

and/or floors;

A substantively common tax base for Union and State Goverrnments;

Substantial co-operation in tax administration between all levels of

Government.

Six characteristics of a well designed GSTAs per Prof. Charles Mclure


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InputsGoods & Services:

Tax paid on inputsPurchases (whether imported or local)Tax paid on services

Total input tax available as Tax Credit.

OutputSale ofGoods or Services:

Export of Goodsexempt.

Domestic SalesGST

ExportsInput tax creditto be available as refund immediately after export

of goods.

Input tax credit


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Purchase orderPart number/description/unit quantity/rate/Total value

Purchase accountingbased on quantity received.

Vendor payment.

Customer orderPart number/description/unit quantity/rate/Total value

Invoice on customer against delivery orderbased on quantity despatched.

Data entry only at the stage of purchase order and customer orderelectronic

data processing to ensure error free accounting till completion of cycle.

Process flow


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IMMOVABLE PROPERTIES ------- ISSUES:

Urgent Requirement:

E-Governance - for all property transactions;

Abolish stamp duties - ensure recording of transaction value;

Registration Charges Uniformly, Say 2%

Capital Gain Tax Equal sharing between union & state;

State Share of CGT to be spent on infrastructure.


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GST on supply ofGoods & services Goods include all types of personal and real

property, except money; Services covers everything other than goods or money.

Simple definition to avoid confusion and consequent litigation.

Zero rate for very few specific, sensitive/essential itemsZero rate as against

exemption to ensure that value chain is not broken;

Input Tax credit on goods & services purchased & consumed at all levels;

Tax Refund / Abatement of duty for Export; this alone with make Indian Goods

competitive in world market. Indias share in export of goods will increase only

when our goods are competitive ; growth in manufacture will result in greateremployment;

Value chain will ensure better compliance on direct tax front also.

Goods and Service Tax


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Mining Royalty/Cess paid

Imported Customs duty paid

Local purchases (materials) Excise Duty

VAT

Input services Service Tax paid

Total taxes paid, upto the stage of consumption/export need to be determined;

to ensure that taxes are not exported, full rebate for input tax paid should be

available for exports. This alone will ensure that our exports are competitive and

we get a reasonable share of world exports. (China accounts for nearly 8% of

total world trade while India accounts for only 1.3%).


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Reaching destinationconsumer stage

Local

Goods Services

Inter-State

Goods Services

INPUT

OUTPUTLocal

Goods Services

Inter-State

Goods Services

Input Output Relationship :- Goods - Raw Materials/Components

- Consumables

:- Services


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Goods & Services:

Business to Business (B2B) -- Local Sales-- Inter-State Sales

Business to Consumers(B2C) -- Local Sales-- Inter-State Sales


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Servicesclassification:

Business & professional services;Communication servicesaudio visual, postal, telecom, etc;

Construction and related services;

Distribution services;

Educational services;

Energy services;

Environmental services;

Financial services;

Health and social services;

Tourism services;

Transport servicesair, maritime , road, etc;

Movement of natural persons.


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Territorial presence of supplier and the consumer at thetime of transaction:

Cross border tradefrom the territory of one member into

the territory of any other member;

Consumption abroadIn the territory of one member to

the consumer;

Commercial presenceService supplier, through

commercial presence in the territory;

Presence of natural personMovement of natural persons;


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GST IssuesInput Credit on Capital Goods

Utilisation of Credit over 2 years period-why?;

Single uniform rateLong Term Road Map essential;

Tax on Goods/ServiceSingle, uniform rate on all Goods &

Services; Goods to cover both movable & immovable;Input Tax Credit on Inter-State movement

Transfer mechanismsimple & comprehensive;

AssessmentOrigin State or Destination State ?

Instead of lower rate for Essential/Necessities, uniform rate

with cash compensation.

I


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To ensure compliance, laws should be simpler (interpretation to be same for

both department and industry) and easy to comply with.

Growth in production of goods and services will result in higher employment

which in turn will ensure more demand for goods and services . The

population will be a factor to reckon with only when we can ensure gainful

employment for all. This can be achieved by encouraging production facilities

and service centers .

Expectation of Trade & Industry


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Proper accounting of transactions with correct value will bring in compliance ondirect tax matter and will ensure robust direct tax collection also;

Single agency for collection/assessmentcollection cost will come down; further the

people can be used for special audit/review of social sector schemesbenefits reach

intended real beneficiaries;


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GDP Growth

Higher Tax collection

(Direct/Indirect)

Infrastructure

investment

Increase in

employment


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THANKS

Documents

GST an Insight