Goods and Service Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 9-12-2009 Last Replied Date:- 30-12-1899 – Taxes out of Scope of GST The state governments are finding it difficult to arrive at consensus on following taxes to be subsumed in GST purchase tax – octroi duty – tax on alcoholic beverages (country liquor / IMFL) – tax on petroleum products – tax on tobacco items – stamp duty – toll tax – passenger tax – road tax – mining cess / royalty – electricity cess etc. Besides above, there is still no clarity on services- whether both, CGST and SGST would be levied on all services or that centre and states would distribute services amongst themselves or that centre alone will levy service tax on services and then appropriate it amongst states. Dual GST or Multiple GST Indian is a country with federal status wherein we have a Union Government (Central Government) and State Governments. So in the proposed setup, we are likely to have one central GST and 29 state GST's as we have 29
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, simple and easier in implementation. Tax Cascading Effect The greatest advantage of new GST regime is that it addresses fully the concern of tax cascading. Presently tax cascading is found in both- central and state taxes as the exempt sectors of economy (trade, oil etc) are not allowed to claim any cenvat credit of indirect taxes. It neither happens in excise duty nor in state value added tax. Also, on inter state sales, central sale tax (CST) is collected by the origin state for which no credit is allowed by any Government. It increases cost of production and makes business non-competitive. GST regime shall subsume most of the indirect taxes and will reduce the tax cascading effect to a great extent in entire supply chain. Only the final consumer will not be able to avail or utilize tax credit. Composite Contracts At times, it is seen that it is a common practice to have single composite contracts for various works, jobs, services etc such as in case of engineering projects, constr
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ch lead to litigation between the revenue and tax payers as to classification and valuation. One such contentious issue is that of software comprised in a compact disc wherein cost of media or the compact disc is labeled attracts central excise duty and its licence or right to use attracts service tax under intellectual property right service. Unfortunately, the first discussion paper is silent on this issue and it needs to be addressed appropriately. Government will have to specifically provide for such treatment clearly under the new GST regime. Fiscal Autonomy of States Presently, states enjoy total autonomy so far as state taxes are consumed- be it type of levy, what to levy, at what rate to tax and how to tax. Under GST regime, it is expected of states to have harmony in taxing including that in tax rates. Since the rates are going to be same, it would be a harmonious levy. How this is going to take shape is any body's guess. It is very difficult to have agreement on this aspe
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revenue neutral rates, it may not be possible to achieve a near revenue neutral situation. Despite the sincere attempts being made by the Empowered Committee on the determination of GST rate structure, revenue neutral rates, it is difficult to estimate accurately as to how much the States will gain from service taxes and how much they will lose on account of removal of cascading effect, payment of input tax credit and phasing out of CST. In view of this, it would be essential to provide adequately for compensation for loss that might emerge during the process of implementation of GST for the next five years. This issue may be comprehensively taken care of in the recommendations of the Thirteenth Finance Commission. The payment of this compensation will need to be ensured in terms of special grants to be released to the States duly in every month on the basis of neutrally monitored mechanism. According to Empowered Committee Chairman, based on the tax compliance in the initial year of G
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T, such amount will be reimbursed to the importing State by Centre. On a similar basis, if the dealer in exporting State utilizes credit of SGST for payment of IGST, Central Government will debit that amount to the exporting State. Thus, Central Government will act as 'clearing house' among different States for the purpose inter- state GST. IGST will be charged in invoice only if the selling dealer is registered under IGST. Similarly, credit of IGST can be taken only if the purchasing dealer is registered under IGST. Credit will be cross checked and verified through e-returns to be filed by selling dealers and purchasing dealers. IGST is expected to reduce the number of claims made, besides reducing the corruption and harassment. It will also reduce the litigation. Supply Chain Impact The dual GST structure will adversely affect the cost of supply chain, more particularly in manufacturing sector -both for inputs and output. The supply chains could be in relation to procurement
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n economic and tax implications. Businesses will have to and should undertaken a complete review and assessment of compliances under GST regime. Now that GST is likely to be deferred beyond April 2010 dead line , companies should evaluate the cost benefit in GST regime, based on existing systems and procedures. IT Infrastructure After acceptance of IGST Model for Inter-State transactions, the major responsibilities of IT infrastructural requirement will be shared by the Central Government through the use of its own IT infrastructure facility. The issues of tying up the State Infrastructure facilities with the Central facilities as well as further improvement of the States' own IT infrastructure, including TINXSYS, is to be addressed expeditiously and in a time bound manner. The major task before the Empowered Committee and the government will be to build up information technology (IT) platform or infrastructure. In my view, the tax information network (TIN) system, built by NSDL fo
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