GOODS & SERVICE TAX Unleashing of the new era in the Indirect Taxation Arena Date : 22 nd May 2015 Venue: District Tax Bar Association, Faridabad By CA. Chitresh Gupta B.Com(H), FCA,IDT(Cert),IFRS(Cert) Author: An Insight into Goods & Service Tax Managing Partner-Chitresh Gupta & Associates(CGA)
Flow of Presentation Section Particulars 1 EMERGENCEOF GOODS & SERVICE TAX Details 1. Current Indirect Tax Structure 2. Issues with Current Indirect Taxation 2 GOODS & SERVICE TAX DEMYSTIFIED 1. What is GST? 2. Transaction Flow Analysis under GST 3. GST- Key Features 4. Subsumation of Taxes in GST 5. IGST Model 6. Understanding the Impact of GST 3 GOODS & SERVICE TAX WAY FORWARD 1. GST Open Issues 2. Way Forward for Introduction of GST
Section 1 EMERGENCE OF GOODS & SERVICE TAX CGA
Indirect Tax Current Structure in India Present Indirect Tax Structure (Four Major Constituents) Tax Excise Duty (CENVAT) Service Tax Sales Tax/VAT Customs Duty Levied By Central Government Central Government State Government Central Government Relevant Entry in Constitution Entry No. 84, List I, Schedule VII of the Constitution of India (COI) Residuary Entry No. 97, List I, Schedule VII, of COI Entry No. 54 of List II (State VAT) and 92A of List I (Central Sales Tax), Schedule VII of COI Entry No. 83, List I, Schedule VII, (COI) Taxable Event Taxable Event is Manufacture Taxable Event is Provision of Service Taxable Event is Sale Taxable Event is Import & Export Rate of Taxation Median Rate- 12.50% Single Rate- 12%(Plus cess) Proposed @14% in Budget 2015 Rates- 0%, 4%, 12.5% & 20% Median Rate- 24% (plus cess) CGA
Indirect Tax Issues in Current Structure Multiplicity of Duties/ Taxes Lack of Uniformity of Provisions in State Vat Statutes - Definition of goods, capital goods, thresholds, classification, exemptions, procedures etc. Sale of Goods Vs Provision of Services - Composite Contracts like Contract for construction of a Building, Works Contracts, Housekeeping contracts, software development contracts, software upgrades etc. Inability of State to levy Tax on Services Distortion of Tax Base with Multitude of Exemptions - -(a) Area based exemptions schemes (b) Sales tax/ Vat deferment or subsidy ( c) End Use Based Exemptions CGA
Indirect Tax Issues in Current Structure Cascading Effect of Taxes -Due to Vat/ CST on Excise, CST, various Exemptions etc. Complexities in Tax Administration -Multiple Acts/levies leading to various procedures, returns, assessments, date of payment of taxes, dispute resolution etc. - Problem of Multi-locational corporates CGA
Section 2 GOODS & SERVICE TAX DEMYSTIFIED CGA
TIME Road Map to GST in India EVENTS 2004 Dr. Kelkar II Task force recommended need for National GST Jan, 2007 Feb, 2007 April, 2007 May, 2007 Nov,2007 Nov,2007 April, 2008 Dec, 2008 Nov, 2009 Dec, 2009 April 1, 2010 March 22, 2011 First GST report by Dr. Shome FM announced implementation of GST by April, 2010 and Set up EC Phasing out process of CST Started Joint Working Group (JWG) Constituted by Empowered Committee Report of JWG discussed by Empowered Committee 13 th Finance commission constituted by President Recommendations report is sent by EC to Govt. The Govt. submitted its comments on EC report Release of First Discussion paper by EC 13 th Finance Commission submitted its report Introduction of GST missed its first deadline The Constitution (One hundred and fifteenth Amendment) Bill, 2011 introduced (this lapsed due to dissolution of Lok Sabha) August 2013 Submission of report by Standing committee on Constitution (115th Amendment) Bill, 2011 December 19, 2014 February 24, 2015 May 6,2015 May 12,2015 The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 introduced Fourteenth Finance Commission Report tabled before Parliament Constitution (122 nd Amendment) Bill, 2014 passed in Lok Sabha Constitution (122 nd Amendment) Bill, 2014 referred to Select Committee of Rajya Sabha April 1, 2016 Implementation of GST [target date as per Budget 2015]
Goods and Service Tax is What is GST? - a comprehensive value added tax on supply of goods or services or both - levied at every stage of production distribution chain - Ensures seamless input tax credit throughout the supply chain - At all stages of production and distribution, taxes are a pass through and tax is borne by the final consumer No differentiation between Goods and Services as GST is levied at each stage in the supply chain Internationally, comprehensive Goods & Services tax has already been introduced in more than 100 countries across the world.
