Goods and Service Tax (GST)-An Overview

Transcription

1 Goods and Service Tax (GST)-An Overview Copyright: This write-up is the property of Career Keeda and no part of it can be copied, reproduced or distributed in any manner. Disclaimer: The write up is not intended to be a professional advice and should not be relied upon for real life facts. 1 P a g e

2 Genesis of GST GST is a comprehensive tax levied on manufacture, sale and consumption of goods and services at a national level. GST is a part of proposed tax reforms in India having an extensive base that instigate the applicability of an efficient and harmonized consumption tax system. GST has been commonly accepted by the world and more than 140 countries have acknowledged the same. Generally the GST ranges between 15%- 20% in most of the countries. GST in India GST refers to the single unified tax created by amalgamating a large number of Central and State taxes presently applicable in India. The latest constitution Amendment Bill of December 2014 made in this regard, proposes to insert a definition of GST in Article 366 of the constitution by inserting a sub-clause 12A. As per that, GST means any tax on supply of goods, or services, or both, except taxes on supply of the alcoholic liquor for human consumption. And here, services are defined to mean anything other than goods. Implementation of GST is one of the major indirect tax reforms in India and is expected to be put in place by April 2016 (according to budget 2015). Justification in Implementation of GST Despite of the success of VAT at large there are still some shortcomings both in the Central and State level. The flaws in CENVAT of the Government of India lie in non-inclusion of several taxes in the overall framework of CENVAT such as VAT, ACD, and Surcharge etc. Moreover, in the present State-level VAT scheme, CENVAT load on the goods remains included in the value of goods to be taxed under State VAT, and contributing to that extent a cascading effect on account of CENVAT element. consultation fee paid, execution of any service or transfer of immovable property etc. The introduction of unified GST would be a wholesome solution to the VAT in its true sense. Presently the VAT system, basically can be called un-integrated GST, in the sense that at present goods and services are taxed The introduction of GST will be a solution to it. GST would be chargeable on each transaction like sale of goods, incorporation of goods in an individual contract, hiring equipment, lease paid, Separately Basic structure Dual GST one levied by Centre (Central GST CGST) and other levied by the States (State GST SGST) to apply to all transaction of goods and services. SGST to apply only when supplier and recipient are both located within the State. For inter-state transactions, innovative model of Integrated GST (IGST) to be adopted. 2 P a g e

3 Integrated GST (IGST) The scope of IGST Model is that centre 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. IGST will be combination of CGST and SGST and the same will be collected by the Centre in the origin State. Taxes subsumed in GST Central levies excise duty, additional excise duty, service tax, countervailing duty special additional duty, surcharges, cesses and excise duty on medicinal & toiletries preparation act. State levies VAT/ sales tax, state entertainment tax, luxury tax, taxes on lottery, etc, state cesses/ surcharges and entry tax not in lieu octroi. GST does not subsume stamp duties and custom duties. Salient Features of GST as proposed in India Rate structure and coverage Goods to be taxed at two rates, a lower rate for basic items & standard rate for others Single rate for taxation of services for both CGST and SGST Exports including supplies to Special Economic Zones (SEZ) would be zero-rated. Import of goods and services would attract both CGST and SGST Specified list of exempted goods (considering special needs of each State) Alcoholic beverages and petroleum products to be kept out of GST purview. VAT/Sales tax to continue. Views of rate structure of natural gas would be further deliberated Tobacco products would be subjected to GST with input tax credit. Centre may be allowed to levy excise duty over and above GST without input tax credit. GST on Imports Import of goods and services would attract both CGST and SGST Incidence of tax to follow the destination principle Tax revenue in case of SGST will accrue to the State where supplies are consumed Full and complete set-off will be available Integrated GST (IGST) Centre to levy IGST (CGST+SGST) on all inter-state transactions of goods & services. Separate provisions for consignment or stock transfers. Seller to pay IGST on value addition after adjusting IGST, CGST and SGST on inputs Exporting State will transfer to Centre credit of SGST used in payment of IGST. Importing dealer will claim credit of IGST to discharge his output tax in his own State 3 P a g e

4 The Centre will transfer to importing State the credit of IGST used in payment of SGST. Credit mechanism Credit of CGST and SGST allowed but without cross utilisation Cross utilisation of credit of CGST between goods and services would be allowed. Similar cross utilisation would be allowed for SGST Cross utilisation would be allowed in case of inter-state supplies under IGST. Constitution Amendment Bills 2014 The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 was introduced in the Lok Sabha on December 19, 2014 by the Minister of Finance, Mr. Arun Jaitley. The Bill seeks to amend the Constitution to introduce the goods and services tax (GST) namely Concurrent powers for GST, Integrated GST (IGST), GST Council, Composition of the GST Council and others. The Bill seeks to amend the Constitution to introduce the goods and services tax (GST). Positive impact of GST on Indian economy Speeds up economic union of India Better compliance and revenue buoyancy replacing the cascading effect [tax on tax] created by existing indirect taxes Tax incidence for consumers may fall Lower transaction cost for final consumers By merging all levies on goods and services into one, GST acquires a very simple and transparent character Uniformity in tax regime with only one or two tax rates across the supply chain as against multiple tax structure as of present Increased tax collections due to wide coverage of goods and services 4 P a g e

5 Improvement in cost competitiveness of goods and services in the international Market. Points to be reviewed under GST Taxation of inter-state services and their method of taxation Difficulties in defining place of supply, place of delivery Road Permit and Check posts Stock Transfer Integration of certain Central and State taxes (Various Cess, Electricity duty etc.) Disputes even with regard to classification of good Constitutional amendment authorizing state to collect and retain tax on service. Group Health Insurance Consulting services Conclusion GST being a one stop solution to the complex structure of VAT, government need to balance the conflict between simplicity and to cater for social needs. The government should carefully choose the most suitable tax rate so that the tax will not burden the poor. If the government offers lower tax rate on necessities with the intention to help the poor, in fact this will benefit the rich more because they will spend relatively less of their income. But high rate in luxury goods trigger the intention to lower tax liability either legally or illegally. Choosing the most suitable tax rate and determine the goods that should exempt are not easy for government and may take long time. So it can be said that GST can be an effective indirect tax and to make it a success, effective educational programmes and private and public sector partnering is necessary. In planning and implementing the GST, countries like United Kingdom, New Zealand, Australia and Singapore can be used as learning examples for India. Note: From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%.It opined that when GST comes into force it shall be around 25%- 27%. Copyright: This write-up is the property of Career Keeda and no part of it can be copied, reproduced or distributed in any manner. Disclaimer: The write up is not intended to be a professional advice and should not be relied upon for real life facts. 5 P a g e