THE SHAPING UP OF GST REGIME – Goods and Service Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 30-11-2009 Last Replied Date:- 30-12-1899 – Tax Reforms and GST The introduction of goods and services tax (GST) from April 2010 was announced by Finance Minister in 2006-07 Budget. Union Budget 2007-08 reconfirms the proposal and moves a step ahead in announcing that the empowered committee of State Finance Ministers will work with the Union Government to prepare a roadmap for introducing a national level goods and services tax with effect from April 1, 2010. Union Budget 2006-07 (and reconfirmed in Budget 2007-08) has proposed a date, i.e., 1st April, 2010 for introduction of GST in the country. After value added tax, GST, when implemented shall be the most significant fiscal initiative of independent India and shall boost the economic development. The Vijay Kelkar Task Force had proposed the levy of Goods and Services Tax (GST) as a common tax for goods and services and availability of C
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an Goods and Services Act. The States will need to simultaneously introduce corresponding legislation for taxation of goods and services which will subsume their existing State-level cascading taxes. Need for a common tax Why do we need GST today? In today's Indian economy, where service sector contributes over 55%, separate taxation of goods and services is neither viable nor desirable. Value added in manufacture and sale of goods require inputs of both – goods and services and vice versa, which is often not separable. Taxation of goods and services separately by union as well as States brings in distortion in tax structure, is retrogatory and adversely affects revenues. The present consumption tax system in India is complicated as well as multi-layered. GST is a part of ongoing tax reforms which aims at evolving an efficient and harmonized consumption tax system. It shall replace the multiple taxes with a single tax operating at various levels of supply chain, thus, avoiding the
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ough transaction leading to an incentive for tax compliance. GST thus, seeks to achieve economic efficiency and tax neutrality. What is GST Simply put, goods and services tax is a tax levied on goods and services imposed at each point of sale or rendering of service. Such GST could be on entire goods and services or there could be some exempted class of goods or services or a negative list of goods and services on which GST is not levied. GST is an indirect tax in lieu of tax on goods (excise) and tax on service (service tax). The GST is just like State level VAT which is levied as tax on sale of goods. GST will be a national level value added tax applicable on goods and services. A major change in administering GST is that the tax incidence is at the point of sale as against the present system of point of origin. GST components According to Dr. Vijay Kelkar, There are four parts to the GST effort: establishing IT systems, building the Central GST, the political effort of agreeing on a
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would shift to State-level administration. At first, individual States should be merged into the TIN, one by one, at an administrative level while keeping the State VAT distinct from the Central GST. Once all major States are administratively working through the TIN, and the grand bargain has been agreed to, the stage would be set to throw a switch in April, 2010, where India would become a common market with a single Goods and Services Tax. India needs to adopt a GST system which is politically acceptable and administratively feasible. Internationally, there are three practices followed. GST is levied either on invoice system where GST is claimed on the basis of invoice and claimed when invoice is received irrespective of payment. In payment system, GST is claimed and availed when payments are received or made. Presently, service tax in India is based on payment system only where service tax is required to be deposited only when payment is collected. In yet another system, hybrid app
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o tier integration – one at central level and other one at state level where all indirect taxes integrate into a single value added tax. All this will require great deal of political will, intellectual skill and administrative drill. For national level GST, Central Sales Tax (CST) of four per cent is being abolished, which Government has already announced from 1st April, 2007 in a phased manner. The country shall have to follow uniform Cenvat rate alongwith administration for goods and services and a uniform exemption free level. An efficient data base (tax information network) and audit system are also pre-requisite for an efficient and effective GST regime. The phasing out of CST has begun since Union Budget 2007 and by 2010 it shall be completely abolished. The Empowered Committee of State Finance Ministers should also try to integrate the recommendations of Govinda Rao and Vijay Kelkar Committees. There will be a need to follow a gradual approach rather than one go stand. It may ta
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center and the state will each legislate, levy and administer the central GST and state GST respectively. Towards the goal to have GST in place by April 2010, Central Government has taken steps for convergence of central excise duty rates to a mean rate, currently at eight percent. Under GST, the format will change and central taxes (CST, central excise, service tax) shall be subsumed into one. Also, sharing between centre and states will be there mere with a major shift in sharing pattern. In fact, GST will change the tax horizon of the country for the good. GST will also provide an opportunity to policy makers to follow principle of certainty and have clear cut defined exemptions, concessions, non taxable areas and services so as to avoid confusion and litigation. The rate of GST is not yet final and various State Governments are discussing it. While the indications of a dual GST structure look bright, unified GST would be preferred by assessees as it would be cost effective and pro
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laying field for projects and contracts with periods spanning over more than a year as in such cases, migration would be difficult and some cut off arrangement will have to be worked out. Obviously, as of now, all such contacts must be silent on this issue and may create a bottleneck between parties to contract. In GST regime, there will be no place for duties like additional custom duty or special additional duties or cess. Ideally, central and state indirect taxes such as central sales tax, excise duties, service tax, value added tax, entry tax, tax on consumption of goods, luxury tax, entertainment tax etc should be subsumed in GST. It needs to be cleared as to what would happen to issues involving stock transfers, inter state transfer, cross border taxation of service, taxation of service etc. Issues on Cenvat credit, place of taxation, timing of taxation and person liable – all are relevant and crucial. What all taxes will be subsumed in GST should be made clear. On indirect tax f
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ng taxes- (a) Central excise duties, additional excise duties, excise duties under Medicinal and Toilet Preparation Act, (b) Service tax (c) Additional customs duty (CUD) and Special additional Customs Duty (SAD) (d) Surcharge (e) Cess SGST is expected to subsume the following state taxes- (a) Value added tax( or sales tax) (b) Entertainment tax (c) Luxury tax (d) Tax on lottery, betting and gambling (e) State cess/ surcharge. Following are the highlights of proposed GST to be levied in India – Dual structure: As expected, India is implementing 'dual GST'. Centre Government would be levying Central GST (CGST) and State Governments would be levying State GST (SGST). CGST and SGST would be applicable on all the transactions of goods and services made for a consideration except: – Exempted goods and services which are outside the purview of GST and – Transactions which are below the prescribed threshold limits. Statutes: This dual GST model would be implemented through multiple st
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, the rules for taking and utilization of credit for the Central GST and the State GST would be prescribed and would be on similar lines. Fortunately, cross utilization of tax credit between the Central GST and the State GST would be allowed in the case of inter-State supply of goods and services under the IGST model. Interstate GST (IGST): Central Government 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. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. Basic threshold: A d
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T, the tax exemptions, remissions etc. related to industrial incentives would be converted, if at all needed, into cash refund schemes. Regarding Special Industrial Area Schemes, it is clarified that such exemptions, remissions etc. would continue up to legitimate expiry time both for the Centre and the States. Taxes to be subsumed in GST : In CGST the taxes to be subsumed are Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty, commonly known as Countervailing Duty (CVD), Special Additional Duty of Customs – 4% (SAD), Excise Duty levied under the Medicinal and Toiletries Preparation Act, Surcharges and cesses. Whereas SGST will subsume VAT/Sales tax, 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, Entry tax not in lieu of Octroi. Products outside GST regime: Items containing Alcohol and petroleum produc
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