Models of GST- An International Experience GST at Union Govt Only Australia Best Model creates a Common market Requires a Change in Federal Structure GST at State Government Only United States Each state enjoys complete autonomy Requires Constitutional Amendment GST at Both Levels Union & State Canada, Brazil Aligned to the Federal structure of India Intergovernmental co-ordination is an essential India has opted for Concurrent Dual GST
Transaction Flow ( Present Regime) VAT = INR 11 VAT = INR 12.10 ITC = INR 11 INR 1.1 VAT = INR 13.31 ITC = INR 12.10 INR 1.21 State Tax (11+1.1+1. 1.21)= 13.31 Input Manufacturer Output Manufacturer Dealer Consumer Excise = INR 10 Excise = INR 11 ITC = INR 10 INR 1 No Credit of Excise Available to Dealer Central Tax (10+1)= 11 Tax Invoice (A) Value = INR 100 Excise= INR 10 VAT= INR 11 Total = INR 121 Tax Invoice (B) Cost = INR 100 Value = INR 110 Excise= INR 11 VAT= INR 12.10 Total = INR 133.10 Tax Invoice (C) Cost = INR 121 Value = INR 133.10 VAT= INR 13.31 Total = INR 146.41
Transaction Flow ( GST Regime) SGST = INR 10 SGST = INR 11 Input SGST = INR 10 INR 1 SGST = INR 12.10 Input SGST = INR 11 INR 1.10 State Tax (10+1+1.1. 10)= 12.10 Input Manufacturer Output Manufacturer Dealer Consumer CGST = INR 10 CGST = INR 11 Input CGST= INR 10 INR 1 CGST = INR 12.10 Input CGST = INR 11 INR 1.10 Central Tax (10+1+1.10) = 12.10 Tax Invoice (A) Value = INR 100 CGST= INR 10 SGST= INR 10 Total = INR 120 Tax Invoice (B) Cost = INR 100 Value = INR 110 CGST = INR 11 SGST= INR 11 Total = INR 132 Tax Invoice (C) Cost = INR 110 Value = INR 121 CGST = INR 12.10 SGST= INR 12.10 Total = INR 145.20
Destination based Multipoint levy Applicability of GST to all transactions except o Exempted goods and Services o Goods which are outside the purview of GST and o Transactions which ate below the prescribed thresholds Taxable Event Dual GST GST- Key Features o Will be supply of goods or services or both o Central GST will be levied and collected by the Centre o State GST will be levied and collected by the States Common & Identical Tax base
Payment of GST GST- Key Features o CGST and SGST are to be paid to the accounts of the Centre and the States separately Intra-State supplies of goods or services o Liable to CGST & SGST on identical tax base Inter-State supplies of goods or services o Liable to Integrated Goods & Service Tax (IGST) by the Centre IGST on Imports into India Stock transfers outside State will also liable to IGST Additional Tax of 1% on Inter State Taxable supply of Goods by State of Origin and non CENVATABLE
Input Tax Credit Set off Cross Utilization of ITC GST- Key Features o No Cross Set off of ITC between CGST & SGST Special Industrial Area Schemes o Will be converted into cash refund schemes, if at all needed so that continuous chain of set off is not disturbed. Registration & Tax Payer Registration Number o PAN Linked GST Registration Zero rating of Exports Maintenance of Books of Accounts o Taxpayer to maintain separate details in books of account for availment, utilization or refund of Input Tax credit of CGST, SGST and IGST
GST- Key Features Periodic Return Administration & Assessment of GST o CBEC responsible for Implementation, Administration, Assessment, Enforcement of CGST o State VAT Administrations are responsible for Implementation, Administration Assessment, Enforcement of SGST Threshold Limit under GST
Key Features of GST GST Council Establishment of Goods & Service Tax Council: GST council shall make recommendations on matters relating to GST to both Union and States to ensure harmonization. The GST Council shall make recommendations on the following: (a) taxes to be subsumed in GST; (b) the goods and services that may be subjected to GST; (c) the goods and services that may be exempted from GST; (d) model Goods and Services Tax Laws; (e) the threshold limit; (f) the rates including floor rates with bands of goods and services tax; (g) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; (h) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand and (i) any other matter relating to the goods and services tax, as the Council may decide.
Key Features of GST GST Council Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely: (a) the vote of the Central Government shall have a weightage of one-third of the total votes cast, and (b) the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.
