GST- OVERVIEW

[RUPESH NAGPAL]

The reformed indirect tax system GST-Goods and Service Tax is proposed to implement in  INDIA on and from 1st April 2011 (Still not clear how the Government be doing this). Do you know, several countries implemented this tax mechanism followed by France which was the first country introduced GST. To simplify the understanding about the Goods and Service Tax (Papularly known as GST and hereinafter called as "GST") it may be called a new version of VAT which gives a comprehensive setoff for input tax credit and subsuming many indirect taxes from state and national level. The GST Implementation deadline is not yet cleared by government (i.e. 01/04/2011) and the clarification (within the Committee of State Finance Ministers) of draft of GST law is still under process and a clear picture will be available only after fresh announcement of Implementation is made by our Union Finance Minister Shri Pranab Mukherjee. As we all know the goods and service tax is integrated in GST for setoff benefit of Input tax credit. I would like to write down some key points in GST, it is sure that you must already be knowing these as of now.

Why GST?

i. Avoid cascading effect of taxation

One of the main reasons of the introduction of GST is to avoid cascading effect of taxes in India. For example manufacturing of a product attract CENVAT. The manufacturer pays CENVAT on goods produced. So the CENVAT element is loaded on the product. According to VAT rules, the sales tax is payable on the aggregate selling price which include CENVAT. Here there is no set off benefits available and VAT is levied on CENVAT (that is tax on tax element of selling price). Likewise there are many situations in the nature of cascading effect for instance, State VAT on CST, Entry tax on VAT etc. So the Govt must have decided to abolish tax on tax effect by implementing GST.

ii. Shortfall of Existing VAT

Indirect taxes like luxury tax, entertainment tax, (which are charged as extras to VAT) are yet to be included in the VAT. These taxes are still existing and payable.

iii. Shortfall of Existing CENVAT

Several taxes like additional customs duty, surcharges not included under CENVAT. Input tax and service tax set off (to a certain extent) is out of reach to the manufacturer and dealers.

Benefits of GST

1.       GST provide comprehensive and wider coverage of input credit setoff, you will be able to use service tax credit for the payment of tax on sale of goods etc.

2.       CST will be removed and need not to collect and pay. As we all know that at present there is no input tax credit available for CST.

3.       Many indirect taxes in state and central level subsumed by GST, You will have to pay a single GST instead of all.

4.       There is likely to be Uniformity of tax rates across the states (as proposed)

5.       It may ensure better compliance due to aggregate tax rate reduces.

6.       By reducing the tax burden the competitiveness of Indian products in international market is expected to increase and there by development of the nation.

7.       There are good chances that prices of goods may reduce in the long run as the benefits of less tax burden would be passed on to the consumer.

8.       Overall multi taxes compliance cost will reduce for government and can concentrate on GST

Indirect taxes subsumed under GST

The following indirect taxes from state and central level is going to integrated with GST

State taxes

1.       VAT/Sales tax

2.       Entertainment Tax (unless it is levied by local bodies)

3.       Luxury tax

4.       Taxes on lottery, betting and gambling.

5.       State cesses and surcharges in so far as they relate to supply of goods and services.

6.       Entry tax not on in lieu of octroi.

7.       Purchase tax (This is not sure still under discussion)

Central Taxes

1.       Central Excise Duty.

2.       Additional Excise Duty.

3.       The Excise Duty levied under the medical and Toiletries Preparation Act

4.       Service Tax.

5.       Additional Customs Duty, commonly known as countervailing Duty ( CVD)

6.       Special Additional duty of custums-4% ( SAD)

7.       Surcharges

8.       Cessess

The above taxes dissolve under GST; instead only CGST & SGST exists.

The GST model in India

Many countries are following single GST. But it is proposed that dual GST is suitable for federal country like India. The end user, i.e. consumer cannot recover taxes but a business can recover by claiming input tax setoff.

Dual GST

Dual GST means, the proposed model will have two component called

1.       CGST - Central goods and service tax  levied by Central Govt.

2.       SGST - State goods and service tax levied by State Govt.

There would have multiple statute one CGST statute and SGST statute for every state.

Taxable event

Supply of goods and supply of services will be considered as taxable event under GST. In simple way any economic activity which is not supply of goods will be treated as supply of service.

Tax payer identification number

Each tax payer will be allotted a PAN based identification number containing 13 or 15 digit number ( as of now this feature is used for the grant of the service tax code or central excise No).

Payment of tax

This is proposed that the central GST would be paid to central and state GST paid to state government in the prescribed account head.

Collection of GST

It is same as VAT; Tax is collected on the basis of value addition on each stage of sale. Both CGST and SGST would have to be charged in an every service bill and sale bill and paid after adjusting input credit available on both.

Input tax credit setoff

In m y opinion as proposed the input tax credit of SGST can be utilized for the payment of SGST only and input tax credit on CGST can be utilized for the payment of CGST only. This means that cross utilization of input tax credit will not be allowed.

Making it clear that input tax credit of CGST cannot be utilized for the payment of SGST and vice versa. However as proposed somewhere there may be an exemption for the above in the case of interstate transaction. As I understand for interstate transaction IGST is proposed and would be implemented along with CGST and SGST.

Constitution amendment for levying service tax by the states

The power of levying service tax is rest with central Government and a constitutional amendment is necessary for empowering states for levying service tax hence there is very much chance that the deadline for the implementation of GST can only be fixed once there is a constitutional amendment to make this effective.

Applicability of CGST and SGST

The applicability of taxes is as usual there would be a prescribed limit of annual turnover, also some goods and services are exempted under GST. The dealer whose turnover is below prescribed limit need not pay tax.

In my opinion and to the best of my knowledge and belief threshold for annual turnover for goods and services would be 10 lakh for SGST and threshold of CGST for goods may be 1.5 crore and service would have a separate threshold that too will be appropriately high.

GST rates

As we all must know by now that the rate structure would be as follow, but not final

1.       A lower rates for essential commodities

2.       Standard rates for general goods

3.       Special rates for precious metals

4.       For services may be single rates for CGST and SGST.

During the first and second year GST on goods will charged in two rates. i.e. Goods at lower rate for necessary items and goods of basic  importance ,Goods at standard rate for goods in general. Rates of GST on service will remain same from the beginning

 

Year	Categories	Central GST	State GST	Total Tax Liability
2011 April	Goods at lower rate	6	6	12
	Goods at standard rate	10	10	20
	Services	8	8	16
2012 April	Goods at lower rate	6	6	12
	Goods at standard rate	9	9	18
	Services	8	8	16
2013 April	Goods at standard rate	8	8	16
	Services	8	8	16

Periodical return

Taxpayer would have to submit periodical return as prescribed by law in common format for CGST and SGST.

If possible I would like to provide you more updates on GST in the months to come, please do write to me if you have more clearity about this or you have any feedback in this regard

Your feedback/information/correction/Suggestion related to above may please forwarded to carupeshnagpal@gmail.com