Key Features of GST- GST Rates RNR : Ideally GST Rates should be such rates which would yield the same revenue as collected from various taxes which will be subsumed. Empowered Committee GST rates to be based on RNR Four rates o o o o Merit rate for essential goods and goods of basic importance Standard rate for goods in general Special rate for precious metals Exempted List - Single GST Rate for Services both for CGST and SGST Sub Penal of Empowered Committee : 26.70% (SGST 13.91% and CGST 12.77%) National Institute of Public Finance & Policy (NIPFP) : 20% ~ 23% (source : Business Standard) GST Council o the rates including floor rates with bands of goods and services tax
Taxes to be Subsumed in GST Central Levies Subsumed under GST Central Excise Duty Additional Excise Duties The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties) Act 1955 Service Tax Additional Customs Duty, commonly known as Countervailing Duty (CVD) Special Additional Duty of Customs -4% (SAD) Surcharges and Cesseslevied by Centre are also likely to be subsumed wherever they are in the nature of taxes on goods or services. Central Sales Tax to be phased out. VAT / Sales tax State Levies Subsumed under GST Entertainment tax (unless it is levied by the local bodies) Luxury tax Taxes on lottery, betting and gambling State Cesses and Surcharges in so far as they relate to supply of goods and services Octroi and Entry Tax Purchase Tax
Treatment of Specific Goods TAX ON SUPPLY OF THE ALCOHOLIC LIQUOR FOR HUMAN CONSUMPTION The supply of the alcoholic liquor for human consumption will be out of the GST. Alcohol products for human consumption would continue to be exclusively taxed by the States. CST on inter-state sales of alcohol would also continue. Since the Bill specifically excludes alcohol products from the ambit of GST, bringing it within GST at a future date would require another constitutional amendment. TAX ON TOBACCO PRODUCTS Tobacco and tobacco products would be subjected to GST. However, it can be subjected to a separate excise duty by the Centre.
Treatment of Specific Goods TAX ON PETROLEUM CRUDE/ HIGH SPEED DIESEL/ MOTOR SPIRIT/ NATURAL GAS/ AVIATION TURBINE FUEL The States would continue as per the current laws to impose Value Added Tax (VAT) on these products. These products would be transitioned into the GST regime from a future date to be notified by the GST Council. The Constitution Bill also states that these products can be subjected to an excise duty imposed by the Centre; this levy would be imposed now and even after GST comes into force. Such duty can be in addition to the applicable VAT or GST imposed.
Taxes NOT to be Subsumed in GST Taxes not to be Subsumed Basic Customs Duty: These are protective duties levied at the time of Import of goods into India. Exports Duty: This duty is imposed at the time of export of certain goods which are not available in India in abundance. Road & Passenger Tax: These are in the nature of fees and not in the nature of taxes on goods and services. Toll Tax: These are in the nature of user fees and not in the nature of taxes on goods and services. Property Tax Stamp Duty Electricity Duty.
Inter-state Transactions Treatment under GST IGST will be levied on the Inter-state Supply of goods or services or both. Tax revenues accrues to the destination/importing State based on Place of Supply Rules. IGST will roughly be CGST+SGST Inter-state seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases in sequence. Additional Tax : An Additional non creditable 1% Tax on the value of Inter-state supply of goods will also be levied and will accrue to the Originating state.
Inter-state Supply of Services : Place of Supply Rules The Place of Supply rules are currently available under Services tax in India. These rules are termed as Place of Provision of Service Rules, 2012. Although these rules and clarifications are for cross border transactions, the principles used in these rules can be relied upon while determining the place of supply for inter-state services at sub-national level. Special Consideration for Supply of Mobile Services: Special rules will be required for certain supplies (also referred to as mobile services) for which there is no fixed place of performance or use/enjoyment, such as: Passenger travel services Freight transportation services Telecommunication Services Motor vehicle leases/rentals E-commerce supplies
Working of IGST- Cross levy Set Off Input CGST Input SGST Input IGST 1% Addl Tax Adjusted Against Output CGST Output IGST Output SGST Output IGST Output IGST Output CGST Output SGST No Set Off Avaliable Taxpayer to track the input credits separately for IGST, CGST and SGST and the utilization of such credits IGST credit adjustment is to be in order of IGST, followed by CGST, followed by SGST
Understanding the Impact of GST Outside India Vendor Import of goods/ services Customs Duties - BCD cost - CVD available as credit - SAD available as credit Service tax available as credit Current scenario (DTA) India state A Vendor Local purchase of goods/ services Excise duty available as credit VAT available as credit Service tax available as credit Factory (dutiable goods) India state B Vendor Inter-state purchase of goods / services Excise duty available as credit CST cost Service tax available as credit Customer Export of goods No tax/ possible refunds Local sale of goods Credit eligibility of Excise duty and VAT dependent on operations of customer Customer Customer Inter-state sale / supply of goods CST cost / VAT retention Credit of excise may be available to some customers *Inter-state stock transfer attracts VAT retention; sale in transit as well as imports exempt from VAT/ CST
Understanding the Impact of GST Likely Scenario GST (DTA) Outside India Vendor India state A Vendor India state B Vendor Import of Goods/ Services - BCD cost - IGST A/c State A Should be available as credit - 1% Additional Tax on import of goods -Cost Local purchase of goods/ services CGST + SGST Should be available as credit Inter-state purchase of goods / services IGST A/c State A Should be available as credit 1% Additional Tax on Supply of goods -Cost Factory (dutiable goods) Customer Export of goods Input CGST / SGST / IGST should be available as refund Local sale of goods CGST + SGST Should be available as credit Customer Customer Inter-state sale / supply of goods IGST A/c state B Should be available as credit 1% non creditable additional tax * Inter-state stock transfer, imports, sales in transit expected to attract IGST which is creditable
Key Impact Area - GST Current Regime Manufacture of Goods Provision of Services Sale of Goods Import or Export GST Regime Supply of Goods or Services or Both CENVAT credit can be availed on ED, CVD, SAD and ST for discharging excise duty on finished goods Input tax credit can be utilized against payment of VAT / CST Credit of CGST / IGST can be utilized against CGST / IGST Credit of SGST can be utilized against SGST and IGST Finished goods are subject to tax approximately at the rate of 25% appx (ie, Standard ED and VAT) GST rate of around 27% No tax on tax & ED no longer a cost in the distribution chain
Key Impact Areas- GST Current Regime GST Regime Not taxable under VAT; however VAT credit retention As the taxable event is 'supply', potential GST levy? No additional tax over and above VAT retention / CST Possible levy of non creditable additional tax at the rate of 1% on inter-state supply of goods Form C declarations essential for concessional rate of purchase and sale Statutory declaration forms should no longer apply? Key takeaway Impact on product pricing to be evaluated basis additional credits / potential increase in rate of taxes
Understanding the Impact of GST on Services Procurement Service provider Output Import of services IGST Import of Goods BCD IGST 1% Addl Tax Inter-state procurement of Services IGST Industry Export of taxable services Zero rated Provision of taxable services within India (intrastate) CGST + SGST Customer Customer Inter-state procurement of Goods IGST 1% Addl Tax Local Purchases/ Intrastate purchases of goods/ services CGST + SGST Non-Creditable input taxes Creditable taxes input taxes Provision of taxable services within India (interstate) IGST Customer Creditability of output taxes to depend upon status of customer
Section 3 GOODS & SERVICE TAX WAY FORWARD CGA
GST OPEN ISSUES Tedious process of Constitutional Amendment One CGST, 29 SGSTs, IGST- Multitude of laws Uniformity of Provisions Taxable Event- Definitive Place of Supply Rules Refund of Taxes to Exporters/EOU/SE Z GST Rates Threshold Limit Determination ITC Credit Availment & Utilization
GST OPEN ISSUES Inter State Supply of Services Stock Transfers within and Outside State Treatment of High Sea EI/EII Sales Requirement of Training IT Infrastructure Assessment & Dispute Resolution under Dual GST
GST OPEN ISSUES Compensation Package to States Data Migration Issues Pending Disputes and their Disposal Status on Unutilized ITC
Way Forward for Introduction of GST Constitution Bill tabled at the Parliament Ratification by more than 50% of State Legislatures Bill receives assent and becomes Act April 2016 Approval by both houses of Parliament GST Constitution Bill Bill sent for Presidential assent GST legislations Draft legislations of CGST / IGST Model SGST legislations GST Council set up within 60 days of presidential assent Setting up of IT Network by GSTN Final GST legislations (Centre, States and IGST) G S T I M P L E M E N T A T I O N
Questions & Suggestions
For Any Further Query on the Subject, Kindly contact us at: FCA Chitresh Gupta Mob no : 09910367918 Email Id: gupta_chitresh@yahoo.com Office Address: M/s Chitresh Gupta & Associates LG-CS-24B, Ansal Plaza, Vaishali Ghaziabad 201001
Disclaimer Purpose of this presentation is to give a highlights of the proposed GST regime in India. It does not render any definitive opinion on any of the activities of Industry Our comments in relation to GST are based on the GST framework outlined in the First Discussion Paper on GST (2009) and the draft Constitution Amendment Bill, 2014 Some of the features highlighted including the IGST model for interstate supplies are understood to be under reconsideration It is likely that the final model would differ from our understanding and the implications discussed herein would accordingly vary and the contents of this presentation would need to be updated basis the revised GST frame-work in the offing Prior professional advice is recommended before implementation of the aspects covered under this presentation The instant presentation is for sole benefit of District Tax Bar Association, FBD CA. Chitresh Gupta & M/s Chitresh Gupta & Associates are under no obligation to update this presentation for future